Financial planning is not a dark art. While it may seem that way sometimes, it simply calls for you to identify, organize, and prioritize your financial goals. If you haven’t written a financial plan, you’re piloting your life without a horizon point.
Do you need to cut expenses? Shrink taxes? Reduce debt? Or invest more? How do you know?
Many of us have gaps in our financial planning because we don’t have the time to do it right. We keep thinking we’ll get to it one day, but that day doesn’t come. While many reasons exist why physicians and other medical professionals face financial planning gaps, two are worth mentioning.
One can argue that doctors, dentists, and medical professionals are targets. About 46% of doctors have net worth of $1 million to $5 million . . .The net worth of many physicians exceeds the average U.S. family net worth of about $749,000, and their wealth is growing at a faster rate, according to the last Federal Reserve data.
Doctors may lack financial training. Dan Johnson, founder of Forward Thinking Wealth Management, “Most of them [physicians] get little to no training and background in how to manage their practice. A lot of them come out with quite a bit of debt, have been preyed upon, and left their advisor because they couldn’t get a straight answer.”
Yet fewer than five percent of physicians consider themselves “very knowledgeable” about personal finances and retirement planning, according to recent research by AMA Insurance.
Can physicians do comprehensive financial planning? Yes, perhaps. They certainly have the intellect. But do they have the intellectual rigor required to do an adequate job? The diagram below shows the disciplines you need to master:
In our opinion, the gap in your financial planning is the unfortunate absence of a coach-led advisor team to cover all the different components effectively. No one person can possess the knowledge and experience of a cohesive group of experts. According to the CFP Board, “Ethical, competent financial planners bring together the different parts of a client’s financial life to build a roadmap for the future. That’s why developing deep subject matter expertise – in these areas and more – is critical to the role.”
Can you do that by yourself? Can you do it with one advisor? We’re skeptical.
As I see it, you have three options in financial planning. Work alone. Work with a sole advisor. Or work with a group of vetted advisors, guided by a coach/coordinator, who rally around your best interests. Only you can determine the personal value each direction holds for you.
Working Alone
Doctors, dentists, and other medical professionals often work alone to manage their finances, which can have advantages. You enjoy the freedom to make your own decisions. You can maneuver at your own pace. You won’t be distracted by other people. Working alone allows you to express your creativity and control your time.
However, when it comes to financial planning, working alone carries risks:
Finding a balance between teamwork and going alone is valuable in the workplace and life. Why risk the gaps in general knowledge when you can work with a team of experts in their fields? And do it at a lower cost than even a sole advisor.
Working with a Sole Advisor
The Spectrem Group, a market research firm based in Lake Forest, Ill. cited that “based on a survey of 160 doctors, Spectrem concluded that 79 percent of physicians compared to 64 percent of millionaires ($1 million to $5 million) and 69 percent of investors making $5 million or more use a professional advisor.”
We believe working with a single advisor is an improvement over working alone. Just like second opinions have an important role in medical professions, they’re essential to financial planning. But second opinions are not easily gotten in the financial advisory business.
Ironically, doctors and advisors are more similar than different. For example, good doctors are good communicators. They’re organized and conscientious. Empathetic, curious, and collaborative. They’re highly detailed and follow the logic of science. Above all, they’re advocates for their patients. Expect these same skills in your financial advisors.
You may prefer to handle your finances the do-it-yourself way. Or work with one advisor. However, we contend a coach-led advisor team is the correct model for today’s economic complexities. So, let’s look at the eight ways your can safeguard your financial planning. It begins with a good coach.
Working with a Coach-led Advisor-Team
Consider the concept of a coach-led advisor team. No, it’s not new. Look at sports teams. Private client firms. Or family-offices. But advisor teams have not been readily available to the average investor. The financial sector today is opening to more democratic access in financial advisory. You are not restricted to working with a single advisor. You have a third option.
Working with the collective intelligence of an advisory team, instead of by yourself or a single advisor, delivers increased productivity, profitability, efficiency, better decision making, and creativity. In the final analysis, I see better outcomes through the power of shared knowledge. Download this white paper to see how you put your team together.
Since one advisor cannot possibly be an expert at everything, you need multiple advisor specializations. If cancer develops, we see an oncologist. If a hip replacement is necessary, we see an orthopedic surgeon. The medical profession works brilliantly on teams. And although we might like the convenience of seeing our family practitioner for all our needs, specialists are often brought in when complexity develops.
Let’s define the eight essential members of a balanced financial advisory team.
Coach-Coordinator
Your coach should be at least a certified financial planner (CFP®) who acts in your best interest as a fiduciary. Team members with designated specialties will also be fiduciaries, except for those attorneys or accountants who perform as fee-only contributors.
The ideal advisor team does not accept fees or compensation based on product sales. Fee-only advisors have fewer inherent conflicts of interest and generally provide more comprehensive advice. Fee-only benefits include transparency, no hidden fees, and no bias due to conflicts of interest to sell a particular product line or company offering. Your coach will keep this straight for you.
Your coach must be a good listener and take a genuine personal interest in you, your family, and your concerns. He or she can have no agendas or directly sell products or services. That way, you’re protected by a fee-only advocate that’s unbiased and unconflicted, further giving you transparency and, perhaps, trust. Since medical professionals do not easily trust advisors, this transparency takes away the sting of any past mistrust.
The coach-coordinator may bring in a wealth advisor to help audit your current investment portfolio. He may ask a tax expert or CPA advisor to handle possible tax issues. Or a life insurance expert to review existing coverage. And, like an orchestra conductor, he’ll lead the team to harmonious outcomes.
Estate Planning Attorney
Working with a specialized estate planning attorney, you can begin to prepare for your legacy and crucial end-of-life issues. A good estate planning attorney goes far beyond creating legal paperwork. She will teach you how to navigate an estate plan through complex estate and gift tax and advise you on the sensitive issues of inheritances, second marriages, or special needs children.
Think of a litigator-type attorney who tries cases in court. He’s not the one to do your complex estate plan. And the estate planning attorney should not go to civil court to plead a defendant’s innocence.
The Certified Public Accountant (CPA)
There are two types of CPAs, reactive and proactive. Reactive tax planning is an oxymoron because no actual planning occurs. Instead, you assemble your tax documents early each year and send the package to your tax preparer for the IRS. And you’re finished. Or so you hope.
The reactive approach works well for people with regular W-2 incomes and low-tax complexity, but it is often not the best for physicians, dentists, or medical practitioners.
A proactive approach allows you to keep more of your hard-earned money. Your CPA sees that you’re informed and motivated to minimize tax consequences. He helps you put an action plan in place and produces accurate financial statements that reflect correctly on you and your practice.
Tax Expert
A tax expert is a finance professional specializing in tax liability issues regards income, business transactions, intellectual and physical property acquisitions, and estate transfers. This expert can be an attorney, CPA, or other professional designation focused solely on tax. Some tax experts work as consultants, others in litigation or as expert witnesses.
You may want to resolve a tax dispute. Or shore up your tax liability altogether. Tax experts help you understand tax laws and compliance requirements. They may advise you on trusts, wills, inheritance, estates, retirement plans, and personal wealth management.
Bank Trust Officer
You may not readily think of a trust officer as a vital member of your advisory team. However, they provide critical trust-related services at trust companies, banks, and investment management firms. They administer and manage trust accounts and ensure that account administration complies with federal and state laws. On a coach-led advisor team, you can access a bank trust officer.
Life Insurance Expert
Did you know that life insurance can be a tax-advantaged asset to create tax-free liquidity at death? Or that under current law, insurance can be designed, so the cash arrives free of federal income, gift, or estate taxes. Is anyone telling you this?
It would be best if you had an insurance advisor experienced in working with healthcare professionals and their practices. He should be independent with full access to available insurance products and the resources to service them.
Property Casualty Insurance Agent
Consider the value of a property and casualty insurance agent on your advisor team. They offer policies that protect people and businesses from financial loss resulting from unexpected incidences such as automobile accidents, fire, theft, and other events that can damage property. Agents can also do risk analysis in advance to help you determine which liabilities and expenses you should insure or self-insure.
Wealth Manager
What if you hold your assets in illiquid investments like a professional practice or real estate? Then, what if a liquidity event occurs, such as a business or property sale or distributions of retirement funds? You’ll need a wealth manager on your team. He helps you manage your money, continue to grow wealth, and protect assets from taxes and inflation.
Typically, wealth managers require high numbers of investable assets before taking on a new client. The barrier to entry is much lower on the right advisor team.
Although these are painfully brief descriptions, don’t think the people behind them are any less substantial. Star quarterbacks are exciting to watch on the field of play, but they’re only one member of a powerful mass of trained talent with a singular goal.
So, these key individuals represent eight ways to safeguard your financial planning, working synergistically, to ensure the whole is greater than the sum of its parts.
Next, let’s briefly examine how the coach-led advisor-team model gets paid.
Fees and Structure
Advisors are paid in multiple ways—either by the hour, on retainer, fee-only services, assets under management, or commissions on products. The advisor team model I propose is a fee-only structure, the only way you should proceed. And it should not be more expensive than working alone or with a single advisor. You benefit from group pricing.
For example, if your medical group includes multiple practitioners, you would pay $100 per month per practitioner to secure their membership on the advisor team model. And you pay only $10,000 or less annually for fee-only financial planning.
According to White Coat Investor, “the going rate for financial advice is a four-figure amount per year, somewhere between $1,000 and $10,000. If you are paying more than $10,000 per year, even for good advice, you are overpaying no matter what the value. That’s because you can get high quality financial planning and high quality investment management of any amount of money for less than $10,000 per year.”
Of course, it costs virtually nothing to do your own financial planning, except the learning and discipline time required to get up to speed. Or you can find a “lower cost financial advisor” or negotiate lower rates with your current advisor. The goal is to receive beneficial advice at a fair price.
Putting it Together
You may do your finances alone. We respect that.
You may manage your finances with a single advisor. We salute that.
What we’re sure you’re not doing is working with a multidisciplinary team using its collective intelligence to deliver the better outcomes.
To bring light to the art of financial planning, two heads are indeed better than one.
My Financial Coach, LLC
Read more from William L. MacDonald
