Planning—the Key

Make sure you get good advice

Here's how to decide whether your consultant is giving you your money's worth.

By Ken Terry
Senior Editor

Your financial planner holds the key to your economic well-being. He may also be taking 0.5 to 2 percent of your portfolio's value in fees each year. That's why it's important to evaluate his services periodically, to make sure you're getting your money's worth. Here's what you should expect:

A comprehensive financial blueprint

Your adviser should counsel you on all the major elements that affect your economic future. That means evaluating your investments, tax situation, insurance, estate plan, pension fund, real estate, debt management, and the consequences of events like marriage, divorce, and childbirth.

Your planner should work with you to develop a financial blueprint consistent with your age and risk tolerance, figuring out how much you'll need for retirement, tuition, and other goals. She should calculate how much you'll need to save to reach those goals, and help you determine where the money will come from.

"You can't look at someone's investments in a vacuum," notes planner Gary Schatsky of New York City. "You have to know about every area of his financial life, because each area will affect decisions in other areas."

Adds Deena Katz, a Coral Gables, FL, adviser, "If I just managed money and didn't look at a person's insurance coverage, for example, my client could be in trouble, no matter how good his portfolio."

Wide-ranging knowledge, and referrals

The type of plan an adviser gives you often depends on his background, notes Jerry S. Mosher, a financial planner in Lafayette, CA. If the adviser started out selling insurance, Mosher says, his blueprint for your financial future may stress insurance; if he's a former stockbroker, he'll tend to focus more on investments.

A planner who has experience working with physicians can advise you on matters like practice buybacks and the financial impact of practicing on your own or in a group, says Katz. Schatsky believes a financial planner should even be able to counsel doctors on partnership buy-ins and buyouts, various types of compensation, and even hands-on practice management issues involving billing and accounts receivable.

Steven B. Enright, a financial adviser in River Vale, NJ, agrees that it's important for a planner to know whether physicians need help in these areas. But if they do, he sends them to a practice management consultant. In other areas where his knowledge is limited, he also defers to more-qualified advisers. "We tell our clients we don't have all the answers, but we can refer them to experts who do," he says.

Unbiased advice

Your first meeting with a planner shouldn't cost you anything, nor should it focus on only one aspect of your situation, such as insurance or investments. Be wary if the planner wants to rush you into a "great" deal, change your investments without good reason, push products without considering your goals, or sell you a lot of insurance when you already have coverage.

Remember that if a planner gets paid by commission, she has an incentive to steer you toward particular products, such as mutual funds or insurance policies, on which she receives compensation. Still, if she's doing her job properly, she'll place your best interests first, regardless of how she's paid.*

Sometimes stockbrokers hang out shingles as financial planners, but all they want is a piece of a fat portfolio. If you have relatively little to invest at this point in your career, they might lose interest. Even if you're not a financial heavyweight, your planner should want to help you grow.

Regular meetings

Your adviser should get together with you at least annually to see whether your plan's on target. He should also be willing to sit down with you whenever your life situation changes because of a divorce, an inheritance, a house purchase, or other important event.

The adviser should monitor your investments carefully, and before making big changes he should consult you and explain his rationale. Some advisers prefer to be given a free hand on day-to-day money management, but in general, it's best to avoid that.

Deena Katz emphasizes that planning is "a process, not a product. You can pull it all together at one moment, but it's not a static plan." She prefers to tackle one component of the plan at a time. "I ask the client what's most important to him or her right now, what we need to attack first. It creates an ongoing relationship."

Ultimately, you must use your instincts when you judge a planner. The one you choose should not only be well-grounded, comprehensive, and attentive, but also someone you trust. "Personal finance is very personal," notes Schatsky. "You need the right chemistry."

*See "Financial advisers: Making sure you're the winner in the battle for your bucks," May 7, 2001, and "How—and how much—to pay a financial planner," Nov. 8, 1999.

 

Ken Terry. Make sure you get good advice. Medical Economics 2001;21:8.