With the average U.S. physician pulling in annual compensation of more than $350,000 in 2022, why do physicians need financial advisors? After all, their yearly income is nearly six times the average U.S. worker’s salary of $59,428.
But physicians do need advisors. The reasons include factors such as how busy physicians are, their need for tax planning, the extra expenses such as malpractice insurance, medical school debt and the importance of enabling them to focus their own attention on patients’ welfare.
In the end, doctors benefit from using a good financial professional for many of the same reasons that patients know they should not try to treat themselves.
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Why Financial Advising Is Important for Physicians
The White Coat Investor website estimates that 80% of doctors need, want and should use a financial advisor, an investment manager or both.
But why is financial advising that important for doctors? Doctors face a convergence of circumstances that other folks might not confront. These circumstances include:
- Taxes. Tax planning might be complicated by ownership of a private practice.
- Salary. Pay that may fail to keep pace with compensation for newly recruited professionals.
- Retirement savings. To maintain their standard of living, doctors may want to stash $5 million, $10 million or even more in retirement accounts.
- Student loan debt. The average student leaves medical school with over $250,000 in student loan debt, including more than $200,000 in student loan debt from medical school alone.
- Lawsuits. Protection of assets that could be jeopardized by medical malpractice lawsuits.
Medical malpractice alone looms as a huge financial concern. Nearly one-third, or 31%, of doctors have been sued during their careers, according to a 2022 survey by the American Medical Association. Medical malpractice judgments and settlements can total hundreds of thousands, if not millions, of dollars.
Another reason a physician may want to seek out the expertise of a financial advisor is that some doctors may not be confident in their financial prowess, preferring to immerse themselves in medical matters instead of money matters.
Enlisting help from a financial advisor can help a doctor navigate financial shoals that are often, to physicians, uncharted.
How Much Will a Financial Advisor Cost You?
The cost of a financial advisor depends largely on their business model. Generally, financial advisors make money by taking a percentage of the assets being managed; charging periodic—often either hourly or quarterly—or flat fees; or reaping commissions based on a percentage of investment values.
Below is a table outlining the average costs of hiring a financial advisor in 2022.
| Fee structure | Predominant annual cost or rate |
|---|---|
|
Percentage of assets under management
|
0.5% – 2.0%
|
|
Hourly rate
|
$150 – $400
|
|
Flat fee
|
$1,000 – $3,000
|
|
Commission-based fees
|
3% – 6% of security value
|
|
Source: Financial Strategists
|
|
Keep in mind that the cost of a financial advisor will depend on the type of services you receive, the size of your portfolio and the advisor’s compensation structure. In turn, those factors are often reflected in the type of advisor you choose:
- A financial planner. Simply put, a financial planner, such as a certified financial planner (CFP), plots how you can achieve your short-term and long-term financial goals.
- An investment advisor. This brand of professional can guide decisions about investments in such vehicles as stocks, bonds, exchange-traded funds (ETFs) and mutual funds.
- A wealth manager. As the occupation’s name suggests, a wealth manager works with wealthy clients on issues such as investing, planning for retirement, setting up an estate and buying life insurance and other insurance products.
- An asset manager. This kind of professional typically concentrates on ways to grow an investment portfolio, such as coming up with buying-and-selling strategies and reducing investment taxes.
- A financial coach. A financial coach supplies education, resources and encouragement so a client can reach their financial goals, but they don’t provide financial advice.
Things To Consider When Finding a Financial Advisor
Before signing up with a financial advisor, it’s vital to figure out what you want from that advisor:
- Are you looking primarily for assistance with managing your investments?
- Are you behind on saving for retirement?
- Do you want to create a roadmap for accomplishing your short-term and long-term financial goals?
- Do you need help with tax planning and estate planning?
Answering these and other questions that pop up can help pinpoint which kind of financial advisor you want to choose, such as a financial planner or a wealth manager.
To point you in the right direction, consider getting guidance from any professional organizations you belong to. For instance, the American College of Physicians in 2022 launched a financial well-being program for its members. The group serves internists.
How To Find the Best Financial Advisor for Physicians
It’s worth noting that anyone can call themselves a financial advisor. No single entity awards certification to become a “financial advisor,” and no one regulates all financial advisors as a whole. Still, many financial advisors must undergo rigid training, earn professional designations and perhaps even submit to regulatory scrutiny.
So, as you’re hunting for the ideal financial advisor, pay attention to how “qualified” a financial advisor is.
Among the financial advisors who follow their industry’s best practices include CFPs and registered investment advisors (RIAs). Organizations that certify or oversee financial advisors include the Certified Financial Planner Board of Standards, Financial Planning Association, National Association of Personal Financial Advisors and Financial Industry Regulatory Authority (FINRA).
Before putting your financial future in the hands of a financial advisor:
- Check an advisor’s credentials. For example, if the advisor promotes themselves as a CFP, you can visit the letsmakeaplan.org website of the Certified Financial Planner Board of Standards to verify that they are, in fact, a CFP.
- Ask how they earn money. For instance, do they charge fees or earn commissions? You might find that you’d rather deal with a fee-only advisor, who makes money solely based on fees they charge for their advice and doesn’t earn commissions for selling products they recommend.
- Determine whether they’re a fiduciary. Legally, a fiduciary must act in your best interests, not their own.
- Find out whether they’re independent or part of a large organization. You may feel more comfortable working with someone at a big firm, for example, instead of someone who runs a solo practice.
- Consider working with a financial advisor who serves other physician clients. An advisor who has experience working with physicians might have the knowledge needed to better assist you with specific issues that arise in a physician’s financial life.
- Seek recommendations from friends, relatives and professional colleagues. Recommendations can always be the best source of information. If you trust the colleague, friend or relative who makes the recommendation, that’s already one point for the advisor.
- Review online comments about an advisor. In addition to verifying credentials, look for any disciplinary record through FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure database. FINRA is the Financial Industry Regulatory Authority, a government-authorized not-for-profit organization that oversees U.S. broker-dealers. RIAs register with the Securities and Exchange Commission or state authorities, depending on the amount of money they manage. An RIA’s Form ADV includes disciplinary information and is on file with the SEC.
- Interview any advisor you’re seriously considering. Learn about their experience, client base, communication style and other factors that can affect your relationship with them.
If you’re committed to improving your finances, then you’ll want to commit sufficient time to finding and vetting the right financial advisor.
In a survey by Doximity, an online networking service for medical professionals, 53% of physicians reported having a financial advisor. That leaves 47% of physicians who haven’t yet carved out time to find a financial advisor.
However, as Doximity notes, time-crunched doctors may not feel they’ve got enough hours in the day to manage their finances on their own. For this reason, finding the right financial advisor can help many physicians achieve their long-term financial goals.
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