Select the Right Financial Adviser

January 13, 2016

Finding the right professional to guide your financial future can be tricky. Make it easier with these tips.

When it comes to investing, doctors are notoriously active traders. Who among you doesn't know a day-trading radiologist or an orthopedic surgeon who speculates in farmland?

John Kidwell, a Dallas dentist, was no different.

By his own account, he fumbled around with various brokers and financial advisers over the years. There were limited partnerships. There were oil and gas deals. When the tech bubble burst at the end of the '90s, he lost half of his savings.

"It seemed like everybody but me made money," said Kidwell, 65, referring to the advisers he paid along the way. After the 2008 financial crisis, he quit working with investment managers altogether, but didn't love the idea of a completely do-it-yourself role.

If the new realities of physician compensation and the old ways of dealing with investment advisers and brokers have left you nervous about having enough for a comfortable future, it might be time to look for a new path.

First, some good news: Just as online trading and discount brokerages cut transaction fees more than a decade ago, costs for broader portfolio and financial planning advice are dropping, even as regulators beef up the standard of care many advisers must take with customers. And there are more options than ever for choosing the way you want to interact with an adviser, whether that's over filet mignon at the hottest restaurant in town or in your bunny slippers at 4 a.m.

The challenge is finding the right type of advice while staying aware of whatever caveats come with your choice.

A TECH TEAMMATE

Today, Kidwell's financial advice team includes an accountant who specializes in private practice issues, an investment adviser who recommends exchange-traded funds and index mutual funds with rock-bottom expenses in his IRA, and a so-called robo-adviser, Betterment, for managing his taxable savings account.

Digital investment managers - from independents like Wealthfront and Betterment to industry mainstays Charles Schwab and Vanguard - hold a portfolio of mutual funds or exchange-traded funds, rebalance it automatically without involving you, and typically charge much less than the standard industry practice of 1 percent of assets under management, plus investment costs for a face-to-face adviser. Wealthfront charges 0.25 percent of assets per year, and Betterment comes in at 0.15 percent for accounts above $100,000.

Schwab has a digital platform that charges no advisory fees at all, though the company makes money on customers' cash and underlying investments. Vanguard and other services, including Personal Capital, mix in live advisers, typically via phone.

Mainly targeted to younger investors with modest assets, the digital investment world is beginning to branch into higher net worth and older customers.

Betterment, for example, which says a significant number of its customer base is 50-plus years old, offers a draw-down strategy for retirement income as part of its service.

Kidwell happened to be the childhood dentist of Jon Stein, Betterment's founder, and chatted up the startup entrepreneur about the service before signing on.

"I've had [live advisers] who held my hand before, and they panicked, too in market downturns," Kidwell said. "What appealed to me was being able to pick the risk I wanted to take and then not think about it very often."

Robos don't pump and dump stocks, trade rapidly to run up commissions or, go on vacation just when you wanted to talk about your plan.

The autopilot approach isn't for everyone, however.

"I wonder about the [robo-adviser customer] when he logs in and sees the market down 30 percent," said Andrew Sloan, founder of Bluegrass Financial Planning, a Louisville, Ky.-based fee-only financial planner. "There's tremendous value in face-to-face communications, particularly when you're getting close to retirement."

Beyond the hand-holding issue are other shortcomings. Most online wealth managers ask fairly rudimentary questions about your risk tolerance, for example. Particularly for physicians, many of whom get a late start on saving and have atypical needs for asset protection, that could be a problem.

And robot or no, some advisers won't or can't advise you on your total investment picture. If half of your savings is inside an active 401(k) plan, for example, a digital manager might not have the capacity to "see" inside your institutional investments in the plan. Or a live adviser might be unwilling to advise you on the 401(k) assets because he or she is only being paid a percentage of your investments outside the company plan.

So, how to find the adviser - human or otherwise - that's right for you?

START HERE FIRST

Doctors rarely get too far along in their careers without being pitched or getting a recommendation for someone to manage their investments. Rather than hiring the first person who asks - even if you check the person's background - consider instead starting with creating a profile of the services you're trying to buy.

Are you looking primarily for investment management, or do you want comprehensive advice on tax planning? Are you getting close to retirement and wondering when to take Social Security benefits? Planning for your kids' college but still digging out of medical school debt and need help prioritizing?

For more comprehensive financial planning, a couple of websites have online directories of advisers, with either short biographical information or links to individual websites. Check out the National Association of Personal Financial Advisors (www.napfa.org) and the Garrett Planning Network (www.garrettplanningnetwork.com).

Asking the same questions across a few different advisers will give you a sense not only of their communication skills, but also how their practice models work. Ask to see a sample client statement (names removed for privacy) for someone with a portfolio of a similar size and with goals similar to yours, such as saving for retirement.

As you review the alphabet soup of professional designations for each, be aware that some of them garner substantially more respect than others. Top designations include Certified Financial Planners, Personal Financial Specialists within the Certified Public Accountant community, and Chartered Financial Analysts.

THE SHORT LIST

Once you've narrowed the herd to a few top candidates, it's time to check out their backgrounds.

The Financial Industry Regulatory Agency (FINRA), an industry self regulator, earlier this year launched an advertising campaign urging more investors to use its BrokerCheck website (www.brokercheck.finra.org). It also asked the Securities and Exchange Commission to require brokers to post a link to BrokerCheck on their websites.

While FINRA regulates broker/dealers, often called registered representatives, BrokerCheck automatically routes users who input financial advisers' names to the SEC's Investment Advisor Public Disclosure site. State securities and insurance regulators also maintain disciplinary records. Check out www.nasaa.org and www.naic.org.

Make sure you understand the adviser's business model, advice offered and not offered, and payment schedule. Be aware that even comprehensive financial advisers can have subtle conflicts. Even with a fiduciary obligation, some industry observers have pointed out the potential for conflicts if, for example, an adviser who gets paid based on assets under management can be truly objective about advising clients whether to use those assets to pay off debt or purchase insurance.

That's why some advisers work solely on a retainer or hourly basis. If you're a higher net worth client considering working with an adviser who takes a percentage of assets every year for the same service he or she provides to clients with smaller portfolios, it's completely fair and appropriate to question the payment model and negotiate fees. Often, this conversation brings out the services your adviser truly provides - and the ones you're willing to pay for.

Janet Kidd Stewartis 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 editor@physicianspractice.com.

This article was originally published in the January 2016 issue of Physicians Practice.