Selecting Financial Advisors the Risky Way

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Physician Due Diligence is Important

[By Daniel B. Moisand; CFP®, and the ME-P Staff]Tall Shadows

While the merits of hiring the right financial advisor [FA] may be clear, hiring the wrong one can be devastating. Medical professionals still tend to have higher incomes and are an attractive target for most financial institutions and scam artists. This fear is a poor excuse for not getting the assistance necessary. Advice about who to engage for financial assistance comes from a hodge-podge of disjointed sources. This leads to good intentions and bad results. Take caution when using the following as sources of advice.

Relying on Family and Friends

By far more people seek financial advice from trusted family members and friends than any other source.  This is only natural. It is essential to trust that you are getting advice from a source that means well. It is also important that you get along well with your advisors. Hesitating to communicate with your advisor, even a great advisor, can cause problems even more problematic that getting bad advice from someone you like. While these sources have a good handle on the essential elements of trust and rapport, it is the competence of the advice that is most often the issue. The life and money experiences of those who are close to you certainly have value, but they are not necessarily relevant to your unique goals and circumstances. THINK: Bernie Madoff.


A few years ago, the dominant media force in consumer oriented financial matters was the print media.  Magazines and newsletters proliferated with the bull market. More recently however, television has supplanted print even in the bear market. For example, a study now estimates that 80 percent of what the average American knows about current events comes from TV. Why wait three weeks for the next issue when you can get a commentary instantly on the television? There is nothing wrong with watching shows that cover the markets or subscribing to a consumer finance magazine. It is certainly a good idea to be informed. However, be wary of the quality and applicability of information put out by the media.

The Internet

It is easy to run across an ad for prescriptions drugs on television. Images prance across the screen followed by a litany of potential side effects and the obligatory, “Ask your doctor about”. With the expansion of the information superhighway, more and more companies are going direct to the consumer in some manner or another.

Financially speaking this information can be of great benefit but should also generate more concern. It is very easy to project a particular image via the web. The webmaster controls the interaction from what you see to what you hear. One of the results of this is that the Internet has already garnered a reputation as a breeding ground for new scams. More prevalent, however, is the presentation of information meant to be useful that is simply wrong, misinterpreted, or misapplied. The most terrifying source of misinformation on the net is the chat rooms. Here the entire interaction is clouded by anonymity. Some people enter chat rooms because there is a comfort in anonymity when asking a question. There is also a danger in an anonymous answer. When it comes to something as important as your finances or your health, the prudent course should be to take all the advice with a grain of salt. A great deal of consideration to the quality of the source is in order. It is also essential that one understand the level of accountability a source may possess.   fp-book2


Much has been written on financial advisor selection, here on the ME-P and elsewhere; but little on how not to select an advisor. We trust this information will be of assistance to the medical professional in some small increment. Send in your FA stories; both good and bad.

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Dictionary of Health Insurance and Managed Care

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


5 Responses

  1. Dan,

    Did you know that the SEC recently charged Nashville-based broker/dealer Morgan Keegan for misleading thousands of investors about the risks of Auction Rate Securities (ARS).

    Furthermore, the SEC alleges that the firm pushed illiquid auction rate securities on thousands of clients long after it knew the market had frozen. The firm announced it had received a Wells Notice from the SEC last week.

    Now, is anyone surprised that another BD domino has been implicated in the current mess … ?



  2. Should Advisors Feel Threatened by Shopping Mall Retirement Stores?

    Dan – Main Street Americans may not spend much time fending off solicitations from giant advisory firms but they certainly stroll through shopping malls. I know, I do.

    But, in a few upscale centers, they’ll find an America’s Retirement Store, where they’ll be welcome.

    Dr. David Edward Marcinko MBA


  3. Avoiding Investment Scams

    Investors should always be on alert for investment scams.

    Click to access p125862.pdf

    While fraud can take many forms, the most common securities frauds tend to fall into a handful of general schemes and display similar warning signs.

    FINRA published an alert to warn investors about classic types of investment fraud and help them spot and avoid the persuasion tactics fraudsters use.

    Lon Jefferies CFP MBA


  4. Consumer Advice?

    Many people who are financially successful are comparison shoppers. They pore over ratings in consumer magazines, read website reviews, and compare scores of products before buying even everyday products like coffee or toilet bowl cleaner.

    Yet too many consumers don’t use that same care in choosing an investment advisor to manage their life savings.

    A March 2014 survey, funded by Dimensional Fund Advisors and conducted by Advisor Impact, asked 1,229 investors how they decided to work with their current advisors.

    Over half of the respondents, 61%, chose the only advisor they interviewed. A mere 22% interviewed more than one advisor. The remaining 17% of investors selected “Other,” which may have included throwing darts at a dartboard.

    The survey went on to ask which of 11 possible reasons contributed to their decision to choose their current financial advisor.

    Topping the list, selected by 55% of the respondents, was the fact the advisor had experience in working with people like them. This affirms the recommendation of most marketing consultants that advisors carve out or become the perceived specialist in a certain niche. Unfortunately, a lack of specialized knowledge in an area doesn’t disqualify the advisor from using the marketing spin to their advantage. Notice, for example, how many advisors list a specialty as financial advising for women or couples. For the record, I’ve never seen one advertise a specialty as advising for only men.

    The next four factors, chosen by just over 46% of respondents, all tied for second. They were investment philosophy and returns, a broad selection of investment options, a sense of shared values, and a recognized brand name.

    Certainly, investors should pay attention to the advisor’s investment philosophy and returns. There is a big difference between advisors who are deeply committed to a passive, buy-and-hold strategy and those who’ve developed intricate models of timing various markets. However, both investment philosophy and returns can be easily overstated or manipulated.

    Just as important is whether the advisor represents a broad selection of investment options. In many cases, however, what is offered is a selection of investments but from just one mutual fund, insurance or annuity company, or retirement plan advisor.

    Discovering whether the investor and advisor share similar values requires asking lots of questions, using exquisite listening skills, and getting a sense of the advisor’s “being,” something that can take a lifetime to master.

    A recognized brand name is so important that most of the large Wall Street firms spend bucket loads of money on establishing their brands as competent, caring, and trustworthy. That expense seems to pay off with consumers. Often going unnoticed are the millions of dollars these firms are fined by the SEC and FINRA for behavior opposite to their advertised values.

    I was surprised by some of the factors that consumers saw as relatively unimportant. How the advisor is compensated ranked seventh. Just 30% of respondents cared whether their advisors were compensated by commissions, by a combination of fees and commissions (fee-based), or only by fees (fee-only). This is interesting given the great attention given to this topic by financial professionals, myself included, who feel the compensation model has a direct influence on the advisor’s ability to give conflict-free financial advice to a consumer.

    In tenth place, at only 12%, was the advisor’s education. To most consumers, it doesn’t matter if the advisor has a master’s degree in financial planning or an undergraduate degree in history.

    Consumers would do well to apply their comparison-shopping skills to choosing financial advisors. This means learning to look past the marketing and assess what is more important: the advisors’ training and integrity.

    Rick Kahler MSFS ChFC CFP


  5. Investors Trust Uber Drivers More Than Brokers

    According to Ryan W. Neal, a new survey found that U.S. investors trust brokers less than Uber drivers and lawyers.



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