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Interview with a Financial Adviser: Part One


Financial affairs have become increasingly complicated and many doctors know to turn to a specialist who has the knowledge and experience in an area that they do not.

At some point, most doctors will ask what is a financial adviser, how might I benefit from a relationship with one, how do you find a good one, etc? I recently sat down with Jennifer Ellison CFA (more on this appellation later), who is a principal with San Francisco-based Bingham, Osborne and Scarborough (and isn't that a great name for such a firm!) to better understand what you need to know about these professionals and what you might expect from a relationship with one.

Financial affairs have become increasingly complicated and many doctors know to turn to a specialist who has the knowledge and experience in an area that they do not. As an overview, Ellison explained to me that as a client you should expect such a professional to be able to put together a comprehensive financial plan, based upon an in-depth understanding of your goals and your life situation; "the big picture." He or she will then guide your financial team of certified public accountant, lawyer, insurance agent, etc., over time to weather the vagaries of life to get you to your goals.

Much as doctors do, Ellison also indicated that she wants to educate her clients with what they need to know to be more comfortable and more successful. And in such a relationship you are acquiring not only access to the up-to-date knowledge you need, but also access to financial contacts that you wouldn't have otherwise.

As part of this process, the client and the adviser learn what each other's expectations are and adjust them as required to fit the situation and possibilities. And a key element of value develops along the way; trust. And a comfort level that both allows and reinforces the benefits of the relationship over time.

The best relationship with your financial adviser, just as in the doctor-patient relationship, is the one that stands this test of time. It is important to note that an important distinction in this comparison is that while patient information is legally protected, the financial information that you share with any of your financial advisers, CPA, etc, is not. Confidential yes, legally blocked, no.

Ellison pointed out that some people seek a one-off analysis and that some experts will do them in hopes of gaining a longer term relationship. But a good plan will take time, be expensive and may lose much of its value without ongoing implementation and the inevitable need for modification.

This rang a bell with me, because when I was first starting out one of my new partners touted a planner to me. After a long, expensive process, I realized my carefully planned document was already obsolete, but happily I had no regrets. I had learned a great deal in the process, which changed my thinking about both goals and means. Sort of the Heisenberg Uncertainty Principle as it might pertain to financial planning; in observing something it changes. Importantly, I also learned enough to know that I had outgrown that planner.

So a financial adviser will establish a comprehensive plan with you and see to its execution and maintenance. Ellison pointed out that doing one function alone, such as in calendaring a timely and appropriate rebalancing of your holdings may save enough to make the whole exercise worthwhile.

And how often should you plan upon meeting? After the initial necessary time investment in getting your plan established, it will depend upon circumstances and personal preference. Ellison suggests a schedule of no less than annually, with semi-annually being right for many. She points out that quarterly is too often for most because there simply will not be much change in a well-established plan under normal circumstances.

And under abnormal circumstances? Give him or her a call anytime as part of the service provided. Ellison’s firm sends out general, informative mailers and emails on a regular basis as an adjunct to personal updates, as well.

Perhaps the most important point to be made about expectations is to explode the myth that financial advisers can/will/should get you a superior return on your investments. There is no reason to expect this. Rather, as I have pointed out, their valuable function is to provide an objective, knowledgeable resource to get you on track and keep you there. And all the studies that I have seen verify that few of us are able to do these functions well without outside help.

OK, we have a better, general idea about what we can expect from a financial planner and adviser. How do we go about finding some good choices? Ellison suggested as a start you might ask your friends, a CPA or a lawyer for a referral. Or you might check an industry listing that has already done some sort of due diligence, such as "Barron’s" (Ellison and her firm are listed).

Your first criteria should be finding someone with an industry registration. There is an alphabet soup of letters after people's names that can be quite confusing. These range from rigorous organizations to the online $25 type. Ellison suggests that the two most important and useful ones are Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Think of them as board certification analogs.

The next criterion you should consider is how close they are geographically to you. Yes, it's the age of the internet and such, but we all relate better with face time, especially when it comes to money, just as we do for our health. If you live in an urban area, particularly a wealthy one, you should have multiple choices. Others may have to range further afield.

And although your one-to-one relationship is critical, Ellison pointed out the importance of having a strong organization, a "deep bench," to back up your point person.

There are roughly four levels of advisers who focus on the particular needs and knowledge applicable to their niche clients, and we are best served by matching our situations to their knowledge and service sets. These are people/firms that work with clients with a net worth of up to $1 million, $1 to $10 million, over $10 million and then you get to the point where you need a so-called "family office." This means your affairs are large and complex enough to require full-time, in-house personnel.

Curiously, going above your level to get "better" knowledge and access will probably get you gently referred back because you probably can't afford and use all of what they offer.

The next consideration, also similar to the medical metaphor, is finding an age range match. Ellison suggested that five to 10 years of experience is essential, but that you do not want to get involved with someone who is near their retirement age, no matter how knowledgeable. Your goal should be a long relationship, so weigh age in with the other factors mentioned. I just saw a study that said people make the best financial decisions from ages 43 to 63 with the peak being about 53.

I've run out of space and things were just starting to get interesting. Tune in next week to read what probing questions Ellison says you should be ready to ask your prospective adviser. And, just as importantly, what you should want to hear them query you about. I can hardly wait.

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