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Red Flags When Picking or Working with a Financial Advisor

Physicians are common target demographics for financial advisors, given their high earning potential, high net worth, and often limited time to learn and understand basic personal finance. While a good financial advisor can be extremely beneficial for helping to establish and refine a financial plan and ensure you’re meeting your monetary goals, a bad financial advisor may act in a non-fiduciary capacity, such as to profit from high fees on assets under management or commissions related to financial products that may not be in your best interest, such as permanent life insurance products that they may not need. This can add up to millions in lost wealth over the course of a physician’s career. 


As many physicians on our online communities for doctors report, it can be challenging to find the right financial advisor as a physician to trust, especially if you’re not financially savvy and the advisor sounds knowledgeable. Therefore, below, we cover the warning signs and red flags that should make you run away from an existing financial advisor or decline the services of one trying to pitch you their financial planning services.


Disclosure/Disclaimer: Our content is for generalized educational purposes. While we try to ensure it is accurate and updated, we cannot guarantee it. We are not formal financial, legal, or tax professionals and do not provide individualized advice specific to your situation. You should consult these as appropriate and/or do your own due diligence before making decisions based on this page. To learn more, visit our disclaimers and disclosures.


9 red flags of a bad financial advisor that warn you to run when working with or picking a new advisor


How do I find a good financial advisor?


It can be easier to point out a bad advisor than to find a good one. If you’re looking for a new financial advisor, before or after reading the warning signs below, we have a database to help.



The financial advisors on our database have come recommended to us by members of our online physician community and are used to working with physicians. To help you in your search, we provide this list and include information on their unique skillsets and what types of clients they typically work with, in order to help you assess whether they may be a good fit.



Red flags that you should run from a bad financial advisor


The information below isn’t all inclusive, but is derived from common anecdotes on our community as well as general financial principles. If a financial advisor doesn’t raise any of the red flags below, but your gut tells you they aren’t a good fit for you, trust your gut! This is a very personal relationship, and you want someone you can trust and who you’re comfortable working with.



Financial advisors with a lack of transparency in how they get paid (their fees or commissions)


Some advisors dance around telling you how much they get paid if you engage in their services, with some going so far as to say that they don’t charge anything. You probably recognize that no service is free (and hopefully you agree that anybody helping you should make money), but what you want to understand is how the advisor is making money from managing your accounts. 


A good financial advisor will tell you exactly how their fees are structured–and what those fees will cost you under that structure. If an advisor can’t tell you plainly how they make money for their services, that’s a major red flag. 


There are different fee structures financial advisors typically work under, including giving you a flat amount per month or year, or charging a percentage of assets under management (AUM). Depending on where you’re at with your retirement savings, options like AUM may end up being much, much more expensive than a flat fee, fee-only model. Or if you’re early in your career, the opposite might be true - but note that the advisor is likely taking a bet that as your savings and investments ramp up, the percentage of your net worth model will yield them very high fees in the future.



Less than stellar advisory firms often pitch high-commission or high-fee products that aren’t necessarily the best fit for doctors and their financial plans, because these products offer high earnings to the advisor selling them. These include products such as high fee mutual funds, whole life insurance, and annuities, which we touch on below (hint - ask them point blank how much they make if you buy a product).


Note that fee-only and fee based advisors are not the same. Fee-based can signify that they are selling high commission products.



Financial advisors who aren’t fiduciaries 


A fiduciary has a legal and ethical duty to act in the best interest of you, the client. While you would hope all financial advisors would follow this mandate, products that pay FAs high commissions can offer skewed incentives. A fiduciary must sign a legal statement that they are willing to commit to you that they will do what’s in your best interest. If an advisor isn't willing to sign one, that’s a BIG warning sign. Note that several well known financial advisory firms for doctors are not in fact willing to say that they are fiduciaries on paper, as they have practices that don’t meet fiduciary standards, like preferentially selling products that earn them more money over others that may be in your best interest.



Financial advisors that lack proper or specialized credentials


While anybody can technically call themselves an advisor, not all financial advisors have the same level of training and experience. It’s important to check their credentials. There are a few standard certifications financial advisors get:


  • CFP (Certified Financial Planner): If you only check for one credential, check for this one, as it’s the common standard. To be a CFP, they must complete 200 hours of course work, have 3 years of experience, and pass a test

  • ChFC (Chartered Financial Consultant): They must complete CFP type coursework, but don’t have to pass a test

  • CPA (Certified Public Accountant) + PFS (Personal Financial Specialist): This is a licensed accountant who met specific educational and work experience requirements, passed a test (CPA) and has also completed additional financial planning specific requirements (PFS part)

  • CFA (Chartered Financial Analyst): This is the hardest to become. It requires 750 hours of coursework and 3 exams over 18 months


Your financial advisor doesn’t need to hold all these titles, but it’s good to ensure they’re knowledgeable in their field and have proven it through their certifications. If a FA can’t clearly state their credentials, or doesn’t have any, exercise caution.



Financial advisors who try to sell you expensive products like permanent life insurance or annuities


While there are certain instances in which expensive financial products can make sense, the fact is that most physicians would be better off financially in the long run without them because of the heavy fees associated with these products. These include things like whole life insurance policies and annuities. 


People who sell these products are highly incentivized to do so by hefty commissions, so you should ask them how much they get paid if you buy the product, as well as ask for a head to head illustration against a conventional investment product like a diversified index fund. If they sound incredibly defensive or like they’re trying to push you heavily on the product, get a second opinion. Also, if a financial advisor you’re talking with seems to prioritize pitching you products over discussing your financial plan, especially if some of those products sound convoluted, gimmicky, or too good to be true, it’s time to start thinking about firing that financial advisor. 


Related PSG resource:



Financial advisors who try to sell you on products or strategies you don’t understand


Piggy backing off the last point, make sure you understand the products or strategies that you are being pitched. A good financial advisor will educate you and explain these to you in words that you can understand, answer any questions, and try to make sure your plan is as transparent as possible and in line with the goals that you expressed. 


If they don’t take the time to explain their reasoning behind a recommendation (or worse, actively avoid the question), they might not be the best fit. As a physician, you are fully capable of understanding personal finance if explained to you, so don’t let them tell you it’s too complicated or that you don’t need to know the details. It’s your hard earned money and part of why you are paying them is to feel safe that they’re doing things in your best interest. 


Now, there’s a chance you may be acting too conservatively in your approach, or that the financial advisor is trying to prevent you from jumping out of a good strategy or investment because a temporary downturn is giving you cold feet. But if this is the case, they should state that to you clearly and should help educate you to hopefully become more comfortable. Either way, the intention behind their advice should be clear.



Advisors that don’t offer monthly statements or quarterly/annual reporting


It’s one thing to tell you how they make money and another to show you those fees coming out of your account. You should be able to trust but verify. If your financial advisor doesn’t provide regular statements that show your account balances, fee deductions, or how high the fees associated with your investments are, you should ask for them. Any resistance to doing so should be a red flag.



Financial advisors who are laser focused on a particular investment or who aren’t diversifying or reassessing your portfolio


Investments constantly fluctuate with market pressures, so diversification is important. While certain investments such as index funds and target date funds are diversified within themselves, a single investment may not be the best strategy for most doctors. If you get the sense that an advisor is just trying to make their fees with the least amount of work as possible, or that they are pushing something that they make money from disproportionately, it’s time to reconsider whether they’re doing the best job for you that they can.


Related PSG resource:



Financial advisors who don’t ask your desires or don’t take the time to listen to your goals


Personal finance is, as the name suggests, highly personal. A good financial advisor will work with you to develop a financial plan and corresponding investing strategy that relates to your specific goals.


They should not only work with you to develop a customized plan, but should also check in periodically to ensure your existing plan aligns with your current goals, as goals can (and often do) change over time. If an advisor immediately jumps into offering a strategy before talking with you about your family situation, current financial situation, long-term goals, and even risk tolerance, they may be more focused on selling than advising.



FAs who guarantee returns


As we mentioned above, investments constantly fluctuate. While some investments are riskier than others, all investments carry some degree of risk. Any terms or promises of absolutes should be met with skepticism and concern. Just like you would never promise a patient a good outcome, a balanced financial advisor should always be informing you of risks.



Conclusion


Choosing the right financial advisor is a crucial decision for your long-term financial planning and is often a long-term relationship. Changing financial advisors can be a headache, and can cause tax considerations for any assets held outside of a tax-advantaged retirement account. While this isn’t a reason to stick with a bad financial advisor, it highlights the importance of vetting a potential financial advisor before deciding to work with them in the future.


If you’re in the unfortunate position of having assets with a financial advisor who isn’t a good fit, be sure to talk tax strategy with your new advisor or an accountant who can help you navigate potential tax implications.



Related financial resources for physicians


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