Doctors often have complex financial situations due to delayed earnings, and many graduate medical school with six figures in debt. Once they finish their training, a doctor’s income goes up seemingly overnight, but it often comes with high tax burdens. Plus, most doctors face high professional risk and have unique insurance needs. As your assets and income increase, you may decide you need professional financial advice, and a registered investment adviser (RIA) is one option to consider.
Let’s look at the services RIAs provide and how to decide if working with one is right for you.
What Is a Registered Investment Adviser (RIA)?
An RIA is a financial firm that advises clients on investment options, like stocks, bonds, mutual funds, and exchange traded funds (ETFs). An RIA can be a large company with hundreds of employees or a small advisory practice.
Depending on the firm, an RIA may provide:
- Investment management
- Retirement planning
- Tax planning
- Insurance analysis
- Estate planning
- Student loan repayment guidance
- Comprehensive financial planning
Some RIAs have discretionary authority over client accounts, which means they can buy or sell investments without asking for their client’s permission. Other advisers make recommendations but leave the final decisions to the client.
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How Are RIAs Regulated?
RIAs are regulated under the Investment Advisers Act of 1940. The US Securities and Exchange Commission (SEC) oversees firms managing over $100 million in assets, while state regulators handle smaller firms.
RIAs must file Form ADV, which provides information about the firm’s services, fees, and investment strategies. They also have to disclose any conflicts of interest, business affiliations, and disciplinary history.
Are Registered Investment Advisers Fiduciaries?
RIAs have a fiduciary duty to their clients, meaning they must act in the client’s best interest. However, that doesn’t mean conflicts of interest won’t exist. For example, an RIA that charges a percentage of assets under management may have an incentive to recommend you move money into a managed account instead of paying off debt. The adviser must either eliminate conflicts of interest or, at a minimum, disclose them upfront so you can make an informed decision.
It’s important to ask whether an adviser will serve as a fiduciary at all times. Some financial professionals are dually registered as Investment Adviser Representatives (IARs) and brokerage representatives. That means their obligations can vary depending on whether they’re providing advisory or brokerage services.
How Do RIAs Charge for Their Services?
RIAs use several different compensation models:
- Assets under management: The RIA charges a percentage of the assets it manages, typically between 0.5%-1.5%.
- Flat fee: You’ll pay a fixed amount for a financial plan or set of ongoing services.
- Hourly fee: You’ll pay for the time an adviser spends providing advice or services.
- Retainer: You’ll pay a monthly, quarterly, or annual retainer.
Benefits and Drawbacks of Working with a RIA
A RIA can manage your investments and provide ongoing advice during financial and life transitions. This may be valuable for doctors who have complicated finances or lack the time or interest to manage their own portfolio.
However, advisory fees reduce the amount of money you have invested, and they can significantly affect your long-term returns. Some RIAs also require clients to maintain a minimum amount of investable assets. The scope and quality of the services provided can also vary.
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How Physicians Can Choose an RIA
Start by verifying the registration and disciplinary history of both the firm and the individual adviser. You can review the firm’s Form ADV through Investment Adviser Public Disclosure. If the adviser is also registered as a broker, check their records through FINRA’s BrokerCheck.
You should also consider the following:
- Services: Does the firm only manage investments, or does it also provide tax guidance and other financial planning?
- Total cost: How are the firm, individual adviser, and affiliated companies compensated?
- Fiduciary status: Will the adviser act as a fiduciary at all times?
- Investment philosophy: Does the firm use low-cost diversified funds, active management, or alternative investments?
- Conflicts of interest: Does the adviser receive commissions, referral fees, or other incentives?
- Physician experience: Has the adviser worked with other doctors in your specialty or career stage?
- Custody: Which independent custodian will hold your investment?
Do You Need a Registered Investment Adviser?
You may benefit from an RIA if you want ongoing portfolio management, have a complex financial situation, or need help sticking to a financial plan. An adviser can also provide accountability and help you avoid making emotional decisions during market downturns.
However, earning a high income doesn’t automatically mean you need ongoing investment management. If you’re comfortable managing your portfolio on your own and only need occasional help, an hourly or flat-fee engagement may be a better option.
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