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What is the cost of a Fiduciary Fee Only Planner for Established Physicians

Home Financial Advisors What is the cost of a Fiduciary Fee Only Planner for Established Physicians

  • Avatar Steven Podnos MD CFP 
    Participant
    Status: Physician, Financial Advisor
    Posts: 125
    Joined: 09/21/2017

    I’m fortunate to share in many of the good posts here in the WCI forum, as well as publish the occasional article.  One of the misconceptions I often see is how much a good fee only planner costs.  I’m both a physician and a fee only planner, with almost 100 physician client families.

    Younger physicians with few assets do indeed pay the well known 1% annual fee for advice and access.  They are usually getting a fair if not excellent deal considering that they often have many issues and take extra time in the early years.  But most of my physician clients come with established portfolios.  My firm drops the fee as assets go up, such that a physician who comes with three million dollars will be charged 0.5% a year.  As assets increase, their blended fee drops toward 0.25% progressively.  I have several senior physicians that pay us around 0.3% a year-what they’d pay Vanguard to have some young “planners” who change on the phone from time to time.

    I see that Johanna Fox-another fee only planner on the site, charges a flat fee but it looks like her fee would be much like mine for the same client.  I know of many fee only planners that can be found at this cost (no, not all-but many).

    A physician who comes with a three million dollar portfolio can think of our fee like this:  0.25% a year for asset management/portfolio design, implementation and management and then 0.25% a year for Fiduciary fee only planning including unlimited access on topics like estate planning, insurance issues, educational planning, retirement planning (including retirement plan design and implementation), asset protection and more.  As the portfolio grows, the blended rate keeps dropping.

    Paraphrased from author Nick Murray-there are at least three ways that I earn this fee:

    1) I might have better investment performance.  Now, there are certainly many astute investors on this site, on the Bogleheads site, etc that should do as well as we do.  But there are many “self invested” portfolios out there that are easy to beat over the long run (buying the best actively managed funds from Money magazine, etc).

    2) I”ll probably stop you from making many kinds of mistakes.  This might be euphoric buying (Tesla stock comes to mind right now), or selling from panic and fear.  It might be avoiding a bad real estate investment or a “silent” investment in a private company.  It might be having the right title on rental property and your car to avoid lawsuits.  It might be having a retirement plan for your independent practice that allows you more in contributions while minimizing employee costs.  On and on.

    3)  You won’t personally have to worry about all this “stuff”.  You’ll be paying us to worry about it.

     

    Any one or all three of these functions should more than cover the extra cost of having an advisor-which again I’ll argue is small for most physicians.

     

    #130221 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3169
    Joined: 01/21/2016

    Thank you for the well-thought post. As a former client of a well-known and respected “Fiduciary Fee Only Planner” I can attest to the wisdom and benefit of using such a planner as you, Johanna, my former advisor, etc. Then, why am I a “former” client? I will answer by responding to your three points.

    1. You may outperform and you may not outperform over the long run. I was paying blended rate of 0.35% (retirement plan assets) and 0.80% non-retirement plan assets (combined rate about 0.6%), so you have to over come that bogey to break even. I do not think that this is the best argument for using a financial planner. Investment knowledge is readily available and fees are democratized to the point of being virtually free.

    2. You might keep me from making mistakes, but you might keep me out of wonderful investment opportunities that are outside the AUM structure. My advisor did both for me as he was always looking to move my net worth under his umbrella. You might also push me into an uncomfortable allocation and into asset classes that I (and many others) feel are superfluous. My advisor also did both of these for me, too.

    3. As a natural worrier, as disclosed elsewhere, I felt that not only did I have to watch my money, I now had to watch someone else who was watching my money. No one is perfect, and mistakes were made and not always corrected or fixed to my liking.  No one worries more about your own money than you do. Yes, it is good to have another set of eyes, state of the art tools, be up to date on the latest laws and regs, but these do not replace the worry. In fact, I had to worry that I made a mistake having an advisor at all!

    I think that the greatest value in an advisor is:

    1) The initial intake, when someone takes the mess of a financial life that you may have accumulated, tells you what to keep and what to discard, creates value-added opportunities like the Backdoor Roth or state tax credits, and adds an element of organization.

    2) A few times per year a question arises that I would like to ask a professional, much in the way a patient might ask his/her doctor, and it is comforting to have such a resource. I do not value that comfort at $15k per year (0.5% of $3M, the example above), much in the way that most patients would not pay a retainer of $15k for their beloved primary care doc, and I can usually find the answer with some investigation. Vanguard provides me with a  free, personal advisor, which I have not used but perhaps will in the future.

    It would be nice to have an “urgent (financial) care” model where you can ask a question and pay $200 for the answer, assuming a relatively quick and low complexity problem. If it were too complicated for a quick reply or needed further investigative work, an estimate/contract would be provided for the time and scope of the project. That is a service that I can see using a lot (planning post retirement Roth IRA conversions and deciding when to start taking a pension are two issues that come to mind). Perhaps others would feel the same.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #130224 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1058
    Joined: 02/15/2016

    It sounds like you are one of the good guys in financial planning, but this post has a self-serving vibe that motivates me to push back:

    1).  I find it hard to accept that a financial advisor who charges an AUM fee can outperform a reasonable asset allocation with the same risk over the long term.

    Of course, there are a million bad portfolios an investor can come up with, but making a reasonable profile is hardly difficult.  How many of these 150 Portfolios Better Than Yours do you think you can sustainably outperform when adjusted for risk?

    One reason I think advisors can hurt otherwise knowledgeable investors is that they’re incentivized to prove the value for their service.  If I were a CFP who was a disciple of the three-fund portfolio, I would probably invest my money that way, but if I did that for all my clients, how many of them would stick around for more than a year when they see how easy it is to implement?

    2).  Most of these questions can be crowdsourced on this forum or bogleheads.  You may be more qualified and can give better advice than most amateurs, but I think in most cases presenting these questions to knowledgeable peers with diverse backgrounds and investment philosophies enables the investor to make a more informed decision.  Some physicians can also use free advisor services with their employer or professional organizations that have fewer conflicts on interest.  This is what WCI did.

    3).  This is essentially saying that we charge a fee for a service, but the service is worth it.  I do not like to “worry” about cleaning my gutters, wash my car by hand, or change my oil, and to me the transparently priced service is well worth the cost of paying someone else to do it.  For someone who feels the same way about financial planning, I would suggest they figure out in advance how much they’re willing to pay for that service, especially if they’re otherwise competent to do it on their own.  $100 an hour?  $250 an hour?  $500?  $1000?  Most people see the 1% and assume that means it’s cheap.

    We “worry” about our investments for a good reason – unlike the planner, we have a lot of skin in the game.

    #130227 Reply
    Liked by Wings3496
    Avatar Steven Podnos MD CFP 
    Participant
    Status: Physician, Financial Advisor
    Posts: 125
    Joined: 09/21/2017
    Disability Insurance

    Thanks for the nice words and time taken to reply.  It seems clear from reading your note that you are able to take care of all three “factors” I mentioned by yourself.  I’d guess it took years and plenty of time to get to that place.  My post was to point out that for the size of accounts that most established physicians have, that the cost of having a fee only planner take care of all those aspects is not very high.  Most of the physicians I know do not have the time or interest to “do it themselves” and want to delegate this aspect of their lives.  Unfortunately, the vast majority delegate to a stockbroker or insurance agent that costs them a lot more than a fee only advisor and delivers a lot less.

     

    There are many fee only advisors that work on an hourly basis.  See the Garrett Planning Network and the XY Planning network.

    #130231 Reply
    CM CM 
    Participant
    Status: Physician
    Posts: 1000
    Joined: 01/14/2017

    Thank you for the well-thought post. As a former client of a well-known and respected “Fiduciary Fee Only Planner” I can attest to the wisdom and benefit of using such a planner as you, Johanna, my former advisor, etc. Then, why am I a “former” client? I will answer by responding to your three points.

    1. You may outperform and you may not outperform over the long run. I was paying blended rate of 0.35% (retirement plan assets) and 0.80% non-retirement plan assets (combined rate about 0.6%), so you have to over come that bogey to break even. I do not think that this is the best argument for using a financial planner. Investment knowledge is readily available and fees are democratized to the point of being virtually free.

    2. You might keep me from making mistakes, but you might keep me out of wonderful investment opportunities that are outside the AUM structure. My advisor did both for me as he was always looking to move my net worth under his umbrella. You might also push me into an uncomfortable allocation and into asset classes that I (and many others) feel are superfluous. My advisor also did both of these for me, too.

    3. As a natural worrier, as disclosed elsewhere, I felt that not only did I have to watch my money, I now had to watch someone else who was watching my money. No one is perfect, and mistakes were made and not always corrected or fixed to my liking.  No one worries more about your own money than you do. Yes, it is good to have another set of eyes, state of the art tools, be up to date on the latest laws and regs, but these do not replace the worry. In fact, I had to worry that I made a mistake having an advisor at all!

    I think that the greatest value in an advisor is:

    1) The initial intake, when someone takes the mess of a financial life that you may have accumulated, tells you what to keep and what to discard, creates value-added opportunities like the Backdoor Roth or state tax credits, and adds an element of organization.

    2) A few times per year a question arises that I would like to ask a professional, much in the way a patient might ask his/her doctor, and it is comforting to have such a resource. I do not value that comfort at $15k per year (0.5% of $3M, the example above), much in the way that most patients would not pay a retainer of $15k for their beloved primary care doc, and I can usually find the answer with some investigation. Vanguard provides me with a  free, personal advisor, which I have not used but perhaps will in the future.

    It would be nice to have an “urgent (financial) care” model where you can ask a question and pay $200 for the answer, assuming a relatively quick and low complexity problem. If it were too complicated for a quick reply or needed further investigative work, an estimate/contract would be provided for the time and scope of the project. That is a service that I can see using a lot (planning post retirement Roth IRA conversions and deciding when to start taking a pension are two issues that come to mind). Perhaps others would feel the same.

    Click to expand…

    I agree with most of this Vagabond, but you are sophisticated. You don’t need an advisor.

    Any physician can acquire that sophistication with a bit of effort, yet many are unwilling. Many of the docs at my employer know that I was in financial services and a few have approached me for advice. I’ve been stunned that physicians in their 50s and 60s have no plan and no idea how to create one, or even how to open a brokerage account and buy index funds.

     

    Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried bags for Cyd Charisse (gracious). Hosted epic company parties after Friday night rehearsals.

    #130232 Reply
    Avatar Steven Podnos MD CFP 
    Participant
    Status: Physician, Financial Advisor
    Posts: 125
    Joined: 09/21/2017

    Thanks for the reply.  My post is not addressed to physicians that are ok with taking the time to read the boards/forum and in other places and do it themselves.  My post was to elaborate that the cost of having a Fiduciary advisor for an established physician can be quite low.  The post also lays out the ways in which the fee may be more than compensated for.

    Your comments about inexpensive or even free asset allocations being readily available has never been more true-but these will only be used by those physicians who have spent enough time and energy to be confident in their investment skills and direction.  I’d say 95% of physicians are using a “suboptimal” (I really want to say abysmal) asset allocation driven by a salesperson at a wirehouse or insurance company. That is the norm, not what you do.

     

    As to number 2-the mistakes are legion.  You have to know the questions that are important to find the answers.  Most don’t know the questions.  Mistakes are often behavioral-not a lack of questioning.  Think about how many of your peers buy hot stocks, or who bought real estate in 2003-6 at very high prices.  Think about those that sold to cash in 2009 out of fear.  Think of the many crazy “side” business investments made on a whim.

    As to 3-I was just pointing out that having someone else worry about these many issues is just one of the ways that make up the cost of having a planner.

     

    #130236 Reply
    Vagabond MD Vagabond MD 
    Participant
    Status: Physician
    Posts: 3169
    Joined: 01/21/2016

    Thanks for the nice words and time taken to reply.  It seems clear from reading your note that you are able to take care of all three “factors” I mentioned by yourself.  I’d guess it took years and plenty of time to get to that place.  My post was to point out that for the size of accounts that most established physicians have, that the cost of having a fee only planner take care of all those aspects is not very high.  Most of the physicians I know do not have the time or interest to “do it themselves” and want to delegate this aspect of their lives.  Unfortunately, the vast majority delegate to a stockbroker or insurance agent that costs them a lot more than a fee only advisor and delivers a lot less.

     

    There are many fee only advisors that work on an hourly basis.  See the Garrett Planning Network and the XY Planning network.

    Click to expand…

    I was not trying to imply that advisors are universally bad and DIY is inherently good. Most physicians would benefit from a high quality advisor (like you, Johanna, my former advisor, etc.), likely I would benefit, too, but many docs have the interest, time, and can learn the behavioral tricks to successfully DIY.

    I am known as the “money guy” in my group and routinely field financial questions from partners (and other Hospital colleagues, too). I almost never answer the questions directly but instead refer to an article (often a WCI article) that gives an explanation of the issue, multiple articles if there are multiple sides to the issue, rather than the answer itself. Topics that I have fielded in the last few months include pay down student loans or invest, Roth vs traditional 401K, where should I park my emergency fund, I just sold my house- what do I do with the money now?, etc. Learning how to solve the problem is better than being spoon fed the answer (just like in med school!).

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #130239 Reply
    Avatar Steven Podnos MD CFP 
    Participant
    Status: Physician, Financial Advisor
    Posts: 125
    Joined: 09/21/2017

    Vagabond-that’s funny.  I was the “money guy” in my group and that led to my career change (although I practice a little medicine still in the Reserves).

    #130245 Reply
    Liked by Vagabond MD
    Avatar afan 
    Participant
    Status: Physician
    Posts: 47
    Joined: 05/07/2017

    Very few people need an assets under management planner. Once a portfolio is set up there is almost nothing to do. It would make far more sense to hire an advice only planner who charges by the hour or by the project when advice is requested and nothing the rest of the time.

    For a $3M portfolio at 0.5% the fee would be $15,000. Even at $500/hour that would be 30 hours of financial advice every year. That is a huge amount of advice. Very few people would come anywhere close to that. Even if the fee covered preparing tax returns, which it typically would not, it is still far too high a price.

    Since one should not be making many changes in their portfolio during the year, there is no point in paying someone to do nothing. Perhaps check in with your advice only planner once a year. Say that your life circumstances have not changed. Your planner sees that there is no need to rebalance. The conversation takes half an hour. You pay $250. The remaining $14,750 stays in your portfolio.

    This also aligns the planner’s goals with yours. Since you are paying for good advice the planner is incented to make the advice as good as possible. Since the planner cannot make more money by having you roll over your retirement account into something that would come under the AUM fee, there would be no reason to suggest that.

    Planners who manage money market themselves largely on their investment results and the advice part is “free.” That means they have less reason to maintain a high level of expertise on the planning side. Their bread is buttered on investment management. Their clients stay with them or leave based on investment returns and few bother to estimate the value of the non investment advice. So they focus on that part of the business.

    Advice only is a harder way for a planner to operate since there is no steady income stream. But that is to the clients’ advantage. There is no steady stream of payments to make.

    #130348 Reply
    Liked by MPMD, Vagabond MD
    Avatar Steven Podnos MD CFP 
    Participant
    Status: Physician, Financial Advisor
    Posts: 125
    Joined: 09/21/2017
    Earnest refinancing bonus

    Afan, your comments apply to only some physicians.  Most that I know are paying much much more in annual fees to places like Merrill Lynch, Morgan Stanley, Northwestern Mutual and the like.  They also get no real advice (and certainly no fiduciary advice), just a (usually suboptimal) asset allocation.  Questions and situations come up often during one’s life and sometimes with little warning.  Trying to get hourly advice without the planner knowing a great deal about you (lots of time and money involved in that) may not work so well.  Again, most of my colleagues in medical practice were frequently confronted with many issues and dilemmas, with little guidance, and plenty of mistakes made.

    This WCI group is unique-like the Bogleheads, this group is self motivated to learn about personal finance.  Most people, including doctors are not.  I’d argue that paying 1/2% (or less) to have Fiduciary guidance on a number of matters is “worth it” to many.

    #130353 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1058
    Joined: 02/15/2016

    I think the fundamental disagreement isn’t whether most physicians are better off using a financial advisor over doing it themselves.  It’s really whether they should pay $10,000 or more a year for one charging an AUM fee when they can utilize free advisory services or otherwise find someone who charges an hourly or flat fee.  With virtual technology, that is easier than ever.  Harry Sit started a service called Advice Only Financial that searches and connects clients with these advisors.  I do give you credit for dropping the fee as clients’ assets grow (I wonder why more realtors don’t do this).  It sounds like a better value than a robo-advisor for someone with several million.

    #130357 Reply
    Liked by Wings3496
    Avatar afan 
    Participant
    Status: Physician
    Posts: 47
    Joined: 05/07/2017

    My concern is less the concept of paying for financial advice than the question of how much.

    At $250-500/hour that $15,000 would pay for 30-60 hours per year of advice. What in the world could someone be doing to need that much advice? Every year?

    Buying advice, when needed, one would get help without paying for services never used. The model of AUM planners only works if they have a large share of clients who consume little time. Otherwise the AUM fees would not cover the time spent giving advice. The need for advice does not scale with assets. The doc with $6M does not need twice as much advice as the one with half that amount. More likely they don’t need any more advice at all.

    I am also concerned about the notion of getting all your advice from one person or firm. If one needs tax advice it would make sense to go to an enrolled agent or a CPA who specializes in individual returns. For estate planning, on the other hand, neither of these would be appropriate. Go instaed to an attorney who is an expert in that field. For insurance questions ideally one would have access to an actuary who specializes in advising individuals.

    Maybe there are financial planning firms that have all this expertise under one roof and provides comprehensive planning. But even then, why build the relationship around managing the assets, which is the easiest part of the job?

    I would feel far more comfortable with someone who said “managing your assets, sure we will do that if you like. But there is essentially nothing to it.

    Three funds, check annually for need to rebalance. On average, most years, there wod be nothing else to do.

    Our value is not in the investment management. It is in the quality of the financial advice we provide. All of our planners have advanced degrees in accounting, law, actuarial science, finance or tax. We combine to optimize your entire financial life. Typically the first year requires a lot of time as we reconfigure a series of financial decisions that were not made with this expertise. We shop for your life, disability and liability insurance. We tell you which are the best deals and outline how that will change with time. We set up ownership of assets in optimal form. We implement long term tax, financial and estate planning.

    After that we switch to hourly services, as needed. If we did our job right in year one, there will be little else to do thereafter.

    If you really want us to manage your investments we will do that for a $3,000 flat fee to cover the minimal costs of a three fund portfolio.”

    #130374 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016

    Did someone mention my name  😉 ? I wasn’t going to comment on this thread, but it’s driving me a little nuts that all of you, including Steven Podnos MD CFP, seem to be comparing the AUM cost for managing investments to the value of true flat fee planning services. Asset management is easily < 10% of what we do – so you’re comparing apples to tractors, if you know what I mean. In the first year of a relationship, we often spend 50 hours of time with our planning clients (yes, we track it). There is just no comparison to managing investments for an AUM fee. In the years beyond, we’re typically working a minimum of 20 hours. Investments may be set it and forget it, but plans are not.

    @afan gives a decent description, except s/he said that there will be little else to do thereafter “if we did our job right in year one”. Let’s see, here’s what’s going on with a few clients now:

    1. Dual doctor couple, one is thinking of leaving current practice to work for the gov’t, other decided this year to leave gov’t work to start his/her dental practice. The plan is shifting greatly. Need to max out 403b before starting a practice with no retirement plan (can’t afford in the beginning), need to figure out if this is a good year for a Roth conversion because the practice will lose money in the first few months, etc. This is also a CPA client, so we can triangulate.
    2. Doctor/non-doctor working spouse, doctor not happy with his/her job, needs to talk to boss about making some changes (but is non-confrontational) or wants to leave medicine altogether. I’ve been coaching him/her on how to bring up topic with boss, so far, so good, but we need to plan for lower income.
    3. Doctor/non-doctor working spouse, decided they want to be able to cut back enough in 5 yrs to home school their new little one and be FI in 10 years or at least be able to take a long sabbatical. Is this possible? How much do they need to work and save until then? Should they move somewhere with lower COL? What about planning Roth conversions at that point – how will this affect lifetime net worth?
    4. Doctor/non-doctor working spouse, moved up their timeline for buying more expensive home, should they keep old home and rent out or should they sell? And can they afford new home? And n-d spouse has changed jobs and gets stock options and needs contract review. And doctor spouse is planning to start a side business.
    5. I’ll leave this line for all of the doctor families who are pregnant right now. Can they afford to cut back work for 6 mos? a year? Do they need to increase life insurance? How much can they afford for a nanny? Info on Household Worker taxes. Save for private school or move to a better school district? Front-load 529’s or annualize? Since NONE of them have estate plans in place yet, need to find referrals for E&T attorneys in their state, educate on what they need to ask for, how much it should cost, help decide if they need a RLT or not, etc.

    And so on. None of these situations have anything to do with us “doing our job right in year one”. Doctors are not set-it-and-forget-it people, at least not the clients we work with. It’s a lot of fun but it’s a lot of work and involvement. By comparison, the investment part is a piece of cake.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #130397 Reply
    Avatar mad_papooser 
    Participant
    Status: Dentist
    Posts: 1
    Joined: 06/17/2018

    I use and would recommend a flat-fee advisor.  Most of the work in setup and planning is at the beginning.  After that it’s just a matter of rebalancing and staying the ship.  I’m not a fan of any AUM model.  Once compounding interest really starts to churn, the advisor is not working any harder, but their fees increase significantly.  In your example, I just don’t think paying 15k on a 3M portfolio is worth it.  In the jump from 2M to 3M is the advisor really doing another 5k of work on the portfolio?  Not IMO.

    #130339 Reply
    Liked by MPMD
    Avatar afan 
    Participant
    Status: Physician
    Posts: 47
    Joined: 05/07/2017

    Jfoxcpacfp,

    Those are great examples. How many of your clients go through such changes every year? It they are paying for 30 -60 hours a year of planning advice the fact that, maybe, once or twice in a career they may face such choices hardly makes it seem like a good price.

    A doc could go for many years and never confront issues like these. If they did find themselves in such a position then they could hire a planner for the 50 or whatever hours it took. Then go back to paying nothing.

    I don’t know how your practice works. Do you charge AUM and then the advice is “free?” Or do you charge by the hour or project? Do you even manage investments at all?

    I completely agree that there are times people may need financial advice. They rarely need investment advice. So why pay for something they don’t need at all in the hopes that, maybe someday, they will get the financial advice they need?

    I don’t pay a lawyer every year on the chance that someday I may need to redo my estate plan. If I need that I will hire a lawyer when the time comes. And pay nothing until then.

    #130444 Reply

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