Tag: Financial Advisors

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.

FInancial Advisors: Overrated or Underused? Part II

Like what was said at the last post, let’s talk about what to think about when thinking about selecting and hiring (and that’s exactly what you should be thinking of this as—a hire) a financial advisor.

Remember this: know who you are, if you need a financial advisor,  why you need a financial advisor, and, above all, that they work for you and not vice-versa.

Now, focus on the granular details of how to select a financial advisor.

These are the things you need to then consider when choosing a financial advisor:

1. Who does your advisor work for? If he works for a large mutual fund family like Fidelity, then guess what? You will be only getting Fidelity funds advised to you regardless of their performance or fees compared to others that are in the same category. Keep that in mind. My take: steer clear of the advisors that work for mutual funds and go with someone who can always buy you best in class regardless of whose fund it is. Let performance determine what you invest into, not your advisor’s company.
2. What are the total fees charged by your advisor?
3. Is that fee structure determined by the total value of what is in your investment account (ie, total assets under management AKA AUM)? This is thankfully an increasingly common way financial advisors charge their fees. (Many others charge commission based on what they buy and/or sell…or even charging by the hour if you can believe that. Ensure that there are no other fees though…except the ones that all your mutual funds already charge you (AKA the expense ratio or ER). ASK IF THE ADVISOR IS “FEE ONLY”…Any answer other than an unqualified yes is a problem and a red flag that there are other charges headed your way.

4. Is your total fee less than 1% of the value of your total assets under management? How much lower than 1%? You ideally should be in the 0.5% of AUM/year range ideally. It’s likely that you’ll get charged more early on when your assets are lower (a lot lower likely) in value and the fee rate will eventually drop as your assets grow in value making it an incentivized plan for your advisor to keep growing your money and for you to stay with said advisor.
5. What exactly are you getting in return for your fees? A comprehensive financial plan based on sitting down with you and your spouse and understanding your risk tolerance/investment philosophy? Detailed financial analysis of each security you hold? Is your advisor willing to talk about the decision to buy or sell any security? (We all know the doctor who gets offended when asking about a treatment decision. Make sure your advisor isn’t a replication of the one doctor you most like avoiding.) Will there be an opportunity to ask about a stock or fund I heard about from friends/colleagues/family or the media and have you as an advisor research them and ensure it’s consistent with my/our risk tolerance/investment philosophy and is priced appropriately for a purchase…or explain why a purchase now or ever doesn’t make sense for you/your family.
6. Will there be scheduled meetings regardless of what is happening to the markets and your own account? How often? Quarterly? Can you meet with your advisor face-to-face PRN as well? How accessible will they be via phone or email? (You’ll have to keep in mind what they say versus what they actually do.)
7. Who is the advisor’s custodian? In other words, if he or she isn’t tied to Fidelity or Charles Schwab or etc, who is ensuring that their financial statements are on the up and up plus ensuring that the advisor isn’t taking your money for a ride? All advisors need to have a custodian or some type of brokerage firm that they are employed by or connected to that will ensure that there is not a rogue advisor you have stumbled on to. If there is no custodian, then there should be no you there either. How did Bernie Madoff get away with his Ponzi scheme so long? He had no custodian ensuring his clients’ financial security. And we all saw how that worked out.
8. Ask your advisor-to-be about how they will be most tax efficient in investing for you. If you don’t understand the answers, make him or her explain it to you…SLOWLY and CLEARLY. If they can’t do so or get frustrated or defensive, you just saw a preview of your future with your advisor…so ON TO THE NEXT ONE…
9. Going along with the above theme, if your advisor-to-be gets frustrated or defensive, etc with all the questions, then you have your answer…to paraphrase that sainted genius from long long ago, this isn’t the advisor you’re seeking.

Whew!

Methinks that’s enough for one post….

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Until next time…

Never forget these two axioms:

Money frees us, but its pursuit may enslave us.

It’s not how much you have at the end; it’s how much you could have made.

Financial Advisors: Overrated or Underused? Part I

You know yourself and that’s what is best in guiding you in your decision on whether to engage a financial advisor or not..

Can you truly do the due diligence you need to to maintain your investment portfolio? Are you confident enough in your plan to stay the course in a market downturn and not panic selling everything in sight? How about your spouse? Will they weather the storm as well as you? Do you have  a way to ensure that you will consistently invest? Do you know how you will do it (eg, from your bank account to your investment account or directly into different stocks and funds every so often—weekly?, biweekly?, monthly?) and which investing platform (Vanguard, Fidelity, Ameritrade, or something else)? Will you look at your monthly or even quarterly statements, make sense of them, and then adjust or act accordingly?

If you can truly do all of the above realistically in your heart of hearts and not just because you want to or think you can, then by all means go for it.   

Otherwise, a financial advisor is your best bet to financial independence and peace of mind.

But like all goods and services, make sure you know what you’re getting in exchange for the money you’re handing over to your financial advisor.

First, how to find a financial advisor.

Obviously, you can just seek one out on the Internet and rely on the vagaries of Internet search engines, marketing, and (largely) anonymous reviews. Then, meet him or her and go from there.

The second and often most common way to find an advisor is to ask trusted friends and colleagues.  If you’re close enough to them, they should be able to be honest with you regarding how happy they are with their advisor. And, if you’re really close to them, they’ll just tell you how their returns are from year to year and how much they are charged. (If they don’t know the answers to any of these questions, then they definitely aren’t the ones you should take your financial advice from. In fact, send them to this blog, www.wealththyself.com, and teach them yourself what they don’t know.)

As a side note, I cannot understand why more close friends are so reluctant to talk about money and learn from one another, even—or especially—from their mistakes. It’s one of the main reasons why so many of us physicians struggle with our finances until mid-career—if you’re lucky it’s only that long. God knows that medical school and residency or fellowship taught you precisely zero in how to take care of your money, invest, and/or grow your hard earned money after nearly a decade (or longer) of education and training. All the professors and attendings tell you that it’s a calling and a noble privilege and not a job, but a way of life (all tur in one sense or another), but no one mentions let alone teaches you what to do with the money you’re finally earning especially in the only profession I know of where you go from one salary to five times (or greater) that amount for doing the exact same thing as the prior year.

ANYWAY…

Let’s delve into details on what to think about when you’re thinking about selecting and then hiring (and that is exactly what it is and what you should be thinking of it as) your financial advisor.

But let’s do it next time…  

I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.

Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.

Until next time…