How To Hire The Best Financial Advisor Whom You Can Trust

Walk into any local bank or brokerage and you see people working there with these titles:

Wealth manager. Stock trader. Financial planner. Broker-dealer representative.

It looks like they all had a lot of financial education. And they all sound alike. But you suspect they aren’t. You just don’t know exactly how 🤷‍♀️

You’re not alone if you’re confused!

With all of these titles that all mean that they deal with advising and investing, it’s no surprise that medical families aren’t confident in finding the right person to manage their money.

Why Hiring A Financial Advisor Is Complicated

Medical families hire people all the time. You hire babysitters, accountants, lawyers, contractors, and landscapers.

After all, from a per-hour cost perspective, an hour’s worth of mowing the grass is NOT equivalent to an hour’s worth of doing surgery. It does make sense to hire out some tasks.

The dark side of the financial industry is that NOT all of them work in your best interest!

In other fields like medicine, it’s super obvious who’s good and who’s not. For instance, if a doctor advises an obese patient, “You can cut some calories if you skip the vegetable toppings on top of your fried burger,” you need to find another doctor LOL!

But a good financial advisor? That’s super hard to judge.

Different advisors have different models and every one of them has conflicts of interests. Most of all, some of them give outright bad advice and that will cost you. And you may never know it until 20 years later.

Sometimes, you’re better off with no advice and doing what you’re already doing!

I’m a doc wife who has spent years reading one new personal finance book per week. I’m passionate about it and I have a gift for explaining it in easy words. I will show you how to hire the best advisor.

As a medical family, you worked so hard to earn your money. Let’s help make the most of it.

What Does A Good Financial Advisor Look Like?

Dr. Jim Turner of Physician Philosopher suggests these four very simple criteria and I agree with him:

  • Fee-only
  • Fiduciary
  • Flat fee
  • Experience with medical families

1. Fee-only

When you get financial advice, you want to know what their financial relationship is to that advice. You don’t want their advice to be influenced by incentives like commission. To do this, you need to know the different models of fees.

There are two types of fee models:

  • Fee-only
  • Fee-based

Fee-only advisors mean that the only money they are making is from YOU,  you = the client.

Fee-only advisors present you all the fees up front. No surprises, hidden fees, or percentages of anything taken out of your accounts.

Fee-only advisors also don’t sell any products (this means they don’t sell insurance, annuities, etc.) and they don’t earn a commission (like when a purchase or trade is made).

On the other hand, fee-BASED advisors get paid not only by you but also by a third-party. That third-party introduces a problem. It means they are incentivized to sell you products such as insurance and annuities. They literally cannot be objective about it because it behooves them to sell it to make a better living.

Larry Keller of Physician Financial Services says:

An advisor who sells insurance is really a salesman in wolf clothing.”

For this reason, fee-only has the least amount of conflicts of interests. And that’s why I recommend them over fee-based ones.

Ask your advisor:

“Can I see your ADV?”

This document lists all their fee structures.

2. Fiduciary Standard

Is your advisor fiduciary? Chances are, you have no idea.

Fiduciary is a fancy word that means they are ethically and legally bond to act in the best interest of the client. This has nothing to do with the advisor being a good, honest person. It has to do with legality.

Here’s a way to think about fiduciaries:

Let’s say there are two EXCELLENT choices: one is an A+ and the other is an A-. You’ll do fine no matter which one you choose. They’re both As. (I was always happy to get an A in school.)

A fiduciary advisor is legally bound to go with the one that’s A+ (the better one) no matter what.

On the other hand, a non-fiduciary advisor will tell you to go with the A- if it is what their company suggests because it makes the company more money. They aren’t legally bound to go with the best, only what is  “suitable,” in other words, what was helpful to you.

Always choose a fiduciary.

Also, quick side note:

It’s a misunderstanding to assume that an advisor who’s an outstanding, wholesome, good person — such as somebody from your church, a childhood family friend, or your brother’s girlfriend, for example — has a fiduciary duty to you. It’s possible to be an outstanding person but work for an employer whose company model is not good.

Ask your advisor:

“Can you show me a signed document stating that you are fiduciary?”

If they say they follow a suitability standard instead of a fiduciary standard, or if they say no document exists, that’s just a long way of saying they’re NOT fiduciary. Find somebody else.

3. Flat fee

Fee-only financial advisors can be paid in several ways:

  • Flat fee
  • Retainer
  • Hourly rate
  • Percentage of assets under management (AUM)

There’s no one right answer as to which path you go. All of these models can good depending on your needs. And they all have their problems.

For instance:

The problem hourly rate is if I know that picking up the phone and asking a question is going to cost me half a paycheck, I would only call when I’m in a dire situation. By the time you make the phone call, your finances is probably so screwed up that all the expert can do is damage control.

AUMs have the problem where the more money you own doesn’t mean it’s that much more complicated for your advisor to manage. AUM advisors also are paid by deducting from your account, which happens invisibly to you. You never write a check to them, but you’re still paying them. That’s why AUM can be pricey and you may never notice.

In my opinion, a flat fee or retainer (or a combo of both) is typically a good choice for medical families. But hourly or AUM can be very good models, too, depending on your situation.

4. Has Experience With Medical Families

Advisors, like doctors, have different specialties. Some advisors specialize in the elderly because they are proficient with social security issues. Some work only with entrepreneurs. Some like to work with C-level executives.

Medical families, particularly young ones who are just starting out, are its own niche because we have unique financial problems that aren’t “bread and butter.” For instance:

  • We have late retirement savings
  • We have six-figure student loans
  • We are in a high tax bracket
  • We phase out of Roth IRAs, Coverdells, and other accounts
  • We have to analyze PSLF vs. refinancing
  • We have to analyze paying down student loans vs. investing

Not all advisors are familiar with analyzing these dilemmas. An advisor who has dealt with these dilemmas many times will be able to serve you better.

Also, be careful that you’re not confusing them with somebody who is marketing their practice to doctors just because they have the word “physician” or “doctor” in their company name. Make sure they actually have many clients who are doctors.

Ask your advisor:

Dr. Jim Dahle of White Coat Investor suggests vetting them with this detective question:

“How many Backdoor Roth’s have you filled out last year?”

If the answer is they’ve filled out more than 20, then they likely do have experience with doctors. Attending doctors aren’t eligible to contribute directly to a Roth IRA and can only do so via Backdoor. That’s why this question is telltale.

There Is No Perfect Advisor

Less than 4% of all financial advisors are fiduciary and fee-only. If you are looking for a fiduciary, fee-only advisor, you’re looking for a unicorn 🦄

Because you got slim pickings, accept that there will be at least one compromise somewhere. And only you can choose and live with your compromises.

Here are examples of compromises that could be made:

  • Consider working with somebody who’s not local. You can accomplish a lot over FaceTime and texts.
  • Consider choosing to pay based on AUM when still young and broke. Then switch to a flat fee once you actually have a buck to your name.
  • Consider choosing an hourly rate if you’re already very financially literate. This advisor would be your “Who Wants To Be A Millionaire’s Phone-A-Friend.” You’ll pay a lot of money per hour but it’s OK if your financial situation is very healthy and you don’t call often.
  • Consider working with a planner who works with any high-income earners, not just physicians. Attorneys, dentists, vets, pharmacists, and small business owners have a lot in common with doctors.

As far as how much to pay a great advisor, here’s a rule of thumb from Dr. Dahle of White Coat Investor:

“If you are paying more than $10,000 a year for advice, you’re overpaying.”

Where To Look For Your Best Financial Advisor

It’s very common to get recommendations from friends or your company for a babysitter, accountant, lawyer, contractor, landscaper, and so on. And that’s the way to do it.

But I would NOT recommend you finding a financial advisor that way.

People in your circle or in the doctor lounge might have recommendations that are good — but also bad. It’s the best way to get overwhelmed because it’s a lot of work to wade through them. And if you’re new to finances, you don’t know what you’re looking out for.

You also do NOT want to simply go with the advisor who came and gave a free lunch talk at the hospital. They may turn out to be trustworthy, but affiliation with the hospital alone shouldn’t automatically earn them trust points.

My advice?

Two steps:

  1. Start your search with the XY Planning Network database. They are an association of financial planners who are all fee-only and fiduciary. As I mentioned, less than 4% of all planners are fee-only so this database is very small and exclusive. And they’re trustworthy.
  2. Look at their records in FINRA to see their records and if they’ve had complaints filed against them.

If they are in the XY Planning Network database and their record is clear in FINRA, they’re likely to be a good choice.

In Summary

If you’re skimming to the end and just need me to summarize everything in one statement, here it is:

TL;DR choose a fee-only, fiduciary advisor, preferably one who charges a flat fee and works with doctors.

A good place to start your search is the XY Planning Network database and then look at their records in the FINRA database.

There you have it. I hope all this advice helps you choose the best planner so your family can be successful.

I’m a hugger. I’m hugging and supporting you, friend.

To your strong medical family,