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Many Methods Possible and Often Confusing

[By Dr. David Edward Marcinko; FACFAS, MBA, CMP™]

What is of the utmost importance to a physician-investor is: (1) to have a plan, (2) a means of implementation and monitoring investments, and (3) a process to review goals and objectives in the future. Some or all of these steps may require the supervision of a financial planner or fiduciary investment advisor. “Professional” advisors who assist doctors and investors with the development of an investment plan also may become involved with implementation, monitoring, and performance reporting. Other “advisors” work only with plan development, referring implementation and supervision to others. 

Basic Methods

There are three basic methods of payment for professional investment management: by commission, fee only, or a combination of the two. The method of payment used depends on the type of service provided and on who provides it.

1. Commissions

Some advisors who assist investors with investment planning, implementation, monitoring, and reporting do not charge a direct fee. They provide planning services for no charge if investors buy and sell the investments that they recommend. Investment brokers who are licensed to buy and sell securities may use the resources of a brokerage firm to assist investors with planning.

Commission-based advisors generally will recommend load mutual funds, thereby receiving either front-end or trail commissions. Trail commissions are paid over time or as a fee based on a percentage of the account value, similar to a 12b-1 fee. Brokers may provide or recommend professional money managers affiliated through their brokerage firm. The broker is paid directly or indirectly by some form of referral fee, or through a trading commission arrangement with the money management firm.

2. Only Fees

Fee-only professionals provide planning and supervisory services for a fee. The fee may be a flat periodic fee, an hourly fee, or a percentage-of-assets fee. Investment planning often is paid for by a flat or hourly fee. Supervisory services (encompassing implementation), monitoring, and reporting, often are paid by the hour or as a percentage-of-asset fee. Percentage-of-asset fees usually are tiered based on the size of the account.

3. Combination Fees and Commissions

Many investment professionals use a combination of commission and fee planning. They may charge a nominal fee for planning and discounted commissions for other services. Another combination is the fee offset, in which a flat or similar fee is charged and then is reduced by commissions, referral fees, and similar charges earned by the planner or advisor.

Registration

Investment advisors registered with the SEC may provide fee-only services. Registration does not guarantee the investor is using a competent investment advisor or money manager as it is required for those advisors giving investment advice.  

Certifications and Designations

Many professionals become certified by a peer or professional group to provide fee-only services. They must pass exams and otherwise demonstrate some level of competence to obtain and maintain certification marks. Certified Financial Planners (CFPs®), ChFCs Chartered Financial Consultants [insurance industry], personal financial specialists (PFSs, who also must be CPAs), and more than 100 others can advise investors. Within these designations, there are so called “specialists” in areas of investment planning (on a more sophisticated level), implementation, and supervisory services. Except for CPAs and Certified Medical Planners™; none of these “advisors” are truly fiduciaries.

www.CertifiedMedicalPlanner.com

Supervisory Service

Supervisory services can be basic or sophisticated. In the simplest form, an advisor monitors the implementation process and periodically reviews the investment plan to assure that it is being followed. These advisors delegate or let the investor delegate the selection and supervision of actual investments to other brokers, investment managers, etc. Other advisors take a more direct role in the selection and supervision of brokers, investment managers, and mutual funds. At a more sophisticated level, an advisor prepares periodic reports, uses software to monitor and review portfolio structures, and implements strategies and tactical asset allocation decisions.

Assessment

To the extent that online trading, deep discount brokerages, lack of SEC and FINRA oversight, and the recent financial, insurance and banking meltdown has affected the above, investing – with or without an advisor – is left up to the physician. Generally, all fess are, and should be, negotiable. When it comes to the financial services product sales industry; always remember that most of these folks are salesmen; so always remember “caveat emptor” or “buyer beware.”

Disclaimer: The author is a former licensed insurance agent, Certified Financial Planner® and founding principal of the Certified Medical Planner™ online educational program, in health economics and medical management, for financial advisors and healthcare consultants. 

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• DICTIONARIES: http://www.springerpub.com/Search/marcinko
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• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
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• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: "Doctors Only", Alerts Sign-Up, Funding Basics, Investing, Op-Editorials, Portfolio Management, Sponsors | Tagged: 12b-1, certified financial planner, certified medical planner, CFP, ChFC, CMP, commissions, CPA, fee only, financial advisors, financial planners, FINRA, PFS, registered investment advisor, registration, RIA, SEC, Series 63, Series 65, Series 7, stock broker, wealth manager |