Doctors vs Financial Advisors: Who Actually Wins?

financial advisors doctors — *It's about to go back and forth like a hockey game!*

One of the great debates in personal finance is the need for a financial advisor. This goes maybe doubly true for doctors just because we are such targets for financial advisors due to our high income (not necessarily because of high net worth – there is a big difference). In fact, most doctors get solicited by a financial advisor before they even leave training, when their income and net worth are negligible and negative, respectively. However, this is not to say that all advisors are bad or that there is not a role for them.

So, let's examine the debate a little bit closer and make some arguments for both sides.

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The case against financial advisors for doctors

Investing successfully is simple
- Just create a savings rate of at least 20% and invest passively in the overall market over the long term via index funds
- Passive index funds consistently outperform actively managed mutual funds
Financial advisors can often come with an inherent conflict of interest based on how they are compensated
- Commissions based payment has the largest conflict of interest, assets under management is in the middle, and flat fee carries the least conflict of interest
Investing with a financial advisor costs money
- Again, the method of advisor compensation is important to understand. But regardless of how, they are getting paid. That means that some of your money is not being invested and instead goes to pay the advisor. That lowers your returns
Lots of financial advisors think they can successfully “beat the market.” And they might convince you
- See point #2 above: active investing just does not win. However, it's human nature to think that we can do better, that we are the one whose investing decisions will be correct. Same reason that gambling is so pervasive and tempting. Alas they cannot. But they can be very good at making it seem like they can, and they might steer you in the wrong direction
Doctors have lots of debt that we need to pay off ASAP. Financial advisors can be biased against this
- When you come out of training as a doctor, you likely have tons of student debt. Building your savings rate and paying off that debt ASAP is a smart financial move. But doing that won't result in a single cent going into the pocket of your financial advisor. So they may tell you to invest that money instead, even if that is not the best strategy for you at the time

The case for financial advisors for doctors

Investing successfully is not easy
- This might seem in contrast to my first point in the case against financial advisors, but it is not. The tenets of successful investing are simple. But behavioral factors often interfere. To successfully invest yourself you need to understand the right and wrong ways to invest (with some familiarity with the data behind it), have some basic math understanding, have the emotional discipline to stick to a plan in good and bad times, and have some interest in it
- Without meeting these requirements, you may be doomed for failure and a financial advisor can help
Doctors are busy
- Honestly, as a DIY investor, it doesn't take a whole lot of time. But, doctors are very busy. There is nothing wrong if you are a doctor who wants someone else to focus on financial matters so you can focus on family, friends, work, and other hobbies
Good financial advisors can add a lot of value by:
- Developing a personalized investment plan attained to your goals,
- Integrating your investment plan into a holistic wealth plan including estate, and tax considerations, and
- Being a sounding board and safety net so you actually stick to your plan

Now that we understand the case for and against a financial advisor, it's time for you to think about which side you fall on. Do you meet the requirements of a DIY investor? Or could a financial advisor bring reasonable value worth their price?

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How can I find a good financial advisor?

Because a bad financial advisor will negate any potential value for you and potentially lead to poor returns and more years you need to work before financial freedom. That makes this decision big stakes. Especially since basically anyone can become a financial advisor, the requirements and certificate are easy to obtain.

Larry Swedroe recommends the following 11 requirements that a potential financial advisor must meet:

Their guiding principles align with client's best interests
They follow a fiduciary standard of care, meaning that they have a legal duty to act in your best interest. Amazingly, not all financial advisors follow this standard
Their compensation structure is fee-only, not commissions based (flat fee is best)
All conflicts of interest are disclosed
Advice is based on research, not opinion (note that this requires you to have some familiarity with the research – thankfully, you read this blog!)
They focus on selling advice, not products
There is a high level of personal attention, not a one size fits all approach
Advisors invest their money the same way they tell you to invest your money
Their investment plan integrates with tax, estate, and insurance considerations
Each decision is part of an overall plan and orients to specific goals
They have a CFP, PFS, or other comparable designations

Go out and find a financial advisor who meets these requirements and you will likely have someone who can truly help build your wealth and be worth the drag that they will put on your return via their fees.

My experience as a doctor with financial advisors

I've seen both the good and the bad.

I've been solicited by bad actors looking to sell me unnecessary products or active investing strategies under the guise of being able to get better than market returns.

And I've also worked with financial advisors who were thoughtful, personal, offering research backed advice with a fair compensation structure. In fact, Selenid and I use financial advisors to help us design and amend our written financial plan.

In my estimation, the bad ones way outnumber the good ones. But the good ones are there if you look.

Just like anything in the world, there is no absolute good or absolute bad. Financial advisors can be very helpful for doctors. But you need to be very intentional about performing due diligence and building up sufficient investing knowledge to differentiate good from bad advice!