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BFS Capital Blog

4 Tips for Medical Professionals on Choosing the Right Financial Advisor

September 2, 2016

Medical professionals—doctors, dentists and other specialists—are popular targets for large wealth management firms. That’s because these are some of the highest paying professions in the country.

According to the U.S. Bureau of Labor Statistics, dentists earned a median salary of nearly $150,000 in 2012. Other healthcare professionals such as pharmacists ($116,670), optometrists ($97,820) and podiatrists ($116,440) also earned comparably high salaries. Meanwhile, data from Doximity, a social network for physicians, shows that doctors can earn an average salary of $175,000 to $500,000 depending on their specialty, putting them all firmly in the “high-net-worth” (HNW) category. This is especially true for physicians who own a private practice, and may be struggling with how to build an investment portfolio when they still owe thousands of dollars in student loan debt.

Financial advisors love these types of HNW clients because they have enough liquid financial assets (usually in excess of $1 million) to invest in the market, allowing advisors to collect a fee along the way. But just because a financial advisor calls and offers an amazing investment idea doesn’t mean that every medical professional should jump at the opportunity.

So to avoid putting your assets in untrustworthy hands, here are four tips on how to pick the right financial advisor.

    1. Don’t assume you can do it yourself. Doctors and other healthcare practitioners are all very well-educated. But just because you went to medical school doesn’t mean you are qualified to try to play the stock market. For one, financial markets are incredibly complicated. What looks like a great investment idea one second can turn into a disaster the next second. Becoming a savvy investor requires time, patience and knowledge. If you don’t have enough of any of these three then it’s probably best to leave the investing to the professionals.
    1. Take everything advisors say with a grain of salt. At the same time, don’t assume financial advisors know what they’re talking about either. Even financial professionals with decades of experience investing in the market may not foresee the next collapse or the next big investment opportunity. Most are just following a sales script when recommending a bucket of stocks, bonds or mutual funds. So approach every recommendation with a healthy dose of skepticism, and make sure you do your research before you sign on the dotted line. The Consumer Financial Protection Bureau (CFPB) regularly publishes content on investment schemes that you may want to avoid.
    1. Determine your financial needs before meeting with an advisor. There is no one-size-fits-all solution when it comes to investment management. Every individual has different expenses and different needs. One doctor might want to buy a luxurious vacation home and therefore would likely be more comfortable taking more risk with his or her portfolio. Another doctor might be more concerned with leaving his or her family with enough money for a comfortable retirement, and therefore would likely be more conservative when it comes to investing.

To avoid being pressured into a portfolio you’re not really comfortable with, make sure to determine your risk tolerance before ever sitting down with an advisor. There are several handy online tools that can help calculate your risk tolerance based on your income, savings, age and life goals.

    1. Ask about fees. Financial advisors operate under one of two fee models. Fee-only advisors charge an hourly fee, a flat retainer or a percentage of your investment assets. Commission-based advisors collect a commission every time a client invests in a particular product. The wealth management industry is increasingly moving to a fee-only standard, in large part because of the inherent conflict of interest that comes from having a significant portion of an advisor’s compensation determined by what financial products they sell.

Even among fee-only advisors, however, there are still substantial differences. A 1% difference in fees may not sound like much, but over multiple decades it could mean potentially millions of dollars in surrendered returns. Make sure that the advisor can justify his or his fees by showing historical risk-adjusted returns over a long-term investment horizon, including projections of how your portfolio would perform in market crisis scenarios like 2008.

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