Financial Resources for Early-Career Physicians

Financial Planning

7 Important Things to Look for in a Financial Advisor

How do you find the right advisor in a financial world full of commission-driven salespeople? There are 7 important things to look for.

Dan Cremons
April 23, 2023
7 min

We've worked with a bunch of residents and fellows over time, and inevitably, most realize a few things during the middle to late innings of their medical training:

1. Between managing your student loans, getting insured, negotiating attending job offers, figuring out how much to save and where to invest... most quickly learn that there are lots of financial matters to sort out as a early-career physician.

2 Most learn (often the hard way) that getting behind the eight ball on these and other financial matters, or making avoidable financial mistakes early in your career, can be very costly as time goes on.

3. Most eventually realize that its generally better to tackle these things with the help of someone who does it for a living than it is to try to go-it-alone.

Truth is: early career doctors are faced with more high stakes financial decisions in a really narrow period of time (late-training to early-attending years) than virtually any other profession. So when it comes to figuring your way through these different issues, you basically have two choices: you can DIY, or you can work with a financial advisor. And unsuprisingly, given the significant demands of medicine at this stage of your career (taking care of patients, studying for boards, keeping up with research, and more), most young doctors want help.

But how do you find the right advisor? How do find a true partner in a financial world full of commission-driven salespeople?

In this article, I'm going to share the insider's scoop on what to look for.

An "Advisor" Isn't an Advisor

One of the big problems with the financial industry--my industry--is that the bar for entry as an "advisor" is unfortunately quite low.

There are scores of "financial advisors" out there who can talk the talk... but can't actually walk the walk. Indeed, the quality of financial guidance you can get varies widely from "financial advisors" out there. My physician wife had a brush with this early in her residency.

One day a number of years ago, my wife came home from work and told me that a "financial advisor" did a lunch and learn for her and her co-residents. At the end of the session, he asked her and some of her other co-residents out to coffee at Panera Bread to "talk about their financial futures," as he put it. So my wife went, and when she came home and gave me the download on how it went, it quickly became clear and apparent to me that the "advisor" was actually an insurance salesman who was trying to hawk some whole life insurance product.

Was he a "financial advisor?" Well, I suppose he was "advising" (in the most liberal sense) my wife on why she should buy some financial product that he was selling. But selling whole life insurance is a far cry from the sort of comprehensive, unbiased, and evidence-based planning and investment advice that most physicians are actually seeking.

Now, luckily for my wife, she's married to a finance nerd (yours truly). I could help her to sniff this out and avoid being misled into thinking she was actually getting financial advice from someone acting her best interest. But as this situation illustrates, it can be really tough for early career physicians who don't have financial experience to discern who is qualified and acting in a physician's best interest... and who isn't.

So here are 7 supremely important things we encourage early-career physicians to look for in a financial advisor.

7 Important Things to Look for in a Financial Advisor

☑ Are they meaningfully credentialed?

You probably wouldn't go to a doctor that didn't have an MD or DO behind their name, right? Well, in the same way, make sure your advisor has a CFP (Certified Financial Planner) credential next to theirs.

The CFP designation is comparable to CPA for taxes. Anyone is allowed to do your taxes, but a CPA designation is a way to know if the person doing your taxes actually knows what they're doing. Same goes for CFPs and financial planning. The CFP designation is really the only discernible way for the general public to know if they're working with a qualified professional or not. This certification show that your financial advisor has gone through rigorous coursework, passed various exams, and must adhere to a high ethical standard.

Less than 35% of advisors out there have the CFP designation. So this is a quick 'n' easy way to separate the wheat from the chaff as you're looking for a financial advisor.

☑ What level of fiduciary responsibility do they have?

Fiduciary responsibility is a financial professional's legal and ethical obligation to act in the best interest of another party (in this case, the the physician client). It means that a financial advisor must act in the best interest of their client when making recommendations and managing their client's assets. It's sort of like the Hippocratic Oath is to physicians.

There are different levels of fiduciary responsibility, or standard of care. You want to work with an advisor who works under the "full fiduciary" standard, which requires the advisor to act in the best interest of their clients at all times and put their clients' interests ahead of their own.

If a supposed "financial advisor" is associated with something called a broker dealer, that's a giveaway that they don't have the highest level of fiduciary responsibility that you're looking for. A broker is not an advisor. To discern whether an "advisor" you're talking with is affiliated with a broker dealer, simply go to their website. At the bottom of their homepage, within the disclosures, look for language that refers to their affiliation with a broker dealer. Or, you can just ask them.

☑ Are they an independent advisor?

We discuss this concept elsewhere when it comes to buying disability insurance. There is an important distinction between a captive insurance agent and an independent agent. Captive agents are those who work for only one insurance company, and usually have a strong incentive to push that company's product (which in some cases, may not actually be the best product out there for you).

By contrast, independent agents are just that: they're independent and can offer a wide selection of disability policies from different carriers. That way, you know that you're getting the best policy for you at the best price. Unlike a captive agent, there's no corporate mothership that is requiring certain products or services to be pushed or used with clients.

Same applies to financial advisors. A truly independent advisor can bring to the table whatever investment or insurance solution they believe is best for the client, unlike certain "wirehouses" that are going to incentivize or require their advisors to use certain in-house products. You don't want your advisor to be limited in terms of what types of solutions they can offer you, and you don't want them to be incentivized to push certain products that may not actually be the best product for you.

☑ How many clients does each advisor work with?

Does it ever frustrate you seeing physicians taking on more and more patients to bump their RVU production or increase their income? Production may go up, but at some point, the quality of their patient care will start to suffer as a result. There are only so many hours in a day, after all.

Similarly, advisors risk spreading themselves too thin for the same reason. They're incentivized to take on more and more clients. But as this happen, the attention that any one client receives is bound to decline.

For this reason, look for advisors who cap their practice size and work with a limited number of households. Think about it, would you rather work with an advisor who's serving 250 households, or one who's serving 100 households and can give each of those households the attention they need and deserve? As you're talking to advisors, ask how many clients they have today and what their cap is for a single financial advisor. As a general rule of thumb, there really isn't enough time in a year to uphold the needed standard of care if an advisor is working with more than 100 to 150 clients (max).

☑ Are their fees fair, transparent, and equitable?

The financial advisory industry has come under increasing scrutiny in recent years for historically opaque pricing--hard to read fee disclosures, complicated fee structures, and generally unclear pricing. The scrutiny is well-deserved. Clients should know what they're paying.

So when you're considering a financial advisor, get clear upfront on what you would be paying if you worked with them. Put the burden of proof on the potential advisor to explain why those fees are fair and equitable for the services being offered.

I'm not going to render an opinion on fees and what defines "fair." That's really a value judgment and should be considered relative to the value you're getting from an advisor. You of course need to do your own due diligence on the topic.

For the same reason it generally isn't smart to shop for the cheapest car out there (since that car's going to be transporting your family, and cheap doesn't always mean safe), we never suggest shopping for an advisor on price alone. That's generally a bad idea. But be clear on what you're paying, how it compares to what else is out there, and what value you're getting for that price.

☑ Do they have significant experience working with physicians?

Just like you would not want to go to a primary care physician for highly specialized cancer treatment, it isn't ideal to go to a generalist financial advisor to help you navigate financial issues specific to being a doctor: physician student loans, disability insurance, or working in a private practice, to name a few. Each of these topics is kind of like a subspecialty within financial planning, and unless a financial advisor deals with it regularly, they may be out of their depth.

In fairness, there are plenty of advisors out there whose practices are not focused specifically on serving physicians, but who are still incredibly competent and can be of great value to the physicians they do serve. But the fact that a firm or an advisor works with many other doctors like you simply means that they're going to be much more likely to have the pattern recognition that comes with dealing with these physician-specific issues regularly.

Now, in full disclosure, Equitta works with a lot of physicians. But if I got hit by a bus and my wife had to find a financial advisor, I would strongly encourage her to find one who had significant experience working with physicians. Physician finances can be nuanced, and you want a specialist.

☑ Do you like and trust them?

This one's a bit more of a "feel" thing, but if you've checked all the boxes above, the only remaining question to answer is this: do I like this person and do I trust them?

Given how important a financial advisor's role can be in a young physician's life, you really wanna feel good about the fit. Do we share the same values? Do I actually enjoy my interactions with them? Do I get a good vibe from them?

Of course, don't hire a financial advisor on this factor alone. This is where you can quickly go wrong--hiring a likable and charismatic but incompetent advisor.

But making sure this there's a good personal fit is really important. It's like the cherry on top of these six other criteria.

Don't Take It from Me

Before we wrap, I need to acknowledge: Equitta is a registered financial advisor focused on physicians. So sharing our take on how to select a financial advisor is kind of like a hairstylist telling you how to pick a barber.

But I wrote this article because we've seen too many physicians we know getting misled by salespeople masquarading as "financial advisors." So we want to give others like them the insider scoop on what you should be looking for and when the time comes to find a financial advisor. Although this is our objective take on what you want to look for in a financial advisor, you don't have to take my word for it. Take this list, run it by someone else, or compare it to other things you've heard out there.

Important Note: This blog post is intended to provide general information and should not be considered as professional advice nor investment advice. Please consult with a qualified financial or insurance professional for personalized guidance based on your specific circumstances.

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April 23, 2023
7 min