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Financial Planner? Who Needs One? Douglas Carlsen, DDS

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by Douglas Carlsen, DDS

I've written of choices regarding oversight of personal investments and financial strategies, most recently in March 2010. From interviewing dentists nationwide, I've found most have multiple financial accounts, which, for example, might include:
  • 401(k) in the dentist's name at Morgan Stanley Smith Barney
  • 401(k) or 403(b) in the spouse's name at Charles Schwab.
  • IRA's for both dentist and spouse at Vanguard.
  • Personal cash brokerage account held by the dentist at E-Trade.
  • Defined benefit plan for the dentist at BYN Mellon.
Someone set up an asset allocation sometime in the past on some of the accounts. In asking who manages the dentist's investments, he or she normally answers, "I manage our investments."

"Management" for many dentists involves an occasional glance at statements, producing either elation or fear, depending on the ups and downs of the market. Next, a frantic call to one of the dentist's brokers demanding either a quick sale or purchase of some holding ensues. There is seldom any attention placed on risk assessment, asset allocation, tax strategy, liquidity potential or equity-to-fixed income planning. Rebalancing consists of shuffling all year-end statements and racing to the accountant by noon on April 15.

Handling finances in this haphazard manner is incompetent at best. And I used to do the same thing! There is a better method. Using proper tax-management and allocation, you can increase your portfolio about two percent per year, which, over a dental career of 35 years, effectively doubles your retirement nest egg.¹ By using discount brokers, you'll realize another one percent increase per year.

Can a dentist handle this on his or her own? Yes, yet consolidation of one's different brokerage accounts is a must along with applying proper investment strategies and rebalancing periodically. Any exotic tax strategy, such as using a defined benefit plan, needs proper evaluation by a CPA and actuary.

For many of us, to employ a financial planner is prudent. Yet how does one find a competent planner among the scores of designations, of which 96 percent are specious?²

I recently interviewed Donna Svendsen, CFP, director of client services for Sharkey, Howes & Javer in Denver, Colorado.

Carlsen: How does one evaluate the need for a financial advisor?

Svendsen: Too often important financial decisions do not include the elements of soul searching and goal setting. Working with a financial planner and creating a financial plan is a process that results in a framework that helps you make wise lifetime decisions.

A financial planner can help dentists determine the lifestyle they desire, which should determine if they buy into a practice or hire on to a practice. A new dentist might need help determining if paying off student loans should take priority over saving for a home or kids' college tuition.

When cash flow and income are to the point that profits are being taxed and your ability to save exists, this is when, in our view, you definitely need to work with a financial planner. Who is monitoring your investments while you are running your business? Do you have an updated will? Do you need to modify your retirement plan? Your financial planner might also work with your accountant to assure that you are using efficient tax management.

Later on, having a trusted financial planner help transition into retirement is critical. He or she will help you sort through issues that you likely have not even considered, both before and through retirement years.

Carlsen: What should one ask when selecting an advisor?

Svendsen: Anyone can call him/herself a financial planner, a financial advisor or an investment advisor, yet that doesn't make him or her an expert. They might have many letters behind their name but look for CFP, the most significant credential, which means certified financial planner. CFPs have completed a rigorous course of study at an accredited college or university. To maintain their designation, they commit to two hours of ethics classes and 30 hours of other continuing education on financial matters every two years. Nearly all CFPs have at least a four-year degree and many are JDs or CPAs. They must pass a rigorous board exam and complete a minimum of three years' experience working in the financial planning field.

While CFP is an instant signal of professionalism, it is no guarantee that the planner is acting as a fiduciary. A fiduciary always acts in good faith and in the best interest of the client and discloses any conflicts of interest. Ask the planner if he or she adheres to a Fiduciary Oath. Investment professionals and insurance professionals who are not fiduciaries are held to a suitability (lower) standard, which means that anything they sell might be suitable for you, however not necessarily in your best interest.

If the planner interviewed belongs to the National Association of Personal Financial Advisors (NAPFA), you are assured the planner adheres to a Fiduciary Oath to always act in the best interest of the client and never accept any commissions or referral fees.

Carlsen: How should fees be discussed?

Svendsen: Before you begin any work with a planner you should review the written statement of fees associated with developing the financial plan, which is typically a flat fee such as $1,500 as well as the ongoing assets under management, typically one percent. You might prefer to work with a planner that works on commission (and they must disclose the referral fees and commissions they receive); however, they might have incentives to suggest a particular fund or insurance product.

Your funds should always be held with a custodian, such as Charles Schwab or TD Ameritrade. Funds that you invest with your planner should always be made payable to the custodian and your distributions or withdrawals should come from the fund or the custodian; never your advisory firm.

Carlsen: Please explain background checks.

Svendsen: Don't be shy about this one. Ask:
  • Have you ever been convicted of a crime?
  • Has any regulatory agency or financial planning or investment industry group ever investigated you, even if you were not found guilty?
To check disciplinary history, contact:
  • Certified Financial Planner Board of Standards, Inc.
    800-487-1497 / www.cfp.net/search
  • National Association of Insurance Commissioners
    816-783-8500 / www.naic.org
  • Financial Industry Regulatory Authority
    800-289-9999 / www.finra.org
  • Securities and Exchange Commission
    800-732-0330 / www.sec.gov
Carlsen: What should dentists expect on the initial interview?

Svendsen: Initially, you'll meet with an advisor for a complimentary get-to-know-you meeting where he she will gather your financial details and discuss your goals. You will want to do this at his or her office to get a sense of the advisor and the entire firm. After you understand the process and fees, if you decide to work with him or her, the next meeting will include a presentation of your financial plan and/or the work that you have asked him or her to do. Once you have established a relationship with your financial planner, you will likely only meet with them once or twice a year.

Regardless of where you are in your financial life, you'll want to know how available the planner and the teammates are to you. When you depend on an expert to guide you through life's important financial decisions, it is likely that you will want a professional rather than a buddy.

Final comments: There are other, less well-known designations that also are ethical and have continuing educational requirements as does the CFP. Please make sure that the advisor you are considering is fee-only, not fee-based, and acts in a fiduciary role.

I hear complaints about paying yearly one percent fees to financial planners. Yes, with indomitable diligence one can do better, yet realistically, with multiple accounts and the sophistication of tax-deferral options, I feel many of us would be better served with an educated advisor.

Ms. Svendsen can be reached at 303-639-5100 or donna@shwj.com. Also, qualified financial planners can be found at the Financial Planning Association at www.fpanet.org.

References
  1. Larry Swedroe, The Only Guide to a Winning Investment Strategy You'll Ever Need, St. Marin's Press, New York, New York, 2005, page 242
  2. Many financial "planners" or "advisors" are certified at a weekend course with no ongoing CE requirements.
Author’s Bio
Douglas Carlsen, DDS, owner of Golich Carlsen, retired at age 53 from private practice and clinical lecturing at UCLA School of Dentistry. He writes and lectures nationally on financial topics from the point of view of one that was able to retire early on his own terms. Carlsen consults with dentists, CPAs, and planners on business systems, personal finance and retirement scenarios. Visit his Web site: www.golichcarlsen.com; call 760-535-1621 or e-mail at drcarlsen@gmail.com.
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