5 Reasons For Not Having A Financial Adviser
My perspective is a bit different from other doctors online who are sharing their journey through the financial world. For one, I don’t see the need to save millions of dollars to become financially independent. Furthermore, I don’t believe the financial industry is as easy to navigate as it’s made out to be. So the question is, why don’t you have a financial advisor?
#1. You Don’t Want To Spend The Money On An Adviser
Cost is hopefully the main reason for not wanting to sign up with an adviser. Advisers can cost anywhere from $150-300/month or $2,500-7,500/year, depending on what kind of fee-only model they follow.
Others also offer AUM fee structures where a specific percentage of your assets that are managed by the adviser is charged. The typical ranges are 0.75-1%. A portfolio of $500k would have an annual fee of $5,000.
If you think in a linear fashion in regards to personal finance then you might make the wrong decision. You might be thinking, your investments should grow at x% every year as long as you stay the course, WTF do you need an adviser for! You are happy with a 100% asset allocation of a stock index fund.
There is absolutely nothing wrong with that AA. The problem is that everyone has a plan until they get punched in the face, as Mr. Tyson put it so eloquently. The FA is there to keep you from losing out on thousands of dollars by making one quick mistake.
I’m a family medicine doctor, I didn’t need my hand held all that much to learn how to prescribe a BP medication. I got shown how to drain an abscess maybe 2x and after that, I could it do it with a can opener and a straw.
A vascular surgeon probably didn’t have the same learning process when it came to mastering how to create successful anastomosis. A very small error made in milliseconds could spell disaster.
Such is the nature of the financial industry these days. A doctor is able to lose thousands with a click of a mouse, it’s the curse and the blessing of the autonomy which consumers have demanded for so many years.
Until you have successfully made it through a market crash, I don’t think it’s a good decision to go at it solo. It’s what you don’t know that might hurt you and, to pick on nurses, it’s the little that you know that often can get you in a lot of trouble.
#2. You Don’t Want To Get Swindled
I definitely understand this sentiment because I have gotten swindled 2x by financial advisers, in the past. There are predatory advisers who target physicians for their high income, selling them products they don’t need.
If a 30-year-old single doctor gets swindled into buying a whole life policy, it’s only because they didn’t do their research before allowing anyone to sell to them. With the wealth of information available online such as this blog and many other ones, there isn’t much of an excuse.
I never appreciated this and my ego most definitely didn’t allow me to stand my ground on this matter. Now that I am older, wiser and have lost quite a bit of money, I have zero problems standing up to a salesperson and saying that I have absolutely no fucking idea what they are talking about and that I am far too ignorant in the details of the said transaction to sign or agree to anything without doing my due diligence.
These days, before agreeing to anything, I have the excuse of needing to run it by my financial adviser before agreeing to anything. Yes, I’ll proudly hide behind my FA.
#3. You Can Do It Better Yourself
It’s true that you might be able to do it yourself, but are you sure about this or do you just think so? It’s important to differentiate. There are certainly doctors out there who can go toe-to-toe with a CFP.
I am not sure if doctors have a long enough working career that they can take the chance of finding out if they really know more than an adviser or if they are better off getting one after failing on their own. Losing out on $5k is better than wiping out $150k of potential income in the future.
Just like in family medicine, the changes we bring about in our patients’ lives happen way down the road, often too far away to measure. A financial adviser is helping you make decisions that have distant future ramifications.
If you start working at age 18 then sure, you can try your hand at being your own CFP and if shit hits the fan, you have plenty of years to recover.
But a doctor who starts practicing medicine at age 30+ with a debt burden of $200k may not have a whole lot of wiggle room. In such a short period of time, expert opinion can help the doc make the most efficient decisions to pay off debt, accumulate savings, invest wisely and create an investment plan for the future.
#4. You Don’t Have Enough Wealth To Justify Paying For An Adviser
You might be fresh out of residency with a net worth of -$300k. I understand if wealth accumulation is far down the list, right after getting enough sleep and passing your oral boards. However, wealth building can never start early enough.
I have accumulated an incredible amount of wealth in a very short period of time. I have gone from a negative net worth to over $700k in around 4 years. Imagine if I had started working with a legit financial advisor right after residency.
Getting from -$300k to $0 isn’t too bad, it requires discipline and staying the course. From $0 to that first $100k you will have the toughest time, assuming the markets are cooperative. After $200k you will get to $500k in no time.
Somewhere between $500k and $1.5 million, it’s critical that you don’t make mistakes, which will lock in losses. Having a competent advisor during this time is worth far more than the $5k they are charging you every year.
You’ve heard this before, the first $100k is the hardest and so is the first $1 million. After that, it’s torrential. The income doesn’t come out of thin air, it’s from all those hours you are putting in at work. Do you really want to spend even a minute doubting whether you are making the right moves with your dough?
#5. Other Docs Online Are Advising Against Having An Advisor
There are strong voices online from successful physicians who are recommending that doctors take the reins of their investing and forgo hiring a financial adviser.
What the reader may not be aware of is that such advice is coming from a doctor who has years of experience investing. If not that, then these doctors have spent years interacting with financial advisers whether in a client/adviser relationship or interacting with them on forums.
As I mentioned, some docs can keep up with the average CFP. But even the best of the best physicians would have a tough time managing wealth as good as a top-notch CFP. Go find your top-notch CFP, or work with someone close to your age who you find has the potential to be top-notch.
Again, don’t get trapped by having a linear thought process when it comes to your investment horizon, it will be anything but. Markets fluctuate, lobbyists will enforce changes and new investment options will come up and old ones will disappear.
If you spend the majority of your time reading financial blogs, books and attending personal finance conferences then you might be okay not having a financial advisor. But if that’s not you then get someone in your corner, it’s money well spent.
Few physician households would be hard-hit by a $5k annual expenditure. But many hundreds of thousands of dollars can be wiped out if you make a mistake.
Start your search today at XY Planning Network or ask your friends and talk to your CPA. Don’t use someone who is piggybacking off a big-name company or someone who can sell you products to earn them more money. Talk to several (for free) before making the decisions. It’s your hard-earned money, don’t be shy about it and don’t be too nice about it.