Considerations for choosing a financial adviser

Jeff Witz, CFP

Many physicians find they do not have the time or energy to manage their finances properly. Working demanding hours, spending time with family and friends, or doing the hobbies they enjoy leaves very little time to devote to researching and implementing an effective wealth-building strategy. Many physicians eventually recognize that they need help and start seeking a financial adviser. However, finding one they trust who fits their needs and budget can be challenging.

A good starting place is identifying your needs. Are you just looking for investment help, or do you want help creating a full financial plan? Do you need estate or tax planning help? Do you need help finding ways to repay debt or create charitable entities? Your needs will likely guide which type of adviser is right for you.

If you are just looking to invest, a robo-adviser or online financial planning service may suffice. They tend to be less expensive options and can help you create an investment portfolio based on your rate-of-return objectives and risk tolerance. However, the scope of their work may be more limited.

If you are looking for an adviser who does more comprehensive planning, if your situation is more complex, or if you want to develop a more personal relationship, a traditional financial adviser may be a good fit. These types of advisers provide specialized services and can help create a comprehensive plan focused on areas of retirement planning, risk management, education planning, asset protection, and charitable gifting. Some may offer estate planning assistance or tax preparation services as well. These types of advisers tend to be higher cost, and they may require a minimum portfolio balance such as $500,000.

To further narrow your search, a next good step is determining how you would like to pay. Many advisors charge a percentage based on assets under management. Robo and online services often charge between 0.25% and 0.90% compared with a traditional adviser, whose median fee is approximately 1%^1,2 but can range higher or lower depending on account size. Other advisers may charge a flat fee, an hourly rate, or a retainer. Finding an adviser who provides all the services you need and offers the payment structure you prefer should help you significantly narrow your search.

As your list of potential candidates gets smaller, it is important to vet the adviser’s background and credentials. The term “financial adviser” isn’t tied to specific credentials and has been used widely in the financial services industry. It is important to research exactly what services the adviser can and cannot legally assist you with. You will also want to check if they have had any disciplinary problems such as fraud. You can typically find this information by requesting the adviser’s Form ADV or looking up disciplinary actions on the Financial Industry Regulatory Authority’s website: https://brokercheck.finra.org/.

Another important question to ask is whether they are a fiduciary and how they are compensated. Fiduciaries are required to act in their client’s best interest rather than their own. If an adviser charges a fee determined by assets under management, there is a high probability they are a fiduciary. If they receive a commission from a third party for selling a product, they may not be. It is possible the adviser is a combination of both, also referred to as fee based. These advisers may charge a fee for the investment assets they manage and the financial services they provide, but they may also help their clients obtain life, disability, and long-term care insurance or other products not available in advisory accounts for which they receive a commission from the insurance company or third party.

If you still aren’t sure where to start looking for an adviser you trust, start by asking friends and family. If they work with someone and have enjoyed the experience, you may also enjoy working with their adviser. It is always important to do your due diligence, but this may be a nice shortcut to find someone with whom you want to develop a long-term working relationship.

References

1. Miller M. Robo-advisor fee comparison. ValuePenguin. Updated November 3, 2020. Accessed June 21, 2022. https://bit.ly/3AT9qq1

2. Kitces M. Profits falling but AUM fees still rising as financial advisors defy robo-competition. Nerd’s Eye View blog. September 19, 2016. Accessed June 21, 2022. https://bit.ly/3cieo5J

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