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Worth of Services Questioned by Some
[Staff Reporters]
While at a conference in Baltimore, DC, VA and the Eastern Shore of Maryland; and nestled among the rustic rowhouses and quaint scenic homes; a rural doctor recently asked us this traditional question but with a new spin.
Q: Does software, the internet and cloud computing, ETFs and index funds, etc., obviate the need for financial advisors? His email query was similar, but even more pointed.
Value Added – or No
In other words, he wrote, “for many informed investors, firms like Vanguard, Fidelity, Schwab, TD Waterhouse – and other mutual fund companies and discounters – and even independents like www.FinancialFinesse.com offer the same or similar services of Financial Advisors, benefits managers, Financial Consultants, stock-brokers, Certified Financial Planners®, Financial Analysts and Wealth Managers for free. Some do, or don’t, have account minimums. Some charge, while others do not. Far too many appear self-biased. Far too many have the same mind-set.”
Assessment
So, why pay brokerage commissions – or a percentage-of-assets – on a corpus they didn’t earn in the first place? Please tell me why this medical practitioner should “hire” a financial advisor, especially now that the market is so bad and the entire industry seems to have gotten it so wrong?
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Filed under: "Ask-an-Advisor", Ethics, Investing, Op-Editorials | Tagged: agents, CFA, CFP, financial advisors, MBA |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
Moving-up-the Value Chain
The experience and knowledge of a trusted financial advisor may still be relied upon for those requiring professional assistance, complex trading, and/or needing deeper insight or higher end services.
They [FAs] haven’t gone away; but they’ve had to adapt what they do, how they charge and provide their services, and who their customers really are.
In essence, financial advisors must move up the “value-chain”.
-S. Shreeve; MD
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Absolute Minimum
Steven Podnos; an MD, MBA, and CFP™ certificant in Merritt Island, Fla., says requiring NAPFA members to hold the CFP™ designation should be the “absolute minimum” requirement. “I come from the medical profession which has very rigid licensing requirements,” says the former full-time doctor. “I think this space needs minimum certification standards, and CFP™ is the bare minimum.”
“It’s not the end-all, though,” he adds. “I think the industry needs to develop higher levels of education and certification, along with some level of board exams so the public knows financial advisors have a certain level of certification standards.”
From a recent e-trade magazine post.
-Barbara
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My thoughts,
No doubt that in these tumultuous times the need for professional financial advice is reviewed by many investors. However, the answer to your questions is not as easy as a yes or no answer. Instead you must review the required information and complexity of the problem that you are seeking advice for and determine if you need a professional to assist you.
Information from the internet:
The internet has millions of websites and it is estimated we can only access one forth of the information. Anybody can publish information on the internet so before accepting the information provided from the internet you should consider the following;
Authorship, publish body, point of view, referral to other sources, verifiability, currency and determine if the information is misinformation or propaganda. A source to help you with more details on how to verify the information can be found in The Sheridan Libraries, John Hopkins University.
Example, an article in the BMJ Accuracy of information on apparently credible websites: survey of five common health topics (Kunst, Groot, Latthe 2002) concluded that the information are moderately accurate and show that even creditable website might not provide higher level of accuracy.
Also, Google and related search engines provides a large number of hits providing the same information. Don’t make the mistake to accept the information as valid since the erroneous information is often duplicated. In addition, information that is reviewed, verified and published is not typically free.
Software:
Advances in technology have allowed individuals the ability to prepare their own tax returns, legal documents and financial plans. Programs like Turbo Tax, QuickBooks, Home and Business Lawyer, Morningstar Principia and Financial Logix are easy to use and relatively inexpensive. However, the input of information determines the outcome. In addition, these programs are not very helpful when you have complicated or specific questions.
Consider:
Home and Business Lawyer provides you information on preparing a basic lease or Will but this is no replacement for proper legal advice.
Turbo Tax provides you the ability to prepare your federal income tax, but it cannot answer very complex tax issues. Also, Turbo Tax has limitations in representation of your defense in case of an IRS audit.
Morningstar can help you determine your retirement plan and can assist you in analyzing investments ratings and financial information. Again, it does not answer specific question or provide you information on all strategies available for any specific needs you might need during your retirement and investments plans. (Morningstar ratings are not a guarantee of future performance)
Programs are lacking the human factor or experience (art) that an individual can provide.
Consider the information impact and the medical field. The internet provides information on symptoms and remedies for many illnesses, however individual should consider seeking medical advice when needed.
In these two cases should individuals ignore professional medical help when needed?
1. Individuals today can access information regarding high blood pressure and provide home remedies to try to regulate their blood pressure.
2. Women have the ability to determine their pregnancy and even have non medical home care and delivery without the assistance of a physician.
The examples above are simplistic and in conclusion the answer to your question in my opinion is NO. As information becomes more accurate and available you should not obviate your advisor, attorney or tax professional. Instead, you should consider advice from your advisors in more complicated and personalized issues and use other resources for more simplistic questions.
Furthermore, consider the progression of information availability in all fields. As the information availability expands, professional in all fields will have to extend their knowledge and provide more specific advice or services to compete for business.
Finally, minimum education (the science) and experience (the art) are two more reason to consider using a financial advisor in certain situations. Example, advisors that have earned the CFP® or CMP® designations have demonstrated a minimum level of education and understanding of financial planning concepts. Also consider using an advisor that has experience in working with individuals in your field. As you probably recall, your formal education although very valuable was only enhanced with your experience.
Regards
-Amaury Cifuentes, CFP®
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More Advisory Selection Considerations
Experience counts, of course, so find out how long your advisor has been in business or how long his company has been in business before making any purchases … either the individual or the company that he works for has a reputation to protect [yet experience only goes so far … there are good and bad, types].
Far too many of those who hold “professional” designations offer a product or service for sale. It is fair for you to ask your financial professional what they do, and how they get paid, by whom, how much and on what terms. Understand their areas of specialization. Some may specialize in just life insurance or annuities or health insurance or long term care insurance products.
Meet with them, face to face and if possible at their office … brick and mortar add a lot to credibility Ask about registration or licenses. Anyone who sells a financial or insurance product must be registered in the state in which he/she does business. Is the license current? Have there been any disciplinary actions? Check their CRD background, and ADV Part I and ADV Part II.
It is important to understand how advisors will be paid. If you engage their services, will you pay an hourly fee or a flat fee? If they manage your investment assets, do they earn a commission or do they charge a percentage fee for the assets that they manage? For planning services, do they charge you by the hour, by the project or by the plan? If they sell products, do they get paid commission on the sale of a product? Do they earn bonuses, trips or awards for sales of certain products or during a certain time of the year? While it is understandable that a manufacturer would offer incentives to a sales person, it would certainly not be in your interest if your financial or insurance portfolio were built so that a salesperson could qualify for a bonus trip to an exotic location.
Finally, do not sign a client arbitration agreement, and do retain your ability to sue. Arbitration is settled, on behalf of the advisor, 99% of the time. So, the deck is stacked against you from the start. Also, ask if the advisor is a fiduciary … will inform you of conflicts of interest at all times, will not-opt out of this responsibility to work on your behalf, and will sign a document attesting same. Remember the parole evidence rule … if it is not in writing, it does not exist.
There are good guys and gals out there, but you may have to dig to find them.
-Hope Rachel Hetico; RN, MHA, CMP
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Great Query
This is a great question, especially coming from a doctor. In your own practice, you surely see the value of a trusted medical opinion versus information available on the internet.
Consider losing weight and quitting smoking. Everyone knows they should do this. Some will do it on their own, while others need GUIDANCE and a PLAN. Same with a simple, diversified portfolio and more than enough retirement savings.
However, a layperson wouldn’t perform surgery on themselves. Neither should you design your own estate plan, hedge a concentrated stock position, set up a trust for your children, or hundreds of other important financial goals.
My company has a free website which matches people to financial advisors who specialize in areas like healthcare professionals. There are also advisors who wrote articles in our Article Library specifically for doctors.
-Nel
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Nel,
You make an extremely poor analogy comparing doctors to financial advisors. There is no universal definition of FAs [usually retail salesmen] who too often are company shills with little [mere weeks] training. Have you even reviewed this website?
I was a successful FA, after a few weeks of training, but couldn’t stomach it. This is the polar opposite of doctors and those in healthcare who require years of education.
And, you need only read the other posts and whitepapers on this site to discern the difference. Sorry; your example is faux. We all know better. Stick to goading the laymen. Stay away from the docs.
-The Happy Ex-FA
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Amaury Cifuentes CFP,
So, basically your argument and main [primary] reason to hire a financial consultant is lack of time?
Geezz! If I don’t have time to watch out for my own money; perhaps I don’t deserve to have it. Think Bernie Madoff; his big name clients were time compressed, too!
Absolutely no one – no one – will look out for me; better than me! Sorry.
-Jeff
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Marcinko Speaks,
As a former insurance agent, RIA, RR, financial advisor, certified financial planner and quality medical review practitioner, as well as Founding Editor-in-Chief of this blog and companion print journal: Healthcare Organizations: [Financial Management Strategies].
Link: http://www.HealthcareFinancials.com
“ … in the end, the flattening of the financial services industry is inevitable. And, while it will be controversial, it may also represent the kind of shakeup our system requires if it is ever to deliver the fiduciary value American investors need and deserve …”
Fraternally,
-Dr. David Edward Marcinko; MBA, CMP™
http://www.CertifiedMedicalPlanner.com
Editor: Financial Planning for Physicians and Advisors.
Editor: Insurance Strategies and Risk Management for Physicians and Advisors.
http://www.MedicalBusinessAdvisors.com
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Dr. Marcinko,
I think that most financial planners are … dolts.
Here is an article that says the investment [sales and services] industry has been too cavalier about the dangers of investing, too willing to emphasize the benefits of risk and ignore the potential pitfalls.
In fact, Professor Zvi Bodie is reported to have said; “financial planners are experiencing a tremendous backlash from their clients“.
Zvi is a professor of management at Boston University and a leading advocate of a more conservative investing industry.
“People are being put at risk without being told how much they’re at risk,” he says in this article.
http://www.msnbc.msn.com/id/32799168/ns/business-businessweekcom
I like Zvi; and I’ve seen him on web and post casts, and used his books in business school almost two decade ago. Now, that’s more than the time the average financial planer has been in the business. They are, by and large, sales dolts.
Seymour
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When Not To Fire A Money Manager
[A Consultant’s Perspective]
Every quarter, physicians and other investors are tempted to replace underperforming managers with those who have recently outperformed. However, some opine that the problem is those decisions often aren’t made based on research and forward-looking expectations.
http://www.fa-mag.com/online-extras/9835-when-not-to-fire-a-money-manager-a-consultants-perspective.html
What do you think?
Dr. David Edward Marcinko MBA
[Editor-in-Chief]
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