How to make sure the right person is handling your money
Early in his career as an anesthesiologist, Walter Gadkowski made some familiar mistakes when it came to managing his money.
He invested money he really couldn't afford to lose with a stockbroker, then sustained painful financial losses; he bought pricey whole life insurance; and, as his salary grew, his spending sometimes grew even faster. He even came close to biting on a tax-planning scheme that involved buying master recordings of music.
Fortunately, he says, his wife, Linda, made a midcareer switch to become a financial adviser about 20 years ago. The bulk of their savings went to a short list of low-cost mutual funds, and the couple's most expensive hobby - a private plane - has been grounded.
"It took eating a diet of humble pie, but eventually I acknowledged she knew more than I did" about finances, Walter Gadkowski says.
Linda Gadkowski also founded Beacon Financial Planning Inc., of Centerville, Mass., and continues today as an adviser with the firm. Her practice now includes about 30 percent physicians.
Short of marrying a financial adviser (and even this strategy has proven to backfire in some cases), there are ways to find good financial help, experts say.
Identify your needs
Start by determining what kind of financial advice you need. Is it guidance with selecting investments? Deciding how much of your money should be in stocks, bonds, savings accounts, and other investments? Figuring out when you can retire and how much of a nest egg you'll need?
If a colleague passes along a name of someone he has worked with, ask what type of advice was sought and given.
If his answer tracks with the type of help you're looking for, seek out at least two more recommendations. Having different personalities, backgrounds, and credentials to compare helps put context to the decision, says Chuck Jaffe, author of "Getting Started in Finding a Financial Advisor."
If your candidates are brokers working with securities firms, check out their disciplinary records at www.finra.org/brokercheck.
If they are investment advisers or financial planners, ask to see Parts 1 and 2 of their Form ADV, which spells out their disciplinary records and fee structures. Depending on the size of their practice, they will be regulated by the Securities and Exchange Commission or a state securities department.
As for fees, make sure you understand exactly what you will pay and whether the fees will be wrapped into the investments you purchase or they will be billed separately.
The SEC offers a detailed list of questions to ask potential advisers at http://www.sec.gov/investor/pubs/invadvisers.htm.
Be aware the financial services industry has been locked in a fierce battle for years over how different types of advisers are regulated. Under the 2010 Dodd-Frank financial reform legislation, the SEC is directed to propose ways to beef up oversight of investment advisers.
All of this means you need to be aware of how your potential adviser is regulated, and pay attention if that changes.
Finding your perfect match
Now, it's time to get a feel for your "fit" with each candidate.
Harold Evensky, a financial planner and president of Evensky & Katz, a wealth management firm in Coral Gables, Fla., suggests thinking of this stage of the process as the "Three P's."
• Philosophy - Make sure the adviser's basic beliefs match up to your beliefs, Evensky says. "You want to know how they view the investment world." At Evensky's firm for instance, they don't believe in "market timing," he says. "It's all about asset allocation. We don't believe anyone can beat the system."
• Process - Next, ask how your investments will be handled at the firm, Evensky says. Does the firm do its own research or farm it out? Is a junior staffer the only employee you will consistently hear from? Make sure the firm's policies are a fit for your needs.
• People - Finally, determine what kind of personal fit you want to have with the adviser and whether his firm is a match for you. That doesn't just mean a good personality fit, however, it also means a profession fit. For instance, Evensky signs a five-point "oath'' at the beginning of each of his client engagements reiterating his duty to put his clients' interests above his own. This tells clients he will avoid conflicts of interest, and if one arises, he will disclose it and manage it in his clients' favor. Your prospective adviser may not spell this out so bluntly, but you do want to talk frankly about potential conflicts of interest. Asking a few open-ended questions about how the adviser handles conflicts when they come up will be telling.
If an adviser passes the due diligence and seems to be a good personality match, take a look at his or her client mix next.
While the adviser certainly doesn't have to work solely with physicians - which could actually be a red flag, particularly for couples with one spouse in a completely different field - it does pay to have someone familiar with physicians' variable income. The adviser should also be sensitive to a client's vulnerability to legal minefields and changes brought on by health reforms.
Linda Gadkowski, for example, has learned to anticipate her physician clients' 57th birthdays.
"That's usually when I see [career exhaustion kick in], after they've been in practice 25 or 30 years," she says. "Many times, by then, they are exhausted, but they have several years left before Medicare and Social Security kick in."
In recent years, that sense of exhaustion has heightened, Linda Gadkowski says.
"I worked with someone recently who had actually counted that he has 1,003 days left" before finishing his contractual obligations, she says.
When Linda Gadkowski sees clients in that mindset, she explains to them, sometimes quite bluntly, the type of retirement lifestyle their accumulated savings will buy. Often, she says, the numbers come up short, particularly considering today's longer life expectancies.
That's "all the more reason to be rational about investments," says Evensky. With limited resources and a high retirement income desired, he says, some advisers will boost the returns a portfolio needs to achieve to make the numbers work.
And that means more investment risk. Make sure you and your adviser are on the same page about the level of risk you're comfortable with before purchasing investments, he says.
"If someone comes in promising outsized returns, run for the exits," Evensky says. "You want to make it clear that you are trying to achieve well-defined goals without unnecessary risk."
In other words, he says, stop swinging for the fences.
"When physicians were making more money, they could afford to make some stupid mistakes, frankly," Evensky says. "Now they need to stop trying to hit home runs and seeking out hot tips. They can't afford it."
Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. She holds a bachelor's degree and master's degree from the Medill School of Journalism at Northwestern University. She can be reached at firstname.lastname@example.org.
This article originally appeared in the January 2012 issue of Physicians Practice.