Physicians that are seeking out a financial planner should never take the selection process lightly. In fact, there are several red flags that physicians need to watch out for. They include:
• Commission-based payment
• Inadequate experience
• The wrong personality
• Lack of accessibility
Let’s run through each of these in more detail.
Commission payment. Hiring a fee-only planner is the strongest recommendation I can make. Fee-only means that the only source of compensation the planner receives is from you. The planner never gets paid to sell you a mutual fund or an insurance policy. Beware the moniker “fee-based.” This is often used by planners who shift between taking commissions or charging a fee, sometimes depending on whatever arrangement will pay best. If you look at the bottom of an advertisement and you see something like: "Securities offered through X, member Finra, SIPC," then you are dealing with a commission-based salesperson. Fee-only planners never have this as part of their advertising or disclosure.
An excellent screen to ensure you are truly hiring a fee-only planner is to search through NAPFA (the National Association of Personal Financial Advisors).Visit NAPFA.org to learn more about its screening process and the value of having a fiduciary on your side.
Inadequate experience. Your planner should be experienced, with at least five years under his belt. Ask if the planner works with other physicians, and if so, what insights this may bring to your relationship.
The wrong personality. Look for a financial planner who is affable. You know it when you see it and/or feel it. When determining if your personalities mesh, also confirm that the planner you are interviewing is the one you will work with. Some firms use “rainmakers” to attract clients, and then pass the secured client to other employees at the firm. Obviously a solo planner, (almost half of all fee-only planners are solo), or one from a very small firm, is much more likely to be the individual you will deal with, but always ask.
Lack of accessibility. You are hiring a planner to make life smoother and efficient. You should not have to wait several days to have questions answered and concerns addressed. Patience is reasonable, but ask the potential planners how your routine inquiries will be dealt with. Also, as per the section above, ask who will be answering the questions. Note that accessibility does not mean the planner has to be located in your area. Many physicians work closely with fee only planners by phone and e-mail.
Other considerations. Take the time to speak with a couple of planners before you hire one. Any reasonable fee-only planner will talk with or meet with you for an hour or so, at no charge, to see if you “fit” each other. This relationship will hopefully last for decades, so choose carefully.
Consider asking the following questions:
• What is your background and training? What are your credentials?
• How long have you been giving financial advice and managing investments?
• What services do you provide?
• What is your investment philosophy?
• Do you have an area of specialty or special interests? What types of clients do you like to work with?
• Can I see a sample of your work?
• Can you provide some references?
• Will I be dealing with you directly if I hire you?
• Do you custody any funds. If not, who is your custodian for my accounts? What are the approximate costs of your custodian? How will I access my account information?
• Will you receive any compensation from any source other than me for giving my advice?
• What happens if you become disabled or die?
I'd also suggest that you do some basic regulatory research on a planner you might hire. Visit the Securities and Exchange Commission website for guidance.