The Most Important Financial Step for Doctors | Travis Chick
Whether you are at a hospital or private practice, you must approach your career as if you are your own CEO. This mindset shift is thinking bigger than just seeing more patients, it has to be about leveraging the experts around you to maximize your opportunities.
Some of those experts can be fellow practitioners, but would also include your tax professionals, financial professionals and attorneys, both on the business side and estate planning side for protection strategies.
So often where I see physicians start out down the wrong path is by following the crowd. Fortunately, for me as a future patient, our medical professionals have gone through extensive schooling, years of hands-on training, and often have chosen a specialty and earned a fellowship to qualify you as an expert when I need it. Unfortunately, you as a doctor are not taught how to run a business, or what questions to ask wealth managers, and select experts that don’t just see you as another dollar sign. No doubt, you have been hit up by every financial advisor around, but with so many out there, how can you choose a qualified expert early that is going to set you up for long-term success?
Building Out your Advisory Team
Becoming wealthy and remaining wealthy require different characteristics. Doctors become wealthy through years of serving their patients, but often make the mistake of thinking that wealth creation ability will also translate into successful wealth management. Fortunes are lost when lack of financial expertise is combined with poor advice from unqualified advisors.
Two of the biggest mistakes I see doctors make are hiring the wrong people, and trusting them entirely too much. My goal is to empower you to help ensure you aren’t taking advice from the wrong people.
Family and Friends (Discount)
These are people who have most likely supported your dreams of becoming a doctor and maybe even participated in that development. You are confident they have your best interest at heart, but unfortunately, are rarely qualified to provide expert financial advice when it comes to the type of complexity most doctors are faced with.
Trusting a “friend of a friend whose brother is a financial advisor” can also lead to unnecessary conflicts of interest. No doubt, as you have seen your wealth multiply, the amount of people in search of a handout has also multiplied and blurred the definition of family or friend.
Colleagues
To be a success in any venture, trusting those around you and learning from the ones that have come before you help mold your future. However, trusting them in practice and trusting them when making important financial decisions is completely different. No doubt as you work your way up through the ranks to being a partner, you will be (if you haven’t already) pressured to go along with a new plan or investment or real estate deal that is “guaranteed to make you tons of money.” Often, I have seen these medical type of investments pay off handsomely, but who is it paying off most handsomely for? The ability to do comprehensive financial analysis for expected NET returns is one thing, but matching those expectations with your desire to protect and grow your own net worth is another.
It also may seem like a logical fit to have your finances managed by your partners’ advisor. But how do you know that advisor, who may be fantastic for your partner, would actually be successful at creating a comprehensive financial plan specifically for your situation?
The Solution: Multi-Family Office Model
New to the concept? Read our dedicated article: What Is A Family Office, And Does Your Family Need One?
The good news is you are very prepared with how to source and make a good decision when selecting your expert team. Just as I know enough that if I need a knee replaced, I will no doubt select someone who is an expert in knee replacement over a radiologist, you can select qualified experts too if you know where to look.
In a world where over 300,000 people hold themselves out as “Financial Advisors,” the selection process can be a challenge. Because of your complexity, the three most important people in your life should be (and probably in this order) at a minimum are as follows:
A qualified transaction attorney with a background in estate planning, asset protection, entity formation and real estate.
An advisor who holds the CERTIFIED FINANCIAL PLANNER™ designation or CFP®.
A Certified Public Accountant (CPA).
Now that there is a clear definition of the type of person you should be seeking, what questions should you be asking that help ensure you are utilizing the expertise of those qualified to serve you?
Lets start with Trust.
In the book, “The Speed of Trust” by Stephen M.R. Covey, he says, “Trust is a function of both character and competence. Character includes your integrity, your motive, your intent with people. Competence includes your capabilities, your skills, your results, your track record. And both are vital.”
You may trust someone’s character implicitly based on multiple factors; recommendations, designations, advertisements, tenure, etc… Below is an outline of trust I find helpful:
Integrity: That you are honest and congruent, that you have a reputation for being truthful, and that you would not lie.
Intent: That you are not trying to deceive or protect anyone, that you don't have any hidden motive or agenda.
Capabilities: That you do, indeed, have expertise, knowledge, skill, and capability in the area in which you are called to testify.
Results: That you have a good track record , that you have demonstrated your capabilities effectively in other situations in the past, that you produced results, and that there is good reason to believe that you will do so now.
Integrity: I believe the majority of those holding themselves out there as financial advisors are honest and truthful individuals. Like myself, most become advisors because they have a desire to help people. And just like any profession, there are a few bad apples that give the rest of us a bad reputation. Fortunately, our industry allows you the ability to verify designation and review complaints. Just like there is a medical ethics board, you can review if any lawsuits/allegations have been levied both by past or present clients by those you wish to interview.
Verify by visiting the following:
Securities and Exchange Commission (www.investor.gov)
Financial Industry Regulatory Authority (https://brokercheck.finra.org)
Intent: If there is only one question you were able to ask of those you wish you hire it would be this: “Do you act as a fiduciary?”
This standard requires one to act in the best interest of the client in every situation. In a world of brokers and commissions, not all advisors are the same. You must understand when and if there will ever be conflicted advice.
Why do conflicts matter? If you are a client at a Wall Street Bank/Brokerage firm, you will likely be exposed to significant conflicts of interest as those you are working with are “Registered Representatives” of those firms. You may be looking for advice, but don’t be fooled, these are firms in the business of selling products and producing a profit for their shareholders. Even deeper, if you hire someone who works for an insurance company (Mass Mutual, Prudential, New York Life, i.e.) or brokerage firm (Merrill, Morgan Stanley, UBS, i.e.), you are hiring someone who is a “registered representative” who may have an incentive to sell proprietary products for those companies.
This doesn’t mean the advisor lacks integrity or has bad intentions, it just highlights the fact that conflicts of interest do exist! So how can you spot the difference?
Ask for it in writing, “Are you legally obligated to put my best interests ahead of yours?” “Will you be serving me as a fiduciary?”
Review their website disclosures. Brokers who sell products will have something like “Company XYZ makes available products and services offered by XYZ company, a registered broker-dealer or member of FINRA.”
Ask what licenses the advisor holds. A “Series 7” license means the advisor is likely registered as a broker. The “Series 65 or 66” means they are registered as an Investment Advisor. Some will hold both, which brings on a new set of conflict.
Ask if they receive any additional compensation for selling banking products or investment products created by or proprietary to the company they represent.
So as you can see, the term “Financial Advisor” can mean very little unfortunately.
The truth is that anyone can call himself a financial advisor. Whether it's a broker (registered representative) who works for one of the big wire houses, or an insurance agent who really sells insurance but calls themselves a financial advisor or individuals like us who are CERTIFIED FINANCIAL PLANNERS (CFP®) and CERTIFIED PRIVATE WEALTH ADVISORS (CPWA®) we want to distill how you can actually make sure the person you're hiring has expertise.
This is where the importance of advanced credentials come in. If advisors do not hold any designations, in addition to investment licenses, understand that they have not demonstrated completion of any advanced education or expertise. You are settling for less than the best.
Your financial team should include the following:
Certified Financial Planner™ (CFP®)
Certified Public Accountant (CPA)
Chartered Financial Analyst (CFA®)
Certified Private Wealth Advisor (CPWA®)
Anything less and you are settling!
Some final questions we find helpful in the selection process:
Are you an independent Registered Investment Advisor?
If no, do not pass go.
Are you a CFP® professional?
If no, do not pass go.
Have you created a personal benchmark?
Are you achieving the life you envision?
Do you have enough?
Are you protected?
Do you current investments match your future goals?
Does your plan actually make sense to you?
Is your family prepared to receive and manage wealth?
In a world where complexity actually impacts your net worth in a very significant way, make sure your financial planning team is fully integrated and capable to make strategic decisions. You should never enter into an agreement that tells you to “consult your legal and/or tax advisors BEFORE making any financial decisions” and that your “financial advisor does not provide legal, tax, or accounting advice.” Your financial, legal and tax advisors can and should all already be working together!
