newbie needs advice

[southstar]

First time poster.

A little background: My wife is a 4 year Psychiatric resident and scheduled to enter the workforce in July. She doesn’t have a contract yet, but should have one the near future. We’ve been married just over 2 years and have an 8 month old child. We currently live in the Baltimore/DC area. My wife has given me the duty of overseeing our financial matters. I do have a general knowledge of investing so I’m not necessarily clueless, but I find myself a tad bit overwhelmed by all the different aspects of what is ahead of us. I find it a challenge and am a willing partner. We have just under 400K in debt.

So we were recruited by one of the financial advisor firms that specialize in working with physicians. We’ve met a few times, and I felt comfortable with where we started, but have since been made a little skeptical with what we were just presented. Since, I have found the WCI website just this week through a group on Facebook known as “Dads Married to Doctors” which is associated with the “Physician Mom Group.” I’ve begun cycling through the various forum topics and blogs on WCI and I see that the original WCI himself dealt personally with this firm and I’ve have seen a few negative comments associated with them.

In our last meeting we were going over our disability and term life options. Term life is where my wife and I knew we wanted to be all along, but in addition we were presented with what I believe to be a variable life plan where which for a $1,500 more a month we could make money off our policy and it would be a tax advantage over investing in traditional ways. This proposal set off a red flag with me. Personally, I’m all about options, but this seemed like a traditional sales job and wasn't discussed at previous meetings. We told the advisor we were just interested in term, and not the other, at least for now. My biggest fear is that we would have been tied to this policy for the full term. I knew that if we happened to find better rates on term insurance somewhere else down the road, we could just cancel and move into the new policy, right?

First, can someone talk to me like I’m a novice and explain what he was trying to sell us?

I just want to find someone who we can trust. I realize a planner has to make money, and I’m certainly willing to help them as much as they want, but not at my family's expense.

Does anyone have suggestions for a planner in the Baltimore/DC area? I know there are great planners all over the country, but I’m an old fashioned southerner who would at least like to establish a relationship face to face and with a firm handshake. All I truly want is to get off on the right foot for our family and find someone we can trust and rely on to make the best decisions for us.

Thanks to all!!

[PhysicianOnFIRE]

Variable Life Insurance is basically a different flavor of Whole Life.  WCI has written extensively on the topic.  A friend tried to sell me on one of these policies years ago.  Commissions and fees tend to be high.  Surrender fees, etc...

I chose to buy term life insurance until I no longer needed it.  My premium was $27 a month for a 10-year $1 million dollar policy.  You could easily make an argument that I was underinsured, but my wife is well educated and was capable of earning a decent income if I would have died.  But I didn't, so that gamble paid off.

I can't help you find a planner out east, but you'll find enough resources between WCI and Bogleheads to find your way if you are interested in DIY.  It can be pretty simple if you choose to keep it simple.  A fee-only planner is certainly a viable option if you're not interested in DIY.

[PhysicianOnFIRE]

Variable Life Insurance is another flavor of Whole Life Insurance.  WCI has written extensively on the subject, and its high commissions, fees, surrender charges, etc...

I chose to buy Term until I no longer needed it, paying $27 a month for a 10-year $1 million policy.  You could argue that I was underinsured, but my wife is well educated and could have earned a decent income if I had died.  But I didn't, so that "gamble" paid off.

I can't help you with a financial advisor out east, but there are plenty of resources between WCI and Bogleheads that you could use to learn to DIY.  If you're not interested in DIY, I would recommend a fee-based planner with a fiduciary responsibility.

[jfoxcpacfp]

Hi, Southstar - Sigh...I suppose I must send you to a competitor as I am honor bound to help out a fellow Southerner :-) Just kidding - we fee-only advisors are one big happy family and I am happy to recommend my cousins in the DC area.

Go to www.napfa.org and search for fee-only advisors in your zip code. You can also check out FeeOnlyNetwork or XY Planning Network - all have only fee-only advisors. XYPN specializes in millennials and working remotely, however.

Good luck!

[LBKCLU]

With that amount of debt and your family situation, you don't need anything more than a term  life insurance policy, a plan to pay down your debt and accumulate wealth.

You might want to reach out to Michael Relvas, CFP, who is also an advertiser on this blog. I think he is local to you and should be able to help. We have no financial relationship.

https://www.mr-disability-insurance.com

[jfoxcpacfp]

PhysicianOnFIRE wrote:

I can’t help you with a financial advisor out east, but there are plenty of resources between WCI and Bogleheads that you could use to learn to DIY.  If you’re not interested in DIY, I would recommend a fee-based planner with a fiduciary responsibility.

Click to expand...

Did you mean fee-based or fee-only? Big difference.

[drsuave]

What is the difference between fee-based and fee-only?

This is my first WCI post. I've been following for a few years now. I recently finished fellowship and will be starting my first job as an attending. I decided to go see a financial advisor that was recommended to me by a colleague. I have made my own financial plan based on the knowledge I've gained reading WCI and other books/websites so I have at least a basic structure of a financial plan. This particular financial planner is a CFP/MBA and partner at his group. I was first annoyed with him because I showed up to our meeting on time and I waited 15 minutes to be seen. He seemed straight forward in our meeting and gave me vague ideas of about meeting financial goals. I believe his fees are high: $750 for the first year(includes time for meetings, making the financial plan, advise, etc). $400/yr for the subsequent years + 1% AUM fees. I told him I thought the fees are high, but he says he can do hourly rate for $200/hr but he says in the first year it would be at or more than $750. This just seems like alot to me. Considering that in these next 5 years I'll be paying loans, saving for my FU fund, maxing out employer retirement, I won't have much left over for investing in other products for him to make the 1%. Do I really need financial advice while I pay off loans, build savings and put money into employer retirement? Some of your wisdom would be appreciated.

[jfoxcpacfp]

Welcome to the forum, drsuave!

Fee-based is a misnomer. A fee-based advisor can sell commissioned products, make side deals that you are not aware of, accept referral fees, etc. A fee-only financial planner is paid only by the clients and receives no other compensation related to her clients.

Yes, I think you need financial advice while you pay off loans, build savings and put money into employer retirement (among other things). That doesn't mean you need paid advice or that particular advisor. The fees he quoted you sound ridiculously low, given that he is charging 1% on virtually nothing. Maybe he's not "fee only" and hopes to sell products to you? I cannot see you getting much useful advice for $750 for a full year and $400/yr subsequently.

You might want to compare to our fees and what you get for them by clicking on the links here. Does that mean you should go with the cheapest option? Don't think so. Real financial planning is a year-round activity and good financial planning will help you set and meet achievable goals, make the best money decisions, properly diversify and manage your investment portfolios (personal and at work) and educate you specifically regarding your personal financial situation. I would not accept you as a client if I didn't believe that the fees you paid our firm would be more than repaid by our developing a sound personal financial plan and our guidance.

~~~~~~~~~~~~~

So, given your handle, I picture you as plastic surgeon on Dr. Phil's doctor program   . Is that your specialty?

[drsuave]

Thank you for the reply. I did check out your website and observed the fee schedule and schedule of services. I reviewed the list of services the other financial adviser proposed and they are similar. I guess I was being cheap in my approach to financial advice and should seek it out earlier in my career rather than later. No, I'm not a plastic surgeon. I'm an anesthesiologist. lol.

[jfoxcpacfp]

I don't necessarily think you were being cheap, but very few people understand the breadth of our involvement in the financial planning process. In the first year, we will spend 30 - 50 hours on planning, depending on needs and situation of the specific client, more for a dual doctor couple and older clients with complicated finances (trusts, contracts, businesses, multiple marriages, etc.)

[Son of a Doctor]

drsuave wrote:

Do I really need financial advice while I pay off loans, build savings and put money into employer retirement?

Click to expand...

It would be helpful, whether from a fee-only financial adviser or through extensive research, to get a written plan in place for prioritizing your excess cash flow between debt repayment, building an emergency fund, and contributing to a 401(k).  Many financial advisers should be willing to provide that service for a flat-fee (that does not include an AUM charge) and then you can run with the plan until you are ready to update it a year or two down the road. AUM fees are problematic for many reasons, one of which is that they often do not reflect the time involved assisting the client.  Flat fees are highly preferable, as even hourly fees can get out of control.  To that end, a $750 fee for a good financial plan is very reasonable, as I have seen some firms charge twice that or more.

I've written a few articles about debt prioritization and cash flow allocation that may be useful, but this website and its great readers can provide you with all of the information you need on the topic.

-Richard

[Rando]

Southstar - you probably just need term life and disability.  Michael Relvas was mentioned above - he is an independent agent and is who I got my life and disability insurance through and i was very happy with things.

 

Drsuave - AUM fees have been discussed on this site extensively and are generally frowned on unless you are very early in investing and planning to go to some other arrangement later.  The AUM is low now but will rise over the years as your portfolio grows.