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I receive multiple requests a month to be somebody's financial advisor. I routinely turn those requests down for a number of reasons that I thought might make for an interesting post. I'm going to combine this list of reasons with a description of a financial advisory firm I hope to see appear in the next decade.
I'm Not Licensed
The easiest reason to turn people wanting to hire me as their advisor down is because I'm not licensed to be a financial advisor. I only have two licenses, one to practice medicine and one to drive, neither of which I do on this site. And they're both specific only to a single state. That's why this site is purely for entertainment and informational purposes, rather than constituting actual formal financial advice.
Lack of Formal Credentials
When I write about financial advisors, I generally recommend they have one of the highest credentials available in the field such as CFA, CFP, ChFC, or CPA/PFS. While there are good advisors that don't have these, and bad advisors that do, for me a designation like this represents a commitment to your profession as well as a minimum level of education. I don't have any of these, so if I really wanted to be a financial advisor, it would be pretty hypocritical of me not to go and get them.
One of my Venture Scouts 900 feet above the ground on Hot Flash, Red Rock, NV
I Already Have Two Jobs…and Plenty of Income
Frankly, I barely have time to do both of my jobs now and consider cutting back on shifts and/or hiring additional help for WCI every month. I certainly don't need to add on another job. In fact, I would really like some more time with family and my non-professional pursuits. One of my jobs offers me the ability to trade my time for money at a very high hourly rate and to really make a difference in the lives of others. The other I enjoy so much I would do it for free (and basically did so for two years.) Is it possible I could make a slightly higher hourly rate providing financial advice than practicing medicine? Sure. But at this point in life, I'm more interested in doing something I enjoy than in making slightly more money.
I Really Enjoy Aiding the DIYer
Generally, those who come to this site, read my book, send me emails, and post comments are people who wish to be heavily involved in the management of their personal financial lives and their own portfolios. All they really need is a little more information to be able to accomplish much of their needed financial tasks. So I function more as a teacher, enabling them to become independent learners, and I really enjoy that. On the other hand, the type of doc who typically wants to hire a full-service advisory firm, and who gets the most value out of it, just wants “a money guy to take care of everything.” While that job certainly provides value, and pays well, I'm not really interested in it.
Scalability is Critical For Me
Dave Ramsey (appropriately) gets lots of criticism from financial advisors. One of his favorite responses is “I helped more people in the last hour than you will in your entire life.” He's right. While I'm nowhere near as well-known as Dave, keep in mind an individual financial advisor typically only has 20-100 clients. Yet I have over 4 million page views per year on this site. Thousands of people bought (and presumably read) my book. I can see financial education for medical students, residents, physicians, and other high-income professionals moving forward by leaps and bounds and am confident that I am a large part of that movement. I think that's pretty awesome.
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A second reason for the existence of this website is to feed my entrepreneurial spirit (i.e. make some money.) As I mentioned above, if I want to trade time for money I have a very good way to do that. Emergency physicians (particularly partners in a democratic group like I am) may enjoy the highest hourly pay of any physician specialty, and if not, it's close. What my day (? night) job does not provide me, however, is a way to make money while I'm sleeping. This blog works 24/7/365 and is completely scalable. There is no reason it can't have 40 million or even 400 million page views per year or pay me ten times or even 100 times what it does now.
Internal Conflict Between What Docs Need and The Best Way To Run A Business
Most of the really successful (meaning richest) financial advisors have learned one of the greatest truths in the financial advisory world- that what is best for the advisor is not best for the client. As one advisor remarked to me, “AUM fees are the best kind of passive income there is.” The best way to make a lot of money advising physicians is to find doctors who have a lot of money, don't have a lot of debt, have a high income, and who are not fee-sensitive and charge them high AUM fees. I have great respect, as an entrepreneur, for advisors running their firm that way. If they are skilled and work hard, they are often financially independent at an age younger than their clients were upon earning their first attending paycheck.
But the phrase “Where are the customers' yachts?” seems appropriate. The docs who need the most advice are those with high student loan burdens, negative net worths, and low incomes. The advisors would argue that if they weren't providing more value than their fees, the clients wouldn't pay those fees. But I think it is patently obvious that when doctors realize just how much they're paying, many of them become very interested in doing more of those tasks themselves, or at least hiring a less expensive advisor. I find paying an hourly rate, even a high one, is a far better method of paying for financial planning. The main reason is that the client keeps more money and the advisor takes less of it. I prefer a flat annual fee for investment management, for the same reason. Advisors may argue that since the best advisors want to also be the richest, you get better advice by paying more money, but I find that a fairly self-serving, hollow argument. The bigger issue is that those types of fees, aside from generally being lower overall, are not scalable (i.e. more money each year for the same, or even less, work). And that takes away a decent chunk of my motivation to do that type of work. I like helping people, but there are limits to my sainthood.
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The Firm I Would Like To See
In fact, the more I think about those issues, the more respect I have for Jack Bogle, aka Saint Jack. While the real story is slightly more complicated, when faced with the choice of building a business that would make him rich or one that was best for his investors, Mr. Bogle chose to give “his” company away to his clients. I think it would be awesome to see, and even assist in, the appearance of the “Vanguard” of physician financial advisory firms. Said firm would pay fair, and probably very high, salaries to its administrators and advisors. But they would be salaried, rather than having a scalable income. The firm would be owned by the physicians and run at cost. This would prevent the high fees and, most importantly, most of the financial conflicts of interest that advisors face.
Word would travel quickly among physicians and it would grow so quickly that it would rapidly become the largest firm of its type in the country. It might even put many advisors out of business, and certainly prevent a bunch of them from ever opening their doors. Its biggest challenge is likely to be dealing with its rapid rate of growth and maintaining a sufficient number of highly qualified individual advisors, no matter how high the salary. But in the end, it would be far better for the clients than our current hodge-podge of for-profit advisory firms fighting amongst each other to get to a critical mass of clients and assets under management. Critics may call it “socialist” but those same criticisms can be (and were) leveled at mutually owned insurance companies and mutual fund company, most of which are now among the strongest financial institutions in the country.
The hardest part would be finding talented people willing to put in all that work knowing that the financial reward for doing so would be limited by design. I certainly don't have the time nor motivation at this stage of my life to bring this sort of company into existence, not to mention I have a financial conflict of interest against doing so (advisory firms pay me money to advertise here.) But if you are interested in starting a firm like this, you can count on a lot of support from me!
What do you think? Would you rather be a financial advisor than a doc? Why or why not? Would you hire a mutually-owned advisory firm to manage your money? Why or why not? Comment below!
Request for a future post is a conversely related topic: “How to be your Own Financial Advisor.” I think another reason a lot of people/docs ‘just want a money guy/gal’ is it is psychologically easier to recuse oneself in the event of a market downturn or otherwise poor performing investment. Thanks for your educational and entertaining general financial resource.
uhhhh….like it or not, you are my financial advisor! You, Rick Ferri, Jeremy (from gocurrycracker), and Jim Collins give great advice at an incredible price!
Agree! You already are many peoples financial advisor.
WCI,
Great Post and great idea for someone to form a financial firm along the lines that Vanguard was set up; but, why limit this advisory firm to giving advice to just physicians?
The new Vanguard AUM model of 0.3% (which is considerably less than the industry standard) for anyone with more than $50,000 to invest is a large step in the right direction.
Hopefully, just as Vanguard offers 2 expense ratios for it retail investors (a lower expense ratio for the Admiral shares for many of their mutual funds with $10,000 or more; and a higher expense ratio for their Investor shares for the rest of their mutual funds), Vanguard will, over time, find ways to lower this 0.3% AUM fee for those with considerably more than $50,000 to invest.
I was quoted a Vanguard fee of 0.20% for assets over $5 mil.
Sounds good for the future as you age and start to worry about about your abilities.
Pretty good price.
Schwab’s new advisory service has no fee. They make money by using their own ETF’s and by keeping a percentage in cash, from which they make money. Most investors need cash in their portfolio, so if the percent in cash is not too high, it may be a good service. Vanguard’s .3% fee is very low if you need financial planning advice, which most do. If all you want is investment guidance, read up and educate yourself, diversify amongst low cost investments such as index funds, and you’re on your way.
Ummm, you helped convince me to be my own financial advisor and for that I thank you. This site is designed for those of us that want to do it ourselves! Some people really want the easy way out don’t they?
.3% is too much for my mind, that’s 3 grand for every million
At retirement with a few million that’s a lot of cash
You don’t have to keep paying it every year. Just use it when you need it, like in the beginning of your career. Then, as you learn more and realize that you can do it yourself, don’t use their services.
While I agree that 3K is a lot of money, if it actually helps you get started, make it there etc. it’s worth it, and it’s a whole lot less than anyone else charges.
If the value for you just isn’t there, there is always the DIY option.
I’m an FA and I really like this post. Here’s why:
I am an MBA, a former Marine Corps Officer, a soon-to-be CFP and I am an honorary MD. (I earned my make-believe MD from my wife who said I deserved it after putting up with her for four years of medical school) These credentials, both real and make-believe, give me a unique perspective when it comes to financial planning for doctors. I have sat on both sides of the table when discussing financial planning and I am disgusted at the industry and what it can do to people. As you mention in other posts, there are some good ones out there, but how can you really tell? Even the most genuine advisor can be influenced by a large commission. I have felt it firsthand, and I don’t consider myself to be motivated by money at all! Sometimes it’s not about the money. Sometimes its about the competition with the other advisors in the office. These firms play on the emotions of both the investors and the advisors in order to make money for the firm. I finally stepped away and am in the process of starting my own business. I have been searching for a way to do something meaningful in this space and this post is very timely. I would be very interested in discussing this idea with you, even if it’s only to vent a bit. Thanks!
As an MD currently in an MBA program, I have wondered about opening a physician-physician advising company, Inspired by WCI. Maybe one day…
I think it would be pretty great. If I were to do something of this nature, like WCI I would want to get the appropriate credentialing which I assume may take a good bit of time. Ive actually looked into obtaining a finance degree recently, so who knows.
Being in finance and helping people would be pretty awesome, especially since this model would already be such a large step up from the predatory types that are so prevalent.
For those interested in learning while on the daily commute… I just started listening to Joshua Sheats at radical personal finance podcast (he has an app for iPhone and Android). Basically the entire CFP curriculum (as well as other person finance topics) for the layperson. Very intriguing.
What I think would be a good start is if some of the other states with strong medical societies do what the Utah Medical association did with the UMAFS, and Wisconsin now too. It is crazy to think they are still the only states to do so. I brought it up to an activist/lobbyist in Florida, and he acted like I was speaking another language. Only time and people willing to push hard for change will bring about more options, like the UMAFS & Wisconsin and WCI’s suggestions above. (please correct me if there are other states that have financial services!)
Thanks WCI for your part of getting the ball rolling nationwide!
I like the UMAFS model, but I doubt it is really run at cost- the expenses are too high. But the UMA had to pay to get it going and so it is now reaping the benefits. At least those benefits generally go back to the clients. But I’d still rather see the service run at cost.
Why not license your name to a roboadvisor and collect some passive income. WCI Advisory services like Betterment. Passive income and likely near optimal results for folks compared to active advisory.
Good thought. I guess the main reason is that every time someone approaches me on something like this I don’t agree with their investing philosophy.
I think you are great and honorable, and hope you continue.
On the other hand being a successful financial advisor (not one making cold calls) is often rated as one of the top jobs in the US (basically you are getting annuity from each satisfied client, even if somewhat fee based), good hours, less stress than a doc, etc. The level of burnout among docs is high, especially EM docs, and as you know the stress and irregular hours are not a healthy lifestyle. I speak as a former Chief of Emergency Medicine who was happy in my job, now recently retired. So as long as you like the stimulation of medicine, etc. keep going but keep the other option in mind.
This is a very interesting post; I’ve been considering making a career shift into financial planning for some time now. I’ve been a Certified Financial Planner for years, but I work as a Private Banker lending money to affluent individuals and their businesses (including many physicians and small medical practices).
I’ve always been interested/obsessed with personal finance and helping others reach their goals, but I couldn’t find a place in the investment management industry I would be comfortable in for many of the reasons you outlined. Mainly, I have little interest in actually managing people’s money and would rather empower them to manage it themselves and focus on wealth building strategies that aren’t beneficial to many “advisers” (like maxing out retirement accounts, cash flow management and paying down debt).
I’ve blogged about money for years instead and been active on financial forums as a (nonpaying) hobby/outlet for my passion. But the industry is changing and I’m now considering joining it and helping with the shift. Many planners, especially younger ones, are eschewing the AUM model and experimenting with monthly retainers, one time fees for a comprehensive financial plan, or simply charging hourly rates (sometimes in conjunction with lower AUM fees if the client does want investment management).
I hope financial planning will evolve as a profession similar to CPAs, attorneys and physicians. To do so it will have to shift away from selling mutual funds to actual planning and shift the way its members are paid.
This may seem simplistic, but why can’t doctors just use Vanguard? Why the need for a firm just for doctors?
The quality of the physician-specific financial planning advice received from Vanguard is likely to be very low. That’s why. Try it. Call up Vanguard and ask them if you should go for PSLF or refinance with DRB as an intern. Or maybe ask about the rules about multiple 401(k)s or any of the other topics discussed on this site. I suspect the Vanguard advisers will get you into a reasonable portfolio of index funds for your 0.3% a year, but don’t have super high expectations beyond that. Read TFB’s experience and you’ll get a sense for it.
http://thefinancebuff.com/vanguard-financial-plan-review-questionnaire.html
This is a fantastic blog involving some of the most thoughtful advice to some of the most intelligent people, yet I find significant lack of critical thinking and advanced logic that defines medical profession. Capital markets just like global economy are constantly evolving and changing, and with advances in technology and globalization are doing it at much faster pace than they did in the past. Something everyone should consider when it comes to their investment portfolio management is that just because something worked in the past does not guarantee that it will work in the future. To stay on top of financial planning changes in laws and regulations and updating client plans based not only on these changes but changes in clients” situation is a full-time effort and that is why a client should not just look for an advisor but an advice team which at the very least will consist of not just a capable financial planner but also an investment portfolio manager. Please keep in mind that even index investing is still active because it involves asset allocation, and that is where past static portfolio allocation and location is likely to give way to dynamic asset allocation and active portfolio management. In the world where economic growth has given way to global stagnation buy and hold or more like buy and hope just may not achieve investors goals moving forward. While reading a lot of the posts from this site I would like for all of readers to understand that there seems significant reliance on forecasting the future relying on investment methods that worked in the past to work in the same manner if not even better in the future. This is an assumption that any of us readers should not be willing to test on themselves given that we only have a short window and only one try at this thing called our life. What each one of us needs is not just a professional financial planner but also an experienced and knowledgeable investment portfolio manager who are unfortunately in very short supply because financial services industry has been producing portfolio managers that have been brainwashed in theories and approaches that have worked in the past and have been very profitable for the industry and significantly less so for clients. I implore all of us readers to look not just for planning and advice but also investment management excellence, we should not drive forward with our hard earned money while looking into the rearview mirror of approaches and performance of the past.
People were saying the same thing 10 years ago, 20 years ago, 30 years ago, and 50 years ago. Yet buy and hold keeps working just fine….Weird. Sure, the future may not resemble the past, but are you really willing to bet the farm on it?
Rob, are you claiming you can predict the future? That’s what it sounds like.
Rob,
I like my simple 3 index fund portfolio. If I get a “B” or a “B+” investing “passively” at least I didn’t get a failing grade. On an average physicians salary, getting a B and not messing up results in a good retirement and financial independence. I guess it depends on your goals.
I worked at Vanguard and know a lot of the men and women behind the development of the new advice offering there. It is going to be far more geared towards the $50,000 investor than the $5,000,000 one. You won’t get any hand holding, personalized tax help, estate law reviews, or individualized investment plan. They will give you a good plan but the model at 0.3% AUM is scale. The technology over there to do tax loss harvesting is absent. They will also recommend selling individual stock positions even with a lot of appreciation as the strategy is sell the stock first because they aren’t equipped to advise on a portfolio with many of these positions. It’s a great new offering that will help drive down costs in the business. However, it won’t come close to replacing the kind of service ultra high net worth FAs provide. At least not for a while. This coming from someone not employed in investment industry currently (unless you count my Millennial Moola blog I do for fun). Betterment and Wealthfront are probably better values as long as you don’t have to talk to a live person.
Hmmm, this type of planner and firm seem quite familiar to me. In fact , the profits my firm generates does go back to a physician;).
I agree, I doubt Vanguard will advise clients on debt repayment and real cash flow issues that young doctors face. I would go ahead and assume their “financial planning” is cookie cutter and geared towards retirees and near retirees, not much unlike most financial advisory firms. Young doctors would probably would get bad advice in many important areas from the Vanguard financial planning service.
WCI,
What exactly are the requirements advisors to open up shop and provide financial advice? Are degrees/designations even a necessity? I imagine there is a difference for those who actively manage assets vs. those who simply provide fee-only advice.
Thanks,
Jon
No degrees or designations are required. Only the very minor tests required for licensure.
Your imagination is wrong. You can be a “financial advisor” of either type with less than a week of preparation.
Hate to dredge up an old conversation, but I’d be shocked if WCI could pass both the Series 7 & 66 with a week of preparation. I’m assuming your comment was hyperbole, but let’s be realistic.
Series 7:
This guy studied for two weeks: https://www.wealthmanagement.com/forums/rookies-trainees/how-much-study-series-7
Someone else says 100 hours. I don’t know about you, but I put in more hours than that some weeks of medical school and 80 hours most weeks of residency.
Series 66:
This guy says 60-80 hours. One week.
https://solomonexamprep.com/series66/faqs
I mean, I haven’t taken the test, I’m just Googling what other people who took it said. But so what if it is 2 weeks, or even 3? Hardly changes the argument.
Would you recommend seeing a financial advisor for a 4th year medical student about to graduate? I’ve been trying to comb through the website to figure out what to do with my $215,000 + of federal debt but now have more questions than answers, especially with so many income based repayment options pre-PSLF (I’m planning to do pediatric heme/onc). I also have a partner outside of medicine and we want to know how marriage or tax filing statuses would effect my finances.
Are these the types of questions I would bring to a one-time meeting with a financial advisor? Or is this something better suited to a calculator and DIY approach? Thanks so much!
I think you need to meet specifically with a student loan expert if you’re going to meet with someone. I wouldn’t expect a typical CFP type to be able to walk you through these scenarios. I only know of about 5 people who I’d go to in order to help with this, and most of them advertise on this site.