White Coat Investor Goes To The Financial Advisor

I frequently engage with colleagues on topics of finance and investing.  Since I relocated to Utah a while back, I have been referred numerous times to one particular advisor by many colleagues.  They promised a free consultation, no conflicts of interest, and good advice.  The regular reader of this blog is well aware of what I believe about financial advisors and think about the financial sophistication of most of my colleagues, so you might be surprised to see that I actually decided to go see this advisor.  I had a few questions I wanted to discuss and besides, I thought it would make for a great blog post.  I was pleasantly surprised at how the visit went.

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About 20 years ago in Utah there were a number of doctors who were involved in a scam in which they were bilked out of a large quantity of money.  This isn't surprising, as Utah is a well known scam artist capital, and doctors aren't generally all that astute about finance.  What was surprising, however, is what the medical community decided to do about it.  The Utah Medical Association decided to start helping doctors navigate the shark pond.  At first, they brought in someone who merely provided a second opinion on what they were getting from their regular advisor.  After hearing from enough docs who “just wanted someone to take care of it” they branched out from just providing occasional financial advice to taking on a fiduciary duty as asset managers.  They decided to do three things to ensure a quality experience for all.  First, they found experienced folks who actually wanted to help people rather than make a quick buck.  Second, they put them all on a fair salary.  No commissions, no bonuses.  Last, they charged fair prices to the docs.  Combine these things with an all-physician clientele and you have a winning formula for a financial advisory service.  The Utah Medical Association Financial Services company was born.  It is owned entirely by the members of the UMA and is actually housed in the same offices.  It is overseen by a board of UMA members, some financially savvy, some not so much.  As you might imagine, it wasn't highly profitable in the beginning, but after a decade or so, rather than UMA dues paying for the advisors' salaries and other costs, the UMAFS began making a profit which was then funneled back into the UMA general fund.  The asset management fees, as well as commissions from the sales of life and disability insurance policies essentially goes back to the owners, AKA the clients.  Sound familiar?  Of course it does.  It isn't that dissimilar from what Vanguard does.

Not only do the asset management fees pay all the salaries and other costs AND pay money back to the UMA, but they also allow the advisors to give advice to all UMA members, not just those who are using the asset management services.  As you might imagine, I don't have a big need for asset management services, so that means I get unbiased financial advice at my favorite price, AKA free.  Even if you decide you want to use the asset management services, those are offered at a fair price.  It begins at 0.8% of AUM, and decreases as your level of assets goes up.  The average is about 0.6%.  That compares favorably with other well-known low-cost advisors such as Larry Swedroe, who charges 1%, and Rick Ferri, who charges 0.25%, but with a minimum of $2500 a year, which is 1% of $250K.

I feel pretty lucky being in Utah.  We've got a great 529, a great controlled substance database, and apparently a great financial advisory service.  I'm a little bummed that it makes my website a little less valuable in that now docs have such an easy, inexpensive way to get good, personalized advice.  I'm also a little bummed that a second career option being a financial advisor to docs in the area probably isn't going to work out.  But I can live with all that knowing that docs aren't getting screwed over, which is really the point of this blog anyway.  In fact, I told my wife in the elevator on the way out that if these guys had been my first advisors (instead of the chump selling me loaded mutual funds and whole life insurance) I probably never would have learned any of this stuff.

My wife and I met with Jeff Zesiger.  We had a nice chat for a couple of hours.  I learned a bit about him, and he learned about us.  He has worked for several different firms over a couple of decades, but only carries a relatively low-level designation, the Accredited Asset Management Specialist.  A Certified Financial Planner is a far weightier designation, requiring about a year's worth of course work.  The AAMS is more of a “get your feet wet” designation, which can be done in about 3 weeks worth of full-time work.  If you're picky about your alphabet soup, there is at least one planner there with a CFP.  As someone who knows quite a bit about this stuff, and whose only designation is MD, I can live with someone with a low-level designation as long as they know what they're talking about.  Jeff does. [Update:  Jeff emailed me recently to let me know he'd acquired the CFP designation.]

We went through the usual stuff, discussing our assets, liabilities, investing goals, investment plan, mortgages, disability insurance, life insurance, liability insurance, estate planning, and asset protection.  I got his opinion on my 401K (lots of his clients use it), my defined benefit plan, an LLC for my rental property and buying syndicated shares in my hospital.  We even talked a bit about identity theft and commodities.  It was a good discussion.

Now, you may be wondering why White Coat Investor would go to an advisor at all.  Well, several reasons.  First, it's nice for your wife to hear someone else confirm to her that “you guys are doing awesome, I wish all my clients were like you” and that “you've got a great plan so far.”  Second, I'm a little short on disability insurance.  Since you have to buy it from an agent anyway, might as well bounce some of your other questions off him at the same time.  Third, I had some rather complex questions relating to my upcoming partnership and how that might change my 401K options and also wanted to discuss some of the benefits of incorporating at that point.  My discussions on this topic with my partners were a bit uninspiring.  He was able to answer some of my questions, will get back to me with the answers for others, and referred me appropriately to an attorney and a CPA for others.

Now, what are the downsides to this particular firm?  I already discussed how I'd rather see more CFP and CFA designations.  I won't be using their asset management services, but reviewing the website you notice there seems to be a decent belief in active management strategies, which isn't exactly my style.  But there is more than one road to Dublin, and even Vanguard has an awful lot of assets in actively managed funds, so I can't really complain too much there.  I'd also rather see the asset management fees lowered, rather than paid back to the UMA, but I can understand why the UMA wants a little payback after supporting UMAFS for a decade, and I do like the free financial advising it provides to all UMA members at the expense of those using its asset management services.

It is easy for me to recommend that Utah docs to go pay a visit to UMAFS.  Even die-hard do-it-yourselfers like me can always use a second opinion.  The free consultations are well worth your time, and their asset management service is perfect for someone who just doesn't want to deal with this stuff.  All the clients are Utah docs and their families, so the advice is always physician-specific.  More importantly, I recommend to all other state medical associations out there that they adopt this model.  Eliminating the financial conflicts of interest inherent in the financial advising and asset management business and reducing costs means physicians actually get to keep more of what they earn.