Wednesday, June 21, 2023

by ScrubMoney™ co-founders

It seems you can turn anywhere these days and you’ll get financial advice. Look in any direction and you’re probably hit with an advertisement, a quick tip, a savvy money narrative to digest, or perhaps even an enthusiastic stranger who swears they’ll grow your wealth. 

Meanwhile, your mind lingers with questions involving your personal finances that remain unresolved: “Who can I go to for advice?” “Who can I trust for help?” “What financial services address my most urgent needs?” 

Certainly, there are many simple steps you can take to set yourself up for a successful financial path. If you’re on top of your monthly budget and aware of your incoming and outgoing money flows, you’re in better shape than many physicians. With limited time to dedicate to personal financial planning, this is about as far as most of us get. The good news is there is expert and experienced help available — the real challenge may be knowing what you’re looking for and how to ask for guidance. 

Let’s assume you’ve got a pretty good idea of where you’re at financially, meaning you possess a general idea of how much debt you’ve accumulated to this stage of your career and are bringing home enough income to make ends meet. However, you’re looking to avoid financial mistakes, save money more efficiently, invest money and chart a healthy course for the years ahead. It may be time to find a financial planner and access other financial professionals. 

Our research shows that e many physicians turn to existing relationships when seeking professional financial support. Referrals often come from family members, fellow residents and colleagues, neighbors, and friends. In most cases, this is how financial professionals are introduced to early-career physicians and attendings. Alternatively, physicians know that having a white coat almost immediately attracts financial advisory service professionals — haven’t we all been approached, often repeatedly? Some of us are fortunate to find prudent, qualified professionals by these methods. Others aren’t so lucky, and sadly feel preyed upon. 

For those still looking for financial planning and other specific financial advisory services, we’ll lay out some considerations which we hope are helpful. Before diving deeper into specific services, let’s look at some typical services needed at various career stages in medicine. 

If you’re a resident, you’ll probably be best served by advisors that can assist with the following: debt repayment strategies (student loans and consumer debts), budgeting and saving prioritization, insurance services (disability and life), tax and estate planning services. 

For attending physicians, the previous services remain applicable with additional recommendations for retirement planning, investment management and educational savings for children. As your career progresses nearer retirement, it's certainly advisable to seek financial advice involving retirement income, long-term care planning, and post-career specific financial services. 

As medical professionals, we know the value of expertise and specialization. We can similarly use this framework when seeking a financial professional. When searching for an advisor who can look holistically at your (or you and your family’s) circumstances, find out how experienced they are at working with physicians. Don’t hesitate to ask them for their track-record with healthcare professionals, how they think through some of the financial situations facing medical professionals, such as sizable educational debt and the need for disability insurance. Furthermore, find out if they (along with their firm) provide a full suite of services (planning, tax, insurance, etc.) or if they specialize in one area primarily. Some physicians may prefer a one-stop shop, while others feel confident in having various professionals focused on fewer aspects of finance working together toward a healthy financial future. 

If you’re encouraged that a prospective financial professional is competent (i.e. experienced) working with physicians and physician families, here are some additional determining factors to consider: 

Compensation model: Know how your agent/advisor is paid for their services. 

• We suggest aiming to find a Fee-Only advising arrangement, particularly for planning services. The National Association of Personal Financial Advisors takes the position that the Fee-Only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary. Fee-Only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets.^[1] Fee-only financial advisors may be paid hourly, as a retainer, as a percentage of assets under management, or as a flat fee, depending upon the planner you choose.
• Additional compensation models include fee-based (set fee for the client, additionally an agent may receive compensation from other sources, such as a commission for sale of the financial product) and commission-based (agent receives compensation from products sold to client). *One note on the insurance services: you’re likely to encounter commission-based models in this area. Given this commonly used compensation structure in this industry, we suggest an emphasis on finding proper coverages and quality agents over a determination based solely on an agent’s compensation model. More on this below. 

One easy way to check for transparency is to find out if an agent is always a fiduciary. In other words, is the advisor obligated to do what is always in the client’s best interest? You may be surprised to learn that even fee-based advisors, in some cases, may alternate between the suitability standard (their recommendations only need to be suitable for a client’s situation) and the fiduciary standard. 

Tax strategies: I need a tax strategy?! The answer is probably yes. 

Unless you finished medical school while earning your CPA on the side (highly improbable) or have a personal accountant and tax preparer as your partner, you’ll probably need help here. Similar to finding a financial planner, make sure you find an agent experienced with physician personal finances. The reasons for a tax strategy and consulting with a capable, licensed tax advisor are underscored here: 

• Tax laws, both at federal and state levels, are ever evolving.
• A plan which considers deductions and capital gains not only for this tax-year but also subsequent tax years will save you money.
• If your household has multiple income sources, certainly you’ll need a tax plan with a comprehensive approach, and an agent to advise you through the filing process. 

Insurance services: Why choose an Independent Advisor? 

An important component of a physician's financial health and financial security will be insurance services, and we strongly urge you to consider an independent advisor when seeking help in this area. The marketplace for insurance policies is wide and an independent agent is best suited to shop the offerings of various companies on your behalf. An independent advisor can walk you through the nuances of policy language, help with determining sound coverages personal to your needs, and highlight key factors for choosing the best company to work with (age, gender, specialty, benefits, etc.). Moreover, an independent agent will not have loyalties to any specific company nor any economic ties to a specific insurer. 

If finding trustworthy and competent financial advisors seems bewildering, know that you are not alone. If relationships nearest you (family, friends, colleagues) make introductions to qualified financial professionals, count your blessings! And if you’re still wondering how to get this kind of help and not turn prey to rent-seeking financial resources, we hope this article will focus your efforts toward finding fiduciary and fee-only service providers with a focus on transparent client relationships. 

This article is authored by co-founders of ScrubMoney, a physician-created and physician-focused mobile app aimed to make sure every physician in the US healthcare system has a strong financial plan so they can better focus on healing their patients and living their lives.

^[1] What is Fee-Only Financial Advising | NAPFA