Think you can handle being your own financial advisor? Doctors are certainly smart enough to do it. Just check out the White Coat Investor, if that’s what you’re considering. But if you’re the type of physician who would rather pay someone else to worry about your money, how do you find a financial advisor who you can trust? Based on our experience, good financial advisors have a lot of the same characteristics as good doctors. They tell it like it is, they are interested in their clients/patients, and they are constantly looking to improve themselves, for example. Here’s how you can spot a trustworthy financial advisor. Are they direct? Doctors don’t mince words about health and your financial advisor shouldn’t mince words about your financial health. As a physician, you have a moral and ethical obligation to describe disease states to patients accurately. The same is true for financial advisors. If you have a financial disease, then you need to know about it. If you’re looking for a financial advisor, you need to first do some financial introspection. Assess your strengths and weaknesses. Focus on the weaknesses. Maybe you have too much student loan debt, or you’ve under-saved for retirement at your current career stage. Your ideal financial advisor will point out these things unflinchingly, and have a plan to get you on track. Are they interested? The key here is, are they interested in you, or just telling you about themselves, their firms, their clients, etc.? Unfortunately, many in the financial advisory industry are perversely incentivized (we’ll get to that a bit later in this post). The right financial advisor for a physician spends more time asking the physician questions than telling the physician about the aforementioned factors. Specifically, a good financial advisor will probe deeply about what your financial goals are, assuming nothing. They’ll delve into the logistics of your target retirement date, plans for a family, and spending habits. They’ll also ask you — gasp — some emotional questions too. Money is such a significant part of our lives that it is inexorably linked to how we behave and how we feel. A good financial advisor will strive to understand not just how you act regarding money, but how you feel about it. Do they do what they say they’re going to do? A trustworthy financial advisor will be long on attention and short on excuses. They return your calls promptly. They open and close accounts as promised. They are on time for meetings. This seems straightforward, but it’s not. You can use yourself as an example. How often is your care plan administered as ordered? How often do you actually talk to patients’ families? A trustworthy financial advisor will honor these commitments as gospel. How are they compensated? How a financial advisor gets paid may inform their motivations, and consequently, their trustworthiness. Some are paid via commissions. These so-called advisors may simply work to sell you a financial product, regardless of whether you need it or if it’s a good fit for you. They may or may not be trustworthy humans, but it’s a safe bet that they have other motivations besides your financial wellbeing. Some financial advisors are fee-based. Among fee-based advisors, there are 3 sub-categories: Assets under management (AUM), hourly, and subscription-based. An AUM advisor gets paid for the total amount of assets they’re managing on your behalf. This might incentivize them to make you wealthy. It also might incentivize them to make investments that you don’t need. An advisor that charges an hourly fee might be incentivized to — you guessed it — log more hours. We like subscription-based financial advisors. You pay a recurring fee for their services, regardless of hours worked or assets under management. They’re incentivized to keep you satisfied with excellent service, reasonable rates, and of course, securing your financial future. This isn’t to say that other types of financial advisors aren’t trustworthy, it’s that a subscription-based financial advisor’s incentives will tend to align with yours. Are they skilled? This factor is also fairly straightforward. You shouldn’t take financial advice from anyone who isn’t a Certified Financial Planner (CFP). But beyond that, there are two other things you can ask a prospective financial advisor to assess their skill. One is, how have they learned from their mistakes? We all make mistakes, including physicians and financial advisors. We can either distance ourselves from these missteps, or learn from them. A financial advisor who doesn’t have a good answer might be inexperienced, or unwilling to learn from failure. The second question is, what are they doing to stay educated? Maintaining CFP status requires a certain amount of continuing education. But beyond that, a trustworthy financial advisor will be reading books on finance, listening to podcasts, and reading financial news voraciously. Ask them about what they’re doing to educate themselves beyond the requirements. Are they disciplined? If the COVID-19 pandemic has highlighted any important financial principle, it’s this: Have a plan and stick to it. Those who had a financial plan saw some statement pain earlier in the year, but many portfolios are either back to where they were in January, or have surpassed January’s value. Ask your financial advisor about how they’ve handled the pandemic with their clients. Ask specifically about clients near retirement. You’ll want to hear something along the lines of, “Well, we’d already transitioned them to less-risky assets, so this was a non-event.” Or, you might ask about their clients who are new to their careers. You’ll want to hear something like, “This is an opportunity to invest, and we’ve encouraged them to invest monthly and focus on the long haul.” You’ll also want to see discipline and doggedness in how a financial advisor saves you money. If you’re vetting advisors, do some preliminary research on changes to the tax code. Make sure that they know more than you do about it. Ask them how they go about saving clients money on taxes. A final thought Ultimately, you’re hiring a financial advisor because you don’t want to worry about having enough money to retire. You want to feel certain and cared for. A trustworthy financial advisor should convey this feeling. If it isn’t there, that doesn’t mean they’re a bad advisor. They just might not be the best advisor for you. TL;DR A trustworthy financial advisor will: Be direct. Think about how you would deliver bad news to a patient. Be interested. They ask more about you and talk less about their firm, services, products, clients, etc. Do what they say they’re going to do. All promises are kept, all calls are returned. Keep developing skills. They learn more than what is required to maintain their CFP. Be disciplined. They make plans and stick to them. Source
