THE VALUE OF A FEE-ONLY FINANCIAL PLANNER

 

Steven Podnos MD, MBA

 

 

     One of the motivating factors in my transition to a career in financial planning was the realization of just how few financial advisors were available that could provide unbiased comprehensive advice to physicians.  What I found instead was that my peers and I lurched from an investment advisor or broker for investing expertise, an estate-planning attorney for wills and trusts, an insurance agent for life insurance, and a different set of attorneys for help with retirement plan structures.  To make it harder, I realized that the investment advisor and the insurance broker were paid by their employers or by the products they sold, and not directly by me.  A clear conflict of interest was present, but there seemed little alternative.

     Further investigation revealed that there was a new breed of financial advice available, through what is called fee-only financial planning.  These advisors (and I am one) are paid directly by their clients to develop a comprehensive financial plan that will integrate the physician’s estate plan, retirement plan, insurance planning, investment allocation, and asset protection concerns all together.  When needed, the planner acts as a coordinator and “translator” of advice from legal experts on trust and other estate planning issues.  Fee-only planners have only their clients interests in mind, as they are paid directly for their services.  In fact this model is very similar to the way physicians are paid-fee for service.  The conflicts of the traditional commission based investment advisor can be understood by the analogy of physicians making their income from a percentage of drugs prescribed or tests ordered, rather than from their expertise or time involved.

   It gets even better!  The cost of most “active” management through traditional brokers is between 1.5 and 3% per year, especially through the increasingly popular wrap accounts.  Even “do it yourself” investing with actively managed no-load or low-load funds carries a cost of between 1.25 and 2.5% yearly.  Many fee-only advisors utilize a diversified and indexed type method of investing, rather than active management.  The idea (not original from me) is that rather than find the needle in the haystack of the few active managers that can beat the market, why not just invest in the haystack itself (the whole market).  The cost of the fee-only planner including all investment costs is rarely above 1.5-2%.  So, for the same or less cost than doing it yourself, or using a commissioned broker who is mostly interested in investments only, you can have a planner interested in every aspect of your financial life. 

    I tell my clients that I am their financial coach.  I am there to call about almost any concern they have about investing, or retirement planning.  I make it my job to understand the interplay of asset protection concerns and how they mesh (or don’t mesh) with estate planning or retirement planning issues.  I am there to help them understand financial information that they hear from friends or other investment experts.   I want to give them “financial peace of mind,” and to let them enjoy life without spending unnecessary time worrying about money. 

     The field is relatively new, and many physicians may not be aware that fee-only planners are even available.   I suggest you contact NAPFA (www.napfa.org) or the Financial Planning Association (www.fpanet.org) to help in this search.