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First 2018 Meeting with Financial Advisor

I meet with my financial advisor at Modern Dollar several times a year virtually to go over my finances. The point of these meetings is to make sure that I’m on track to reach my major financial milestones. We schedule quick phone meetings when new changes take place in my personal financial life.

 

Role of a Financial Advisor

Other personal finance bloggers are advising their readers to get rid of their financial advisors and handle their own finances. This sort of advice is fairly common during strong economic times – if our portfolios are going up then what do we need a financial advisor for?

When the economy tanks or we lose a job, get divorced, or relocate for the job of a spouse then that is the least likely time for us to want to bring a financial advisor into our personal financial chaos.

Depending on your personal financial literacy stage and your wealth accumulation stage, you will need something different from a financial advisor.

I am at a point when I need my financial advisor to keep me on course, recognize any unaddressed risks, and help me make good financial decisions.

I have accumulated a massive amount of wealth already so that part is done. Keeping it safe, growing it, and adjusting the asset allocation are the important maintenance tasks.

 

Financial Advisor vs Professional Investor

A financial advisor isn’t there to get you the highest market returns possible – that’s what an investment broker does. Such investors don’t come cheap and don’t come without risk.

Financial Advisor ≠ Professional Investor

The investor takes your money, charges you mad fees, and tells you very little about what they are investing your money in. They often require you to be with them for at least 5 years and often decades.

The Investment Broker

Many professional investors even require you to park your money with them for at least that amount of time before you can withdraw it – that’s a tough proposition for hard-working physicians who don’t have money raining in from multiple businesses.

You have to be able to afford an investor but you cannot afford not having a financial advisor.

Even the big-baller physician who can afford their own investor will need a financial advisor to maintain all that wealth, to manage debt, to plan for retirement, to evaluate risk, and to maintain portfolio diversification.

The professional investor exposes you to high levels of risk in order to get you higher returns – there is no way to get higher returns without higher risk unless you replace risk with (wo)man-hours.

The Financial Advisor

My financial advisor still helps me invest my money but the difference is that he isn’t after the biggest gains possible. The goal for my portfolio is to outpace inflation and grow within a risk-adjusted, well-balance portfolio uniquely designed for my needs.

As a Family Medicine doctor I’m not here to help you live to 120 years of age or develop 100 pounds of lean muscle. My goal is to help you live the healthiest life possible so you never will need a doctor – fortunately my patients rarely listen to me which is why I make $200/hour pushing meds.

The quick-fix OTC supplements and weight-gainers and fat-melting products are what patients gravitate towards. Beyond that they want magic prescriptions to cure all sorts of diseases. We know that’s not possible and that kind of strategy eventually catches up with patients.

With this terrible analogy behind us, I hope I made it clear that even though the extra risk of investing with a professional investor might pay off in the short-term, it may not be worth it for most of us in the long-term. A more holistic and integrative approach might be more prudent.

 

My Financial Advisor’s Business Model

I have had 3 other financial advisors before Andrew Mohrmann and I have sat through many titillating financial advisor presentations by big-name companies.

My first advisor made all his money by selling me insurance products, my second advisor made his money by selling me expensive loaded mutual funds, and my last advisor charged me a set annual fee until he decided to move to a percentage model based on my investment (AUM).

Each physician will need to figure out what fee-model best suits them but I am quite happy with my monthly fee model with Andrew which is at $125/month. This is incredibly low since the going rate is at least $200/month and closer to $400. My obviously my handsome features and excellent humor has him keeping me at the lower rate.

What keeps both of us honest is that he charges me an ongoing rate for which I need to keep him accountable and I get to cancel with Andrew at any time if I feel that I am not receiving any more benefit.

 

Assessing the Value of my Financial Advisor

I pay $50/month for my UpToDate subscription and I would gladly pay $100/month for it. I get to reference UpToDate in my MDM when I chart on patients and I have an effective and reliable way to figure out the proper workup and management of a certain disease.

If UpToDate didn’t keep up with the latest data in medicine then I would cancel my subscription and go to searching for the latest literature myself on PubMed or the big-name sell-out journals (looking at you NEJM!).

So, by choosing UpToDate I save time, headache, and I lower my risk. That’s value – value for which I’m willing to pay money. I need to complete 2 telemedicine consults a month to pay for my UpToDate subscription.

My time is worth around $200/hour – or $3/minute.

If I had to keep up with the latest economic news, filter out what’s legit and what’s bullshit, and if I had to research my own portfolio options every year then I’d certainly be spending several hours a month doing so. I’m paying Andrew less than an hour of work a month for his services… Hope he’s not reading this.

Metrics

I’ve been investing for many years. The first few years I always lost money in the stock market, whether to fees or to investment losses. Eventually I realized that I needed to first address my own spending behaviours before addressing investment returns.

When I took my spending down from $15,000/month to $5,000/month I was able to grow my net worth far, far faster than even if my investment returns were 40%. Can you imagine? An investment that could earn you 40% a year? Imagine the scrotum-shrinking risk of that portfolio.

So my metrics with my financial advisor are the following:

  • how well my financial advisor helps me understand the importance of budgeting
  • how he helps me plan for my long-term financial goals
  • how he helps me stay on track
  • how well he addresses new financial situations
  • how well he protects me from major financial disasters

 

Preventing Financial Disaster

Dr. O is a 55 year-old Family Medicine doctor who recently started working at a large medical group. She emailed me to ask for some guidance because her husband divorced her after 25 years of marriage right after cleaning out their bank accounts. She has $110k to her name at age 55.

Dr. J developed a substance abuse problem in his early 50’s and after a divorce and running into problems with the medical board he lost all his money by investing in a crooked investment scheme. He is 64 years old and has $60,000 to his name and is starting over as an Internal Medicine doctor.

I don’t care if my financial advisor can get me 10%, 20%, or 40% annual portfolio returns. That doesn’t mean much to me if my wealth isn’t properly protected against catastrophic losses.

Should the shit hit the fan and I lose a great amount of wealth, I want someone on my side who can help me recover – who can help me rebuild my wealth with just the right amount of risk exposure and with the optimum rebuilding strategy.

 

First 2018 Meeting With Andrew

I have to be incredibly honest with Andrew about everything. My income. My spending. My future plans. My forbidden desire for an expensive sex-change operation.

Don’t let this blog fool you, I’m not an open person – ask any of my angry ex’s. But if I’m not honest with Andrew then how can I expect my financial advisor to recognize a drop-off coming around the corner?

My financial advisor knows that I’m planning on making a move to Spain, that I’m planning on transitioning out of medicine, that I’m going to want to invest in an alternate career, that I want to play around with serious tax-strategies, and that I want to eventually invest in my own business.

Like Andrew has always told me “I want to be the first person you call when anything major happens in your life so that I can calculate the financial factor of it.”

Securities Investments

We discussed my 2018 investments. My securities investments are scattered beautifully in a mix of stock index funds, bond index funds, cash, and REITs.

We talk about asset allocation every time we meet. This time we determined that I’m finally getting close to meeting my 50/50 asset allocation goal of foreign equities and US equities.

As I get older Andrew and I will need to discuss adjusting my asset allocation if necessary to better match my aging risk profile but that’s not for another decade or so down the road.

Tax Planning

I’m excited that Andrew brought on a new partner who has an accounting background. Mark will make a great addition to Andrew’s team and will hopefully be a great resource for me, someone who can help me decide on the optimal tax strategy.

I’ll try to test him out in 2018 and let you guys know how that goes.

Real Estate

Since I am planning a move to Spain but don’t know if it will be my final home or a part-time home, we spent some time discussing my options in regards to my US condo.

A few months back Andrew put together a thorough financial analysis of whether it would be worthwhile to rent out or sell my condo based on current market valuations.

For now we have decided that turning my condo into a rental property will be a good move should I decide to move to Spain long-term.

Risk

This is a broad topic and we always address it in one form or another. Obviously my asset allocation is one of the main ways that I can curb the risk of my assets.

Another is insurance. I am no longer in a position to need disability insurance. Andrew eventually convinced me that it was in my best interest to have property insurance. At $200/year is a worthwhile financial move on my part not just because it’s a very small sum – a dollar is a dollar – but because it makes sense to have that level of asset protection.

Could my financial advisor have anticipated the risk of me being investigated by my state medical board? No. But now that we have both been through this we are both going to keep such esoteric risk factors in mind. And maybe I can get my shit together to not do stupid shit like that in the future.

Andrew and I went back and forth a little and agreed that for now $30,000 is a safe amount to have in my emergency funds – basically cash. He cited an interesting study which showed that no matter how high someone’s net worth is, if they don’t have enough money in cash then they will feel financially insecure.

Income

I’m impressed that Andrew has my previous tax returns in front of him while we’re having these client meetings – this is the kind of service that makes me feel as though there is someone else looking out for me, makes me feel that I’m not alone. I upload these to our secure online vault every year.

For 2018 we discussed my future income plans and as you guys know it’s up in the air. I am exploring various opportunities right now and income is not high on my list of priorities.

However, I don’t want to eat into my savings or retirement accounts and so I am planning on still generating the income I need in order to live a very luxurious lifestyle. Since I have no fetuses running around the house or a partner I can get by incredibly well on $3,000/month.

Wealth Strategy

As our wealth starts to grow we have the added task of protecting this wealth. There is nothing easy or simple about being wealthy – I’m wealthy but the kind of wealthy I’m talking about is having several million in the bank.

I’m 39 and it’s important for me to capitalize on these low-income years to convert some of my Traditional IRA’s into Roth IRA’s. One reason for this is that I can escape the minimum distribution requirements set by the IRS. The second advantage is that I gain much more control over my taxes.

I’m glad Andrew is staying on top of this – not sure it would have been on my radar for another decade or so. By which time it might be a less effective tactic.

Financial Independence Projections

I remember it was March of 2016 and I was doing the math on investment assets and looking over my monthly income when I realized that I had reached my financial independence goal 2 years ahead of schedule.

I emailed Andrew, we set up a time to chat online and he confirmed that I had reached that transition point – I was ecstatic.

Maybe once a year or anytime there are major changes in my life, Andrew and I sit down to recalculate my financial independence projections. He is quite meticulous and does all the nerdy math ahead of our meetings and factors in all the minutiae of health insurance, social security, housing, and other potential lifestyle inflations.

 

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