When To Hire a Financial Advisor

I have been thinking a lot about my financial plan as I transition into my academic attending career.  I am leaving behind my days as a trainee and setting out to practice more independently.  With that comes significant changes in my responsibilities, my expectations…and my income.  I have spent the past decade of my life either accumulating educational debt or making a middle-class salary as a trainee.  Being in a dual physician household means there will now be much more we can achieve as it applies to our financial goals.  Am I doing everything correctly?  Are my priorities correct?  Am I missing something substantial?  All of these concerns have me thinking about my threshold to ask for help.  In medicine, we call consults when we need a second opinion or are outside our scope of practice.  As my household income nearly doubles, I need to make sure I have my ‘ducks in a row.’ Here are my thoughts on when to hire a financial advisor! 

What is the purpose of a financial advisor?

Let us begin by clarifying what the purpose of a financial advisor is.  A financial advisor is a professional.  Though optional, they often carry a certified financial planning degree.  Not every financial planner carries this accreditation but it tends to be associated with more experience.  Generally, individuals who pursue financial planning as a career choice have a bachelor’s degree in finance with some pursuing a master’s degree subsequently.

Financial advisors (synonymous with financial planners) perform a plethora of services.  These can range from comprehensive reviews of your finances to helping you map out a financial plan.  They can help you create a timeline for retirement or they can just answer questions on your current financial standing…and all things in between.  People can interact with their financial advisor with as much frequency or rarity as they see appropriate. 

Other tasks that financial advisors can perform include helping create a roadmap and timeline towards your goals, helping you navigate unexpected financial obstacles, create investing accounts, invest for you, and answer any financial questions that arise along the way.  Making sound financial decisions with your money early in your career can help your money work for you long-term.  This generally means more time to let the miracles of compounding interest work in your favor!

The Fiduciary Duty

I wanted to mention a brief disclaimer before moving forward.  Recently it has become more common for financial advisors to have a Fiduciary Duty to you.  A Fiduciary Duty is a contractual obligation to act in your best interest, even if it comes at the expense of lower reimbursement for the financial advisor.  In other words, the Fiduciary Duty forces the financial advisor to treat your money as if it were their own.  This is important as it applies to the reimbursement structure for financial advisor’s compensation. 

It is common for a financial advisor to receive compensation based on ‘assets under management.’  This means instead of paying a monthly or yearly fee for service, you allow them to receive a percentage of your total assets annually.  This often ranges from 1-2% (or more).  This is important as advisors can be incentivized to perform trades or investments that may not benefit the customer, but are likely to compensate the advisor. 

It is for this reason (along with many others) that I highly, highly recommend you clarify that your financial advisor operates under the Fiduciary Duty at all times.  Get it in writing before entering into business with them.  This is critical.

When to hire a financial advisor

So, we have talked extensively about what a financial advisor is.  Now let us ask when we should employ one. 

You don’t want to deal with your finances

The first scenario when I think it is appropriate to hire a financial advisor is simple.  If you have no interest in managing your monetary goals, then just pay someone else to do it.  It will be worth your time and you are likely to not get frustrated or apathetic toward your finances. 

In the healthcare profession we are already encumbered with medical knowledge, long hours, and significant responsibilities.  It can seem overwhelming to simultaneously have and execute a greater financial plan.  This often entails knowing what to do with your excess income, re-evaluating your budget, knowing if you are optimizing your retirement contributions, etc. 

A good financial advisor would be happy to review your finances, understand your long-term financial goals and ‘draw up’ a comprehensive roadmap for you.  You are paying them after all… put them to work!  Let them know how you detest finances and you want someone to just ‘tell me what to do!’  If this is you…read no further.  Find a financial advisor who acts under the Fiduciary Duty, understand their reimbursement model, and if they instill comfort and confidence, hire them and move on with your life.  End of story. 

If that is not you…then continue onward. 

You have paid off you debt

Another milestone where I find it entirely appropriate to consider hiring a financial advisor is when you have eliminated all of your educational debt.  For many of us in the healthcare profession (especially physicians) this generally means you have spent years eliminating hundreds of thousands of dollars.  This is no easy feat!  With the culmination of your debt elimination, you have successfully freed up a significant portion of your income.  The next step is to determine what to do with that money. 

If you are anything like The Motivated M.D., you are putting a large portion of your monthly income towards debt.  I have previously written on this topic on multiple occasions.  Previously I wrote a post discussing how my wife and I are tackling our $670,000 shared medical education debt.  I have another post that reviews how we use a debt elimination graph in our shared budget to keep us motivated.  We have a goal of paying $100,000 towards our debt annually.  This comes out to roughly $8,333 a month.  Once our debt is gone, we free up $8,333 a month!  Think about what we can accomplish with this boost in our monthly income!

Paying off all of your medical education debt marks the closing of one chapter in your life and the transition to another.  The next chapter allows you to really make significant headway towards debt accumulation, savings, investing, and more!  What you do with the money you free up after becoming debt free is important.  If you feel you need direction on what to do at that point, it may be worth considering sitting down with a financial advisor. 

Your finances are too complicated

Here is one I hear frequently.  ‘My finances are too complicated.’  I tend to hear more about this from colleagues during tax season.  It’s February or March and individuals are in the process of doing their own taxes or paying an accountant to file for them.  Inevitably, there are a handful of physicians who express frustrations about the complexity of their finances or are surprised by the charges they accrued that tax season.  They are married to another high-income earner.  They have multiple children, charities, they own a side hustle, they have a limited liability corporation (LLC), they own a private practice…the list goes on.  The more money flow you have, the more diverse your revenue streams, the more complicated it can be to understand and organize your money. 

Here is where a financial advisor may be able to help.  They often have the tools and time necessary to help you understand the nuances of your finances.  If you don’t care about these nuances (to be clear…you should care…but if you don’t) then they can at least parse them out on your behalf and make sure you are making all the right decisions. 

Mo money, mo problems

As we grow in our careers, our finances can grow more complicated.  It is taxing (no pun intended) to ask a full-time physician to stay abreast of all medical knowledge necessary for their specialty and still know enough about their finances to avoid errors.  It is a steep learning curve and there are those whose job it is to understand these financial complexities.  If you grow uncomfortable with your finances, consider paying someone who will organize them for you and break them down into digestible pieces you can understand. 

There is something to be said about knowing your finances ‘like the back of your hand.’  There is also something about knowing the worth of trading money for time.  You need to know enough about your finances to know when someone does not have your best interests in mind…when they are not meeting their Fiduciary Duty.  Beyond that, however, is the realization that we lead busy lives.  If your finances are overly complicated, pay for an accountant, pay for a financial advisor, get back to your life. 

You don’t know what your next step should be

There is another important consideration when deciding if a financial advisor is right for you.  What if you don’t know what your next step should be?  By now we have discussed not wanting to do your finances, paying off your debt, and keeping complicated finances.  All of which I consider to be opportunities to consider employing a financial advisor.  One that feels pertinent to me involves the ambiguity of your next step. 

Maybe you don’t know what the next step is!  Not everyone is dedicated to rapid debt elimination.  Not everyone has overly complicated finances.  Some of us are totally content with our 9-to-5 and are executing our financial plan.  But what if you are in the prime of your career?  What if you continue to have some financial goals you wish to achieve, but don’t know how?  This is another scenario where an advisor could be of some use. 

We all have goals.  Sometimes these goals blur into fantasies, however, what if we don’t actually know where our goals end and our dreams begin?  Maybe you want that second home?  Maybe you want to build generational wealth?  Perhaps the money to travel the world ten times over?  If you are at a point in life where you don’t quite know what your money move should be, this is another time to consider professional help.  Sometimes it can be therapeutic to sit down with a financial advisor and discuss your ‘loftier’ goals.  Maybe some things are attainable with an intelligent strategy.  If you don’t know what your next move is…it may be time to discuss your options with an advisor.

Peace of mind

The last topic I will discuss seemed an appropriate one to end on.  Peace of mind.  We all want it.  Personally, I go through phases where I have full confidence in my financial plan, and times where that confidence wanes.  It is difficult to stay confident about our financial decisions all of the time.  Sometimes ‘stuff’ just happens!  I didn’t expect a tree to fall through my home.  I underestimated the cost of childcare.  No one could have predicted the COVID pandemic, much less the aftershocks the economy has experienced in its wake.  

No one could have predicted any of these things.  Markets rise and fall.  There are unexpected expenses.  Plans change.  And on the story goes.  These things are just a part of life.  Sometimes our finances take a hit.  It can force us to change our outlook on our financial footing.  Maybe we are not as well off as we thought.  Should we be prioritizing different things?  These anxieties can be overwhelming.

Sometimes all we need is peace of mind.  Maybe all you need is a few appointments with a financial advisor.  You can sit down, have them review your finances, your financial plan, any recent changes…and just get their professional opinion.  Maybe it does nothing to your overall goals.  Maybe you’re on the right track!  Perhaps you gain new information or find a better alternative for your plan.  If you walk away with nothing other than peace of mind…sometimes that is worth every penny. 

Take home points

I wanted to write this post more for myself than for anyone else.  As I complete my medical education and transition to attending-hood, I have countless goals on the horizon.  This blog has become an outlet for my thoughts.  Sometimes they serve no purpose other than for me to untangle my complicated mind.  This post serves to help me discern where my threshold lies for employing a financial advisor.  I have thought about it many times.  Much of my readings and writings pertain to my finances.  On the surface I write like I have it all together, but sometimes I question my own financial plans.  Am I staying on track?  Am I prioritizing the right things?

The peace of mind that can come from a second opinion is incredibly valuable.  From the affirmation that you are on the right track to the discovery that you can continue to optimize your financial plan.  There is a time and a place to consider the help of a financial advisor.  They may not be for everyone, but I hope this post has given you a list of times to consider their services. As always…

Stay Motivated!

The Motivated M.D.

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