Here's What You Need to Maximize Your Finances: How to Select a Financial Planner Who's Got Your Back

Joel S. Greenwald, MD


December 06, 2021

Many physicians choose to handle their finances themselves, even if they would benefit from working with a financial planner. So why do docs shy away from hiring a professional advisor? 

A significant factor is a lack of trust or the concern they will be taken advantage of. Another concern is hiring an advisor who may not have the right training, knowledge, and experience. It's even harder to figure out if an advisor has your best interest at heart. 

So what can you do to find a financial advisor who provides the same level of care and dedication as you provide to your patients? 

If you're wondering where to start, here are some pointers. 

Does an Advisor Have to Be a Fiduciary?

First off, what is a fiduciary? By definition, a fiduciary financial planner is required to put the client's interest first, always, based on exacting standards set by the SEC. Advisors who aren't fiduciaries are only held to a lower "suitability standard." Being a financial advisor does not require being a fiduciary, but hiring a fiduciary advisor is the right choice. 

Let's see why, by looking at nonfiduciary financial advisors employed by insurance companies. These advisors get significant commissions for selling the firm's products, especially proprietary products. So, do they sell what's best for the client or the product that earns the largest commission? Fiduciaries don't face this challenge — they are required to have the client's best interest at heart. 

The bottom line is that there's no reason to go with a nonfiduciary advisor, who may just sell you what's good enough, rather than go with a fiduciary.

Designations and Training

Unlike medicine, there is no required training, background, experience, or certification that qualifies someone to offer financial advice. One way to gauge an advisor's training and experience is by finding out their professional designation.

The gold standard for financial planning is the CERTIFIED FINANCIAL PLANNER™ designation. Other strong designations are the Personal Financial Specialist (PFS), which is awarded to CPAs, and Chartered Financial Analyst (CFA). Other certifications likely require a lower level of knowledge and are not authoritative. Even more, beware of advisors with no designations at all. 

Investment Strategy

Most well-trained financial planners follow the CFP curriculum's academically based principles of portfolio construction. However, strategies may differ from firm to firm. For example: 

  • Illiquid investments: Some investments, such as private equity and real estate syndication, will be locked up for a while — often years. Plus, these products often carry significant, yet hidden or vague, commissions. Make sure you are comfortable with this advice before agreeing to it.

  • Amount of trading: Studies have shown that the more trading is done in portfolios, the greater the likelihood that it will underperform the market — making it worse for you. Find out if a prospective advisor's trading philosophy matches yours. 

Understand Compensation Models: Commissions vs Fees

Different methods of compensation for planners can be confusing, especially what it means to be fee-only vs not fee-only. First, let's assume that you will hire a fiduciary. Next, let's take a closer look at the pros and cons of each type of compensation.

Fee-Only Fiduciary Advisors

Fee-only fiduciary advisors only accept compensation directly from clients — never from other sources, such as providers of disability or term life insurance. When fee-only advisors recommend such products, they must refer them out to an insurance agency. 

The most common fee-only financial advisor structure is charging a percentage of the assets under management, commonly referred to as AUM. This puts the advisor on the same side of the table as the client: If the financial advisor's fee grows with your account balance, both of you win when your portfolio increases in value.

Other less common fee-only compensation methods include fees for a one-time engagement, hourly planning fees, and monthly or annual retainer (or subscription) fees. 

Upside: There is no temptation to steer clients in the direction of products for which they will receive commissions.

Downside: Clients can't receive all their financial planning services, such as term life insurance and disability insurance, from a single financial advisor. 

Fee and Commission Fiduciary Advisors

Unlike fee-only advisors, some fiduciary advisors offer insurance products such as term life insurance and disability insurance to clients, presenting clients with the best options for their financial needs. The advisor receives a modest commission from an insurance company when their product is purchased.

Upside: The advisor offers insurance products that a fee-only advisor does not, enabling a client to receive all of these products from a single financial fiduciary. 

Downside: It may present a challenge to an advisor who may benefit from selling one product over another based on receiving a commission. Commissions paid on term life and disability insurance are modest compared with other insurance products often pushed on physicians, such as cash value life insurance and annuities.

Look for a Comprehensive Scope of Practice

Many financial advisors limit their practice to investing the client's portfolio. Instead, look for a financial planner who provides a complete set of services, including: 

  • Tax and estate planning and implementation

  • Portfolio construction and management, including assets in employer retirement plans

  • Insurance planning, including life, disability, and property/casualty

  • Assistance with selecting employee benefits each enrollment period

  • Mortgage and debt analysis, including student loans

Some Big Red Flags to Watch Out For

As you interview a financial planner, ask for clarification on exactly what services you'll get, who will provide these services, and the types of solutions they typically recommend for various life situations. In particular, look out for these big red flags.

Bait-and-switch advisors: Confirm exactly who you'll be working with. While a senior advisor may lead the initial meeting, some firms may pass you off to a junior, less experienced advisor. 

Life insurance as a cure-all: Life insurance is designed to provide for dependents if the breadwinner passes away — not act as a magic pill. Be aware of insurance firms that push life insurance for every financial planning scenario, including retirement savings in place of your employer plan or funding your child's education in place of a 529 account.

Does My Financial Advisor Need Experience With Physician Clients?

You don't necessarily need a financial advisor whose practice is limited to physicians. On the other hand, you want an advisor who has experience with the unique planning needs of physicians. When interviewing prospective advisors, ask them how many physician clients they work with.

How to Begin Your Search for a Fiduciary

You can start by using the "Find an Advisor" tool on the CFP Board, National Association of Personal Financial Advisors (NAPFA), or XY Planning Network websites. Then, narrow down your list to two or three candidates. The CFP Board of Standards offers a list of suggested interview questions

Just as finding the right physician can be difficult for patients, finding a well-trained, diligent fiduciary financial planner can also be a challenge. But identifying the right advisor for you and your family can make all the difference in achieving your financial goals.

The above article is intended for informational purposes only. Please consult a legal or tax professional regarding your situation.

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About Dr Joel Greenwald
Joel S. Greenwald, MD, is a graduate of the Albert Einstein College of Medicine in Bronx, New York, Joel completed his internal medicine residency at the University of Minnesota.

He practiced internal medicine in the Twin Cities for 11 years before making the transition to financial planning for physicians, beginning in 1998.

Joel's wife is a radiation oncologist, making him all too familiar with the stress of medical practice.

Knowing firsthand the challenges of practicing medicine, Joel's passion is making the lives of physicians easier by helping relieve them of financial worries.

Connect with him on LinkedIn or on his website.


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