The Money Meets Medicine Podcast

Getting Good Advice: The Four F’s of Financial Advisors

By Jimmy Turner, MD
Host of Money Meets Medicine

Let’s get one thing straight from the get-go.  Doctors should not be using a financial advisor strictly for investing purposes.  Investing is easy.  Use low-cost, diversified index funds. Pick an asset allocation (e.g. stock to bond ratio). And rebalance once per year. If you want to get fancy, you might consider tax-loss harvesting inside of your taxable brokerage account.

Again, investing is not a great reason to use a financial advisor.

Financial advisors provide value in other ways, including helping you and your partner get on the same financial page. Creating a comprehensive plan that ties everything together. Or serving at the central hub of your financial life like a general practitioner who knows all of the best people to consult for any medical problem you might have.

Still, a cost-benefit analysis must take place.  Is it worth paying my advisor X amount of dollars for all of the services that they provide? If I do, how do I go about finding the best financial advisor for a doctor?

It’s like standing at the crossroads of a financial jungle, where paths wind and fork in every direction. Picking a guide to lead you through—your financial advisor—is just as pivotal as the journey itself. But here’s the twist: you’ve got to figure out who you can trust before setting off on this adventure.

Some charge by time, some by a flat fee per project, and others want a slice of your portfolio; navigating these waters can feel like decoding an ancient treasure map.

Yet, I want this to be understandable for you so that you don’t have to spend all the time sorting it out yourself. We’re talking clear-cut differences between fee-only and fee-based advisors, social media sleuthing skills for vetting professionals online, and why understanding their pay structure is crucial for doctors especially.

In order to do this, here are “The Four F’s” of Financial Advising that I recommend each doctor pursue when looking to hire a financial advisor:

  • Fee-Only
  • Fees that are reasonable
  • Familiar with Physicians
  • Fiduciary

Disability Insurance for Physicians

 

If you can find a financial advisor who fits those “Four F’s” of financial advising, you’ll be in much better shape than 99% of docs out there.  Let’s take a deeper look.

Table Of Contents:

Understanding Fee Structures for Financial Advisors

While there are many different models by which a financial advisors can get paid, there are a few distinguishing features that must get covered to give you the lay of the land.  The most important is the difference between fee-only versus fee-based financial advising practices, which I am pretty sure are similarly named so as to confuse consumers.

Otherwise, they’d just call them “non-commission” advisors and “commission-based” advisors, but I’m getting ahead of myself. Let’s talk about the first of The Four F’s – Fee-Only financial advice.

The First F: Fee-Only (vs. Fee-Based) Advisors

Heard the phrase “you get what you pay for”?

Well, when it comes to financial advisors, knowing how they’re paid is like having a crystal ball into their motivations. With fee-only advisors, your bill is transparent – you pay them to give you financial advice, and to potentially manage your portfolio if you’d like. Do you need advice on retirement planning? Great. Want help with estate planning too? They can do that as well.

In contrast, fee-based advisors are more like shoe salespeople at the local Foot Locker. They not only recommend which shoes to buy, but they then also earn commissions from selling those exact shoes (usually the most expensive) alongside charging fees for that advice.

Except fee-based advisors don’t sell shoes.  They sell insurance products like whole life insurance (aka permanent life, universal life, etc), disability insurance, or long-term care insurance.

Separate Your Advice from Products

This is such a confusing structure that oftentimes clients will think they are getting advice for free, only to realize years down the road that it was the insurance product they purchased that had been paying the “advisor” the whole time.

So there might be more than meets the eye in terms of costs and potential conflicts of interest, particularly when it comes to a fee-based (i.e. “commission-based”) advisory model.

The take home? Get advice from one person, and purchase your insurance products from another.  Otherwise, it is like prescribing pharmaceuticals because the pharmaceutical rep (who has a massive bias) told you it was the “best drug in the world.”  Separating advice from products provides a much better chance of success when it comes to financial advisors.

The Second F: Fees that are Reasonable

Money Meets Medicine, Jimmy Turner, Justin Harvey

 

Digging deeper into advisor compensation gets trickier than finding loose change under couch cushions. After you determine whether your potential financial advisor makes a commission from selling products, there are also a variety of ways that they can get paid for the financial advice services they provide.

There’s AUM (Assets Under Management) fees where you’ll pay a percentage based on how much money they’re managing for you. This is the most common model.

If ticking clocks don’t stress you out, hourly rates could be your jam—you only pay for time spent working directly on your finances.

Fixed fees are another route; this flat rate deal is clear-cut. They only provide a specific service say, for example, creating a comprehensive financial plan. You pay the one-time fee for the one-time financial advisory service.

Which one is the right one for you?  As with anything personal finance, it depends.  Some argue that aligning your incentives through the traditional AUM model is a good thing. While others say “right… but look at the conflicts of interest for any advice that doesn’t put money into your accounts to increase the advisor’s fee.”

Regardless of which one of these advisory models sounds best to you, selecting the right payment structure isn’t just about cost—it’s about aligning incentives so your advisor works hard to keep both your peace of mind and your wallet healthy.

The 3rd F: Tailored Financial Planning for Physicians

You wouldn’t perform surgery without knowing what’s going on, right? Same goes for picking an advisor. It’s about finding someone tailored to handle your unique situation.  Like the mix of high-income potential and equally high student loan burdens—not some cookie-cutter approach.

Finding a financial advisor who gets the ins and outs of being a doctor isn’t just smart; it’s crucial. The right partnership can mean more than just good advice—it means someone in your corner who understands those crazy hours you work and the mountain of student debt that came with your MD.

You’ve spent years training to become a physician, so why pair up with an advisor who treats your finances like Dave Ramsey and applies their principles to every single person’s situation, even when it doesn’t make sense? Because, let’s be honest, Ramsey’s advice for doctors often doesn’t make sense.

A specialist will know that managing med school debt with an eye toward Public Service Loan Forgiveness is different from paying off a credit card. Doctors have unique financial needs. For example, there is a reason 80% of doctors have disability insurance (hopefully the other 20% are financially independent) and 50% of the disability insurance market is made up of doctors… we have unique needs.

Disability Insurance for Physicians

 

Whatever else comes along in your financial life as a physician, you want a financial advisor who is intimately familiar with the physician’s journey.

A bespoke plan could include things like tax optimization or investment planning that take into account irregular cash flows (because we all know patient billing is not as predictable as the Cowboys losing in the first round of the playoffs). And let’s not forget retirement savings—no one wants their golden years dictated by insurance reimbursements.

The bottom line here: teaming up with an expert versed in physicians’ fiscal health won’t just set you up better today but also prep you for a future where money woes don’t follow you home after those 12-hour shifts.

The 4th F: Fiduciary (Financial Credentials)

Back before the word “fiduciary” became a commodity, I used to recommend that every advisor a doctor works with be sign a document stating they’d practice according to a “fiduciary standard”.  A fiduciary is someone who is legally and ethically bound to do what is best for you.

This is different than a “suitability standard” where advisors can do what is “reasonable” (but not best) for you. Like selling you insurance products you don’t need (ahem, whole life insurance).  Reasonable? Probably. Best for you? Likely not.

Unfortunately, most advisors say they are fiduciaries these days, even when that’s not the case.

Regardless, you wouldn’t trust just anyone to give you medical advice, right? So why settle for less when it comes to your finances? The alphabet soup after a financial advisor’s name can be more than just fancy letters—it shows dedication and expertise.

Take the CFP® (Certified Financial Planner) designation; it’s not something advisors get from a crackerjack box. They’ve got to dig into rigorous coursework, pass an exam, rack up experience hours, and pledge to ethical standards that make sure they’re putting your interests first. Is it a panacea? No. But it shows at least some level of dedication and training.

Now that you have a good understanding of the Four F’s of Financial Advising (Fee-only, familiar with physicians, reasonable fees, and fiduciary standard), how might you go about vetting an advisor to make sure these things are true?

  • How long have you been a financial planner?
  • Do you make money selling commissions from products?
  • What percentage of your clients are physicians?
  • Why did you choose to focus on doctors (i.e. they better have a good reason other than “doctors make a lot of money and, therefore, make great clients)?
  • How much experience do you have handling complex student loan plans?  Have any of your clients received Public Service Loan Forgiveness?
  • Have any of your clients ever been denied disability insurance?  (If they have, then the advisor’s network is not very good… this should be very rare)
  • Do you operate under a fiduciary or suitability standard?

FAQs in Relation to Paying Financial Advisors

Is 1% fee for financial advisor worth it?

As with anything, it depends.  If all your financial advisor is doing is managing your investments, the answer is typically “no”. However, if they are providing other services mentioned above (e.g. being a sounding board, providing referrals, creating and maintaining a comprehensive plan) there is an argument to be made that a 1% fee could be a fair trade for personalized, savvy guidance, especially if they’re steering sizeable assets or complex finances.

What are typical fees for financial advisors?

Fees vary widely. Some are paid by the hour. Others are paid per project (e.g. creating a comprehensive financial plan).  Others are paid based on the assets that they manage (Assets Under Management = AUM).

A typical AUM fee is around 1%.  Many think “Wait, I get to keep 99%, that’s a sweet deal!”  Well, that 1% on a $2 million portfolio is $20,000.  So, you better make sure you are getting much more than just investment management, which is not complicated enough to warrant that sort of price.

Conclusion

Wrapping this up, paying financial advisors doesn’t have to be a maze. It’s about knowing the fee structures and finding what fits your fiscal needs as a doctor.

As you go through this process, you will find that 99% of the advisors will be separated like the wheat from the chaff.  The vast majority of financial advisors are not fee-only.  (Yes, I’ll die on that hill as a general education principle, though there are definitely a small minority of fee-based advisors out there who would do a good job).

When you start tacking on the other three F’s… well, it is going to only get down to a select few. At that point, pick whichever advisor you most resonate with to provide your financial advice.

Physician Disability Insurance

Are you ready to live a life you love?