Certified Financial Planner™ for physicians

007 Questions Physicians are Asking About Bonds

Bonds are supposed to be boring. In fact, best-selling author and former British intelligence officer Ian Fleming—the man behind British Secret Service Agent James Bond, code-named 007—thought “bond” was one of the most boring words in the English language.

In his 1962 interview with The New Yorker, Fleming said, “I wanted Bond to be an extremely dull, uninteresting man to whom things happened; I wanted him to be a blunt instrument ... when I was casting around for a name for my protagonist I thought by God, (James Bond) is the dullest name I ever heard.” He lifted the name from an American ornithologist named James Bond.

Ornithology, huh? Big yawn.

Now, I’m no bird watcher, but as a fee-only financial planner for physicians, I also manage more than $50 million dollars for about 40 families and a couple of pension plans, and I happen to believe that bonds are anything but boring.

I think bonds are fascinating, functional and fun, so I’m excited to share some questions clients have asked about them, along with my oh-so exciting answers:

  1. “What is a bond? I mean, how does it work?” A bond is nothing more than a loan. When you buy a bond, you’re basically making a loan to whoever issued the bond. So if you buy a US Treasury bond (the most common kind of bond here in the United States), then you’re making a loan to Uncle Sam. When you own the bond, you can collect interest from it, which is mostly how people make money in bonds.
     
  2. “Can I lose money in bonds?” Yes, you can. Most bonds are sensitive to changes in interest rates. When interest rates rise, bond prices drop, and vice versa.
     
  3. “If I can lose money in bonds, why would I want to own them?” Well, you can make money in bonds, too. When interest rates fall (as they have for several years now), bond prices rise. And regardless of the direction of interest rates, you can still gain interest by owning bonds or bond mutual funds.
     
  4. “What about the Bond Bubble?” Ah yes, the Bond Bubble. Pundits and soothsayers argue that bonds are doomed to lose money because interest rates are at historic lows and “interest rates have nowhere to go but up.” I wish the argument were this simple. It’s true that interest rates on US Treasury bonds are very low, and that these bonds are sensitive to interest rate changes. But it’s also true that you cannot predict the future, not even the future of interest rates. I mean, look at Japan: they've had super-low interest rates for decades now. Calling the future is a fool’s game."
     
  5. “So, should I dump all my US Treasuries?” If you ONLY own Treasuries, then maybe you should lighten up a tad. But before you go off and sell all your Treasuries, you have to remember that Treasuries are a special kind of bond because they are backed by the full faith and credit of the US government. This gives them a special status in the world, and they are seen by US investors and non-US investors alike as a “safe haven” during hard times. For instance, when all hell broke loose back in 2008, US Treasuries were just about the only kind of bond that actually gained value. This makes US Treasuries a good diversifier for an all-stock portfolio.
     
  6. “What kinds of bonds are there besides Treasuries?” Well, it’s a great big bond world out there. According to the Barclays Capital Global Aggregate Bond Index, there are about $32 trillion worth of debt outstanding from 12,000 issuers worldwide, making the global bond market twice as big as the global stock market. There are government bonds and corporate bonds; developed market bonds and emerging market bonds; high yield “junk” bonds and high quality “investment grade” bonds; short term, intermediate term and long term bonds; inflation-adjusted and “nominal” bonds, dollar-hedged and un-hedged foreign bond funds, and just to spice things up, there are floating rate bonds too. (If there is a Bond Bubble brewing, I find it hard to believe that it would impact every one of these at the same time.)
     
  7. “With so many choices, what kind of bonds should I own?” To thrill my compliance attorney and all the regulators who read my blog, I’ll say that you should consider your own personal financial situation, investment objectives and tolerance for risk before you invest in any bond or bond fund. But to address the question head on, I’ll tell you that diversification is a very, very good thing, and it might not be a bad idea to own a wide variety of bonds… a task made far easier these days by the proliferation of bond index funds from Vanguard and DFA.

Bonds may not be as gutsy as guns, as giddy as gadgets, or as glamorous as Bond's babes, but they’re an important part of a balanced investment strategy and they just might help your portfolio be stirred, not shaken, the next time it looks like the world is coming to an end.

7 Steps to a More Financially Secure 2016 | Oncology Practice Management

It is a new year. That means you have another chance to start over again, to take a fresh look at your finances, and to get on track for the future. So, where should you begin? Every physician should take several steps when moving toward financial security, and we want to share a few of them with you at the beginning of 2016.

1. Delve into Your Disability Insurance Policy

When was the last time you reviewed your disability insurance for doctors policy? If it has been more than a few years, it has been too long. Things change, and your coverage should keep pace. If your earned income is higher now than when you originally purchased your policy or last updated your coverage, chances are very good that you are underinsured.

Next, sit down and read through each of your policies. Pay special attention to the definition of disability. Ideally, your policy should include a true or pure “own-occupation” definition of total disability, which specifically states that you will be considered totally disabled if you are unable to perform the material and substantial duties of your occupation.

This definition allows you to work in another occupation or medical specialty and to receive full benefits, regardless of the income you earn from another occupation or medical specialty. Some companies will even go as far as to state that if you have limited your practice to a professionally recognized specialty in medicine, that specialty will be deemed your occupation.

Look for medical exclusion riders. Were you suffering from low back pain when your policy was issued?

Were you seeing a psychologist while you were going through a divorce? If so, you may have a rider on your policy that excludes these preexisting conditions. But if that divorce is far behind you and your back is much better now, you can ask your insurance company to reconsider those exclusion riders to close the gaps in your coverage.

Last, but not least, see if your policy includes a “multilife” or association discount. Although this can provide male physicians with a savings of only 10% to 15% off of their policies, female physicians can save as much as 60% of the normal female rates, if a gender neutral or a “unisex” rate is available. Therefore, if you are still healthy, and your policy does not include any discounts, it may make sense to “shop” the marketplace to see if you can obtain a similar policy for a lower premium relative to when you first purchased your policy.

2. Lift Your Umbrella to Cover Your Assets

The past 7 years have seen a dramatic rise in stock prices and home values, so there is a good chance that your net worth has increased. That is the good news. The bad news is that you are now a bigger target for lawsuits than ever before. Although your malpractice coverage may protect you from bad outcomes in the clinic, there are plenty of dangers lurking in your everyday dealings, so you need to make sure that all those risks are covered too.

The liability coverage under your homeowners and automobile policies is your primary layer of protection. However, if you need additional protection, you should purchase an excess liability or “umbrella” policy. Personal umbrella liability protection is secondary coverage that works in conjunction with your primary policy. When the liability limit of your primary policy is exhausted, the umbrella policy will pay the balance of a liability claim against you up to the umbrella policy’s limit.

You should also avoid structuring your automobile and homeowners policies with low deductibles. Low deductibles will cause your premium rates to rise substantially. Therefore, it is best to increase your deductibles to at least $1000 and to devote the premium savings toward increasing your liability limits and/or purchasing an umbrella or excess liability policy.

3. Establish an Emergency Fund

When you look into your bank account, what do you see? Typically, we see physicians with 2 accounts, a checking account and a savings or a money market account. Although that is acceptable, it means that your emergency fund, if you have one, is pooled with all the other monies you use to pay your expenses, go on vacation, and pay your taxes. So, how much of that money is really reserved for bona fide emergencies? There is no way to tell.

You, your spouse, and your loved ones can gain great peace of mind by simply segregating your emergency fund into its own separate account, such as a checking account, savings account, or money market account, which can be easily accessed without penalty. This is a fund to be used for unforeseen or overlooked expenses. Although the size of the fund is a personal decision, suggestions range from 3 to 6 months of your living expenses. Either way, keeping this fund separate from all your other accounts makes it easier to see, so that everyone knows that the safety net is real.

4. “Max Out” the Match

You would not walk away from free money, would you? Of course not. Nonetheless, we routinely see physicians who miss out on their employer’s matching retirement plan contribution by failing to max out their own elective deferrals.

To make the most of your retirement plan, contribute all you can. The maximum elective deferral into Section 401(k), 403(b), 457(b), and government thrift savings plans remains unchanged for 2016, at $18,000 for most physicians and $24,000 for those aged 50 years or older this year.

While you are thinking about your workplace retirement accounts, take a look at the investment options in your plan. Have they changed? Each year, your plan fiduciaries (the people who put together the list of mutual funds from which you can choose) are supposed to review the options you have to choose from so you have ample opportunity to diversify your holdings. The key word here is “opportunity,” because it is your job to actually make the final decision about how to invest.

5. Do Not Tolerate High Interest Rates

Banks and financial institutions are bending over backward to win physicians as customers. After all, you earn 6 figures in a 5-figure world, and you are the pillar of your community—both of these make you a good risk for lenders. Make them earn your business.

Review all your loans—your student loans, your mortgage, your car loans, and your credit card balances—and then ask yourself, “Is this the best they can do?” Then call up your lender(s) and at least one other bank or financial institution, and ask them the exact same question.

When you get an offer from one, compare it with the other offers you have received. Ask if you can qualify for a lower interest rate and, if you do not, ask if they can waive an origination fee or see if you can qualify for less restrictive terms. Maybe one wants your spouse to cosign, whereas another does not. Do not forget that you are the customer and deserve only the very best.

6. Raise Your Deductible to Lower Your Taxes

Health savings accounts (HSAs) have been in use since 2003, but many physicians are just now learning how they work. If you have a qualifying high-deductible health plan, you can open an HSA for yourself or your family and contribute $6750 in 2016 (for family plans) or $3350 for individual plans, plus an additional $1000 for those aged ≥55 years.

Although $6750 may not seem all that much in the grand scheme of things, your HSA contribution can deliver permanent income tax savings plus years of tax deferral. For example, a physician in the top federal tax bracket can reduce his or her tax bill by $2673 when he or she makes the maximum family contribution.

However, many physicians who are using an HSA account are using it the wrong way. They will contribute to the account, get the tax break, and then spend the account down to zero on medical bills. A better strategy is to pay those bills out of pocket and invest the account balance, so that it can grow tax deferred for retirement, when it can be used to pay for healthcare.

7. Take a Second Look at Your Life

People are living longer today than ever before, so life insurance premiums have decreased steadily over the past several years. So if it has been many years since you reviewed your coverage, now is a great time to do so.

You should use the services of an experienced insurance agent who represents several companies to help you get the best rates, especially if your health is less than perfect.

The agent will know which carriers are likely to provide you with a better underwriting classification based on your height and weight, immediate family history, and/or other medical issues to allow you to secure a lower premium rate.

For example, if you are being treated for hypertension, certain companies will allow you to qualify for their best underwriting classification, but others will not. After all, using an agent or applying for the insurance product online will not cost you any additional money.

Conclusion

This article provides 7 steps to help you reach a more financially secure 2016. The key is to take the time to evaluate which of these concepts, if any, works for you in terms of your personal financial planning. After all, most people “don’t plan to fail, they simply fail to plan.”

W. Ben Utley, CFP, is the lead advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping doctors throughout the United States to save for college, retirement, or other financial goals. He can be reached at 541-463-0899 or by e-mail at ben@physicianfamily.com.

Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF, is the founder of Physician Financial Services, a New York–based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at 516-677-6211 or by e-mail at Lkeller@physicianfinancialservices.com with comments or questions.

This article originally appeared in page 42 of the January 2016 print edition of Oncology Practice Management.

Seven steps to finding the right financial advisor

As a physician with substantial income (or income potential), you will most likely be contacted by a number of individuals offering various types of financial products and services throughout your career. If you are in the market for an advisor, you will want to know the qualifications and experience level of each one you are considering. Unlike medicine, which has a standardized path that physicians must take to gain the education, training, and experience necessary to obtain board certification, the insurance and financial services industry does not. While advisors must pass certain tests to earn a license in securities or insurance, for the most part, anyone can call himself or herself a financial advisor. Credentials and Certifications

Finding the right financial advisor to help you build your financial future can be as challenging as choosing the right doctor to care for your health, so it is important to look for several key credentials. Following is a brief summary of some of the most recognizable designations or certifications that you might see among financial service professionals and what it takes to earn them.

Certified Public Accountant (CPA): CPAs provide you with advice on tax matters and help you prepare and submit your income tax returns to the Internal Revenue Service. To be a CPA, candidates must pass a 14-hour computer-based test with 4 sections: auditing and attestation; financial accounting and reporting; regulation; and business environment and concepts. There are also work experience requirements that must be met. Not all accountants are CPAs. CPAs must meet stringent continuing education requirements and are regulated by states as well as their profession’s code of ethics.

Personal Financial Specialist (CPA/PFS): A PFS is a CPA who has demonstrated both knowledge and significant practical experience in the area of personal financial planning. Only CPAs who are members of the American Institute of Certified Public Accountants can earn this designation.

Certified Financial Planner (CFP): The CFP certification is one of the most recognized and prestigious credentials in the financial services industry. CFPs have completed a series of courses in investments, insurance, income taxes, estate, and retirement planning. They have also passed a comprehensive 10-hour certification exam. Additionally, CFPs must have at least 3 years of planning experience and meet stringent continuing education requirements as well as have a bachelor’s degree. While an estimated 700,000 people currently call themselves financial planners, only 1 in 10 holds the CFP designation. If you need help with more than 1 issue in your financial life or if you are targeting long-term goals like retirement or college, make sure a CFP is on your list.

Chartered Financial Consultant (ChFC): ChFCs have credentials similar to CFPs. ChFCs have completed a series of courses and exams covering financial, insurance, and estate planning subjects. The ChFC program provides financial planners and others in the financial services industry with in-depth knowledge of the skills needed to perform comprehensive financial planning for their clients.

Chartered Life Underwriter (CLU): CLUs are insurance agents who have completed comprehensive educational courses and demonstrated expertise in different areas of estate and insurance planning. This designation is specifically designed to enhance the knowledge of people employed in the life insurance industry. CLUs must also have at least 3 years of professional experience.

Chartered Financial Analyst (CFA): CFAs have expertise in investing and portfolio management. They have passed 3 exams based on investment principles, applied financial analysis, and investment management. Each exam is approximately 6 hours in length. Additionally, CFAs must have at least 3 years of experience in the investment decision-making process. Generally, the CFA designation is recognized as the definitive standard for measuring competence and integrity in the fields of portfolio management and investment analysis.

The Steps

Financial planning takes the guesswork out of managing your finances and helps you understand the implications of each financial decision you make. Everyone has different goals, so it is important to have a unique plan that works for you and your financial situation, both now and in the future. The following 7 steps will help you find an advisor who understands and meets your unique goals and needs.

1 Make a Well-Founded List of Prospective Advisors

Begin your research by conducting an Internet search using the terms “physician financial advisor” or “physician financial planner.” Look for signs of expertise such as published articles, a book, or maybe even a blog. A search outside of your community means you increase the odds of finding the best-qualified advice for the price you may pay. A search inside of your state means that the advisors you find are more likely to understand your financial environment, including your state’s tax laws, economy, job market, unique investment opportunities, and other factors that may impact the success of your financial plan. If you are concerned about the advisor’s location, keep in mind that today many financial advisors work with clients by telephone, e-mail, and video conference on a regular basis.

Next, it is important to search a few specific organizations. CFP Board (www.cfp.net) is a nonprofit organization acting in the public interest by fostering professional standards in personal financial planning through its setting and enforcement of the education, examination, experience, ethics, and other requirements for CFP certification. The National Association of Personal Financial Advisors (www.napfa.org) is the country’s leading professional association of fee-only financial advisors. Finally, the Financial Planning Association (www.plannersearch.org) is the largest membership organization for CFP professionals in the United States and also includes members who support the financial planning process.

To round out your list of prospective advisors, ask your colleagues, your accountant, and your attorney who they recommend. Ask them why they believe this advisor is the best one for you. If their reason sounds valid, add the advisor to your list.

2. Select for Quality

Every prospective financial advisor on your list should have at least 1 real credential. Beware of generic pseudocredentials like financial advisor, financial consultant, and wealth manager. These titles merely signify that an advisor is in the business and may hold a license. Whereas most licenses require an advisor to pay a fee and pass an exam, these may be easily acquired with a minimal commitment of time and effort.

In contrast, certifications usually require a higher level of commitment and dedication. Formal training, rigorous examination, continuing education, years of experience, and oversight by a board or governing body are part of attaining and keeping a certificate, so certification is an outward indicator of the quality of advice you may receive. Narrow your list by crossing advisors off your list if they do not have at least 1 of the previously listed credentials.

3. Do Your Homework

Learn more about the advisors who remain on your list. Visit their websites, and search for answers to questions such as the following:

  • How long have you been in business?
  • What type of clients do you work with?
  • What services do you provide?
  • What is your specialty?
  • What is your approach to financial planning?

4. Conduct an Interview

Every advisor on your newly trimmed list warrants a preliminary phone call. This is an interview, and you are the interviewer, not the interviewee, so make sure that you get the answers you need.

First and foremost, ask the candidate how he or she is paid. Planners can be paid in several ways: through fees, commissions, or a combination of both. Your financial planner should clearly state how he or she will be paid for the services to be provided. Although there is no single method of paying for financial services that is inherently better than another, you will nevertheless want to consider, and discuss with your planner, how the method of compensation could affect the advice you receive or the way you work with the advisor. You and your financial planner should discuss these issues, including any conflicts of interest that may be created by the method of compensation.

Then ask whether the advisor has ever been publicly disciplined for any unlawful or unethical actions in his or her professional career. Several government and professional regulatory organizations, such as the Financial Industry Regulatory Authority, your state insurance and securities departments, and the CFP Board keep records on the disciplinary history of financial planners and advisors. If a CFP professional violates any of the CFP Board’s standards, he is subject to disciplinary action up to permanent revocation of certification. Ask which organizations the planner is regulated by and contact these groups to conduct a background check. You can also visit http://brokercheck.finra.org.

Make appointments to visit advisors who remain on your list after this screening round.

5. Speak with at Least 3 Prospective Advisors

Now you are ready to make the biggest mistake that most people make when selecting an advisor: engaging the very first advisor you meet. While this may solve your immediate problem, it may lead to less-than-stellar results over the long haul. Why? Almost all advisors hold up well during the first interview. They have been interviewed hundreds of times and are ready to sign you up today. Resist the temptation to sign up for services at the first meeting. Instead, collect information and get a feel for how you and the advisor might work together over the longer haul.

6.  Consider What You Have Learned

Think about your interview with each advisor. Ask yourself these last few questions before making your final decision:

  • How well did each financial advisor listen to me? The hallmark of a good relationship with your financial advisor will be your ability to communicate your needs. This means that he or she must do an excellent job of listening to you in order to understand how he or she can help.
  • How clearly did each financial advisor express himself or herself? Even if you receive the very best financial advice from your new advisor, you might not follow the advice unless you fully understand it. Consider whether the advisor “speaks your language.”
  • What promises did each financial advisor make? Consider how each advisor attempted to win you as a client. The best advisors attempt to set clear, realistic expectations about your work with them during the very first meeting. They know the foundation for a great, long-term advisor–client relationship is their ability to make promises and deliver on them.

7. Select a Financial Advisor Who Suits You

When you finally decide which advisor to hire, you may realize something that good financial advisors already know: the financial advisor you choose may be a lot like you. People have a natural tendency to trust others who are much like themselves, so the advisor you choose will likely share your interests, your outlook, and even some of the same financial goals you hold.

Summary

No matter which financial advisor you choose, make sure the one thing that you have in common is an uncompromised interest in your financial health. Start your search for a competent financial advisor today and begin enjoying better financial health tomorrow.


W. Ben Utley, CFP, is the lead advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping doctors throughout the United States to save for college and invest for retirement. He can be reached at 541-463-0899 or by e-mail to ben@physicianfamily.com.

Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF, is the founder of Physician Financial Services, a New York–based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at 516-677-6211 or by e-mail to Lkeller@physicianfinancialservices.com with comments or questions.

 

 

Demystifying the defined benefit pension plan| W. Ben Utley CFP® writes for Orthopreneur

When it comes to money, there’s only one thing more complicated than the tax code, and that’s the rules surrounding qualified retirement plans. While they may be complicated, these plans are simply the best way for surgeons to beat the tax man at his own game.

No qualified plan is more powerful than a defined benefit plan, and no plan is more poorly understood. Here’s a primer to help you get started.

A defined benefit plan is an employer ­sponsored retirement plan that promises to deliver a specific or “defined” amount of money or “benefit” to an employee beginning at retirement and lasting for the rest of their lives. Traditionally known as “pension plans,” defined benefit plans have been around for decades. Actuaries—the bean counters who design and administer these things—refer to them collectively as “DB plans” and the most recent incarnation of the DB plan is called a “cash balance plan.”

No matter what you call it, the DB plan is a wicked sharp tool for deferring income, reducing taxes and protecting assets.

Every dollar that goes into the plan is a dollar that your employer (that’s you, if you’re self-­employed) does not pay out in profits, which means that income is not taxed today. If you’re a surgeon aged 45 earning $210,000 or more, you can receive contributions to your plan of up to $112,000 in 2014 (twice as much as you could contribute to a combination 401(k)/profit­sharing plan). At age 55, you can receive contributions of more than $200,000. Given taxation in the 35 percent Federal marginal tax bracket, surgeons taking advantage of a DB plan are deferring somewhere between $39,000 and $70,000 in taxes every year.

Note the use of the passive voice, here. We did not say “you can contribute.” We said “you could receive contributions.” This is one aspect that sets the defined benefit plan apart from the more familiar defined contribution plans (like 401(k), 403(b) and profit­sharing plans). You, as an employee, have precisely zero control over a DB plan. It all rests in your employer’s hands. They decide how much you can defer, how it will be invested and whether or not you can participate. If you’re not self­employed, you might as well stop reading here because there’s literally nothing you can do about a DB plan.

If you’re self-­employed, though, meaning you’re a partner, shareholder, LLC member or sole practitioner, there are a few things you need to know.

  • Contributions to your DB plan are based on your employee’s age and compensation. Older, more highly­compensated employees (typically the surgeon owners) will require greater contributions, while younger staff with lighter wages will get less.
  • You cannot game the system so that only the owner-­employee benefits. The IRS has strict rules about who must be covered and more rules that prohibit discrimination. A skilled actuary may be able to tilt the playing field in your direction, but you must know that your employees will be treated equitably by your plan.
  • A DB plan requires commitment. While there is no hard and fast rule about how many years you must keep your plan in operation, actuaries generally advise employers to keep their plans open for at least five years, and to keep those plans active/funded in at least three of those years. This means you need to have a reason to believe that your practice will have sustainable positive cash flows in the foreseeable future.

These general guidelines paint a picture of which practices should, and which should not, adopt a DB plan.

The best fit scenario we have seen was a group of four radiologists who had no employees. Two of the physicians were in their early 60s, with one junior partner in her mid ­40s and one newly ­hired physician on track to become a partner. They all earned mid-­six-­figure incomes. Collectively, they could have socked away more than a half million dollars a year.

The worst fit scenario typically involves younger physician owners with highly-­compensated physician extenders, a plethora of older support staff and a hazy or fragile bottom line.

However, some scenarios that seem like a poor fit for a DB plan might be salvageable. Particularly in situations where the employer has a safe harbor defined contribution plan, like a combination 401(k)/profit sharing plan where the employer is already making generous contribution to each employee’s account. In such a case, it might be possible to dramatically increase the overall contributions to owner-­employees while only slightly increasing the share of plan benefits received by employees.

Beyond the tax benefits, DB plans are hugely helpful for surgeons in subspecialties with high rates of malpractice. As entities governed by the Employee Retirement Income Security Act of 1974 (ERISA), they are exempt from the reach of creditors through bankruptcy.

If you decide to explore the option of adding a DB plan to your practice, there is no substitute for a consultation with a pension guru. It is customary for pension actuaries to run a complimentary analysis of your practice to let you know whether or not a DB plan might be right for you. This analysis is usually free of charge.

While the rules surrounding DB plans are painfully complicated, there is no reason to fear what you do not at first understand. The potential benefit is so enormous that you owe it to yourself—or at least you owe it to the next partner who brings this idea into your executive committee meeting—to ask questions and listen to the answers so that you can understand all the costs and benefits to know whether or not a DB plan is a good fit for your practice. 

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement.

This article originally appeared in Orthopreneur with the title "Demystifying the Defined Benefit Pension Plan".

7 Steps to selecting the right financial advisor | W. Ben Utley CFP® writes for Orthopreneur

Finding the right financial advisor to help you build your financial future can be as difficult as choosing the right doctor to care for your health.

The benefits of good advice are obvious: increased control over financial matters, a sense of confidence and security about money and a more “wealthy” outlook on life in general. Yet many people go their entire lives without so much as a financial checkup.

Why?

Like a visit to the doctor, a financial checkup means that you might find yourself standing “financially naked” before someone who would examine you from head to toe in order to diagnose your condition. They might even make some less–than-flattering remarks about your financial health before prescribing a treatment.

Don’t let the discomfort and fear associated with the all-too-taboo subject of money keep you from seeking the care of a competent financial professional. Follow these seven steps to improve your chances of finding the right advisor before you expose any of the details of your personal financial life.

Step 1: Make a Well-Founded List of Prospective Advisors
It’s easy to open your local phone book and look under “F” to find a financial planning consultant in your area, but this could be your first mistake. Don’t limit your search for an advisor. 

Begin by visiting these two websites:
www.napfa.org, the National Association of Personal Financial Advisors
www.fpanet.org, the Financial Planners Association

Also, perform an Internet search using the terms “physician financial advisor” and add a couple of advisors to your list this way. Look for signs of expertise such as published articles, a blog or maybe even a YouTube channel.

A search outside of your community means you increase the odds of finding the best-qualified advice for the price you may pay. A search inside of your state means that the advisors you find are more likely to understand your financial environment, including your state’s tax laws, economy, job market, unique investment opportunities and other factors that may impact the success of your financial plan. If you’re concerned about the advisor’s location, keep in mind that today, many financial advisors work with clients by telephone, email and video conference on a regular basis.

To round out your list of prospective advisors, ask your colleagues, your accountant and your attorney whom they might recommend. Ask them why they believe this advisor is the best one for you. If their reason sounds valid, add the advisor to your list.

Step 2: Select for Quality
Every prospective financial advisor on your list should have at least one real credential. Beware of generic pseudo-credentials like “financial advisor,” “financial consultant,” “wealth manager” and even “vice president.” These titles merely signify that an advisor is in the business and may hold a license. While most licenses require an advisor to pay a fee and pass an exam, these may be easily acquired with a minimal commitment of time and effort.

In contrast, certifications usually require a higher level of commitment and dedication. Formal training, rigorous examination, continuing education, years of experience and oversight by a board or governing body are part of attaining and keeping a certificate, so certification is an outward indicator of the quality of advice you may receive.

Narrow your list by crossing advisors off your list if they don’t have at least one of these credentials:
• Certified Public Accountant (CPA): Certified Public Accountants may have broad financial knowledge, but are particularly useful if  you own and operate your own practice. They often specialize in business planning or tax planning.
• Chartered Financial Analyst (CFA): Chartered Financial Analysts seldom delve into matters of personal finance since most CFAs specialize in the management of investment portfolios. If you have a large ($5 million or more) portfolio, consider seeking the advice of a CFA.
• Certified Financial Planner™ (CFP®): The Certified Financial Planner mark is the most sought-after credential among advisors who practice financial planning. While there are currently estimated to be 700,000 people calling themselves “financial planners,” only one in ten holds the CFP mark. If you need help with more than one issue in your financial life or if you are targeting long-term goals like retirement or college, make sure a CFP is on your list. Step 3: Do Your Homework
Learn more about the advisors who remain on your list. Visit their websites to find answers to questions like:
• What services does the financial advisor render? Find someone who solves problems like those you may have.
• What kind of clients is the financial advisor seeking? Make sure his or her answer describes a person like you.
• What is the financial advisor’s specialty? Beware nondescript statements like “high net worth individuals” or non-specialization statements like “businesses, individuals and nonprofit organizations.” 

Try to determine the kinds of clients they usually serve, and whether or not that description matches people in your same stage of life, or who share your same age, income and occupation.

Step 4: Ask a Few Key Questions
Every advisor on your newly-trimmed list warrants a preliminary phone call. This is an interview and you are the interviewer, not the interviewee, so make sure that you get the answers you need. Here are the questions to ask, and what you might learn from the answers:

1. How are you paid? There are only three answers to this question: commissions, fees plus commissions or “fee-only.” If you know exactly what product you are looking for, you might find it acceptable to work with a commissioned salesperson (a stockbroker or insurance agent, for example). However, when a financial advisor offers advice on products he sells in exchange for a commission, conflicts of interest may prevent him from giving you advice you can comfortably rely on. If you want objective advice, rule out prospective advisors who are compensated directly for services rendered. Advisors who accept only direct payment (checks, credit cards or direct debits) are known as “fee-only” advisors because they refuse to accept payments (like commissions or referral fees) from any source other than you, the client.

2. For whom will you be working, when you serve me? This may seem like a redundant question, since the advisor probably announced the name of her business when she answered your call. But the answer here tells you a great deal about how you may be treated. If your advisor is a “registered representative,” then she owes her first duty to the company that employs her, not to you. However, if your advisor is a fiduciary, she owes her first duty to you by law. You know you’re working with a fiduciary when she is registered as an investment advisor with her state or the U.S. Securities and Exchange Commission (SEC) and she uses a contract or engagement letter to form a business relationship with you.

3. How long have you been in business? There’s no substitute for experience. Look for at least ten years of experience delivering financial advice to people like you.

Make appointments to visit advisors who remain on your list after this screening round. You are almost finished with your search.

Step 5: Speak with at Least Three Prospective Advisors before Making a Decision Now you are ready to make the biggest mistake that most people make when selecting an advisor. What mistake is that? The mistake is to engage the very first advisor you meet. While this may solve your immediate problem, it may lead to less–than-stellar results over the long haul.

Why?

Almost all advisors hold up well during the first interview. They’ve been interviewed hundreds of times and they’re ready to sign you up today. Resist the temptation to sign up for services at the first meeting. Instead, collect information and get a feel for how you and the advisor might work together over the longer haul.

Let the advisor walk you through his typical get-to-know-you process, but make sure to come away with the answers to a few important questions, like:
• What does your ideal client look like in terms of age, employment and financial situation?
• How will you solve my problem?
• With whom will I work? You, or an assistant?
• How do you prefer to work with clients? By phone, in person, by email?
• What will I pay for your services this year? Over the next five years?

Asking these questions will reveal whether or not the advisor might do a good job of serving you. Ask a few more questions to find out whether you and the advisor might see eye-to-eye on the finer points of your financial life:
• What drew you into the profession? Why did you stay?
• What one thing do you do better than all the other financial advisors I might meet?
• What’s been your best experience with a client? Your worst?
• What do you expect from me as your client?

With this last set of questions, there are really no “right” answers. However, you might receive stronger and better advice from someone who shares your interests, beliefs or outlook on life.

Step 6: Consider What You’ve Learned
Think about your interview with each advisor. Ask yourself these last few questions before making your final decision:
1. How well did each financial advisor listen to me? The hallmark of a good relationship with your financial advisor will be your ability to communicate your needs to her. This means that she must do an excellent job of listening to you in order to understand how she can help. Consider the amount of time she spent listening to you versus the time she spent selling her services. 
2. How clearly did each financial advisor express himself? Even if you receive the very best financial advice from your new advisor, you might not follow the advice unless you fully understand it. Consider whether or not the advisor “speaks your language.” Make  sure you are comfortable with his style of communication.
3. What promises did each financial advisor make? Consider how each advisor attempted to win you as a client. Some advisors  may attempt to dazzle you with their past performance records or wow you with the big clients they’ve handled. The best advisors attempt to set clear, realistic expectations about your work with them during the very first meeting. They know the foundation for a great long term advisor/client relationship is their ability to make promises and deliver on them. Look for promises that include a clear statement of services and fees, regular contact and availability and a duty to act in your best interest.

Step 7: Select a Financial Advisor Who Suits You
When you finally decide which advisor to hire, you may realize something that good financial advisors already know: the financial advisor you choose may be a lot like you. People have a natural tendency to trust others who are much like themselves, so the advisor you choose will likely share your interests, your outlook and even some of the same financial goals you hold.

No matter which financial advisor you choose, make sure the one thing that you have in common is an uncompromised interest in your financial health. Start your search for a competent financial advisor today and begin enjoying better financial health tomorrow.

W. Ben Utley, CFP®, is an attending advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping physicians throughout the U.S. to make a plan and get on track with saving for college and invest for retirement.

This article originally appeared in Orthopreneur with the title "7 Steps to Selecting the Right Financial Advisor".