What is the cost of a Fiduciary Fee Only Planner for Established Physicians

[jfoxcpacfp]

afan wrote:

Jfoxcpacfp,

Those are great examples. How many of your clients go through such changes every year? It they are paying for 30 -60 hours a year of planning advice the fact that, maybe, once or twice in a career they may face such choices hardly makes it seem like a good price.

A doc could go for many years and never confront issues like these. If they did find themselves in such a position then they could hire a planner for the 50 or whatever hours it took. Then go back to paying nothing.

I don’t know how your practice works. Do you charge AUM and then the advice is “free?” Or do you charge by the hour or project? Do you even manage investments at all?

I completely agree that there are times people may need financial advice. They rarely need investment advice. So why pay for something they don’t need at all in the hopes that, maybe someday, they will get the financial advice they need?

I don’t pay a lawyer every year on the chance that someday I may need to redo my estate plan. If I need that I will hire a lawyer when the time comes. And pay nothing until then.

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Those were only a few examples. Plans change daily, monthly, yearly. I really don't know any clients like the docs you mention who could go years and never confront any of these issues.

If I could give you one small example, every client has a budget in eMoney, based upon their historical spending, which changes regularly. We schedule periodic meetings to go over the spending to see if the budget is reasonably reflective of reality or if it needs to be adjusted. Because the plan projections are based on current spending, keeping an eye on the budget is pretty critical. Under your theory, most doctors maintain a level amount of predictable spending, year in and year out, they purchase vehicles on a predictable schedule for a predictable amount, inflation stays the same, nobody ever changes jobs, moves, renovates their house, becomes a partner, changes goals, buys or sells rental property, and bonuses remain the same, income never changes, etc. That's just not the world I live and work in. However, for physicians who want a one-time review, we do offer a Financial Checkup.

We are flat fee, everything is posted on our website. No AUM except for pre-physician planning clients who decided to stick with that model. Planning is live, interactive, and continuous. I have no idea why you think comparing what we do to legal work makes sense. A better model would be a primary care physician who treats a patient throughout their lives, except our advice extends into the next generation.

[Kamban]

I can see both sides of the equation here. The problem for CFA is that they have to earn a living wage. Similar to what we come across in medicine where we get a geriatric patient with  100+ problems and trying to address them at the initial and subsequent visits is a money loser with what Medicare pays. We hope to make up for it with young patients with good insurance who pays more for the time than what we get from Medicare / Medicaid or even the Medicare patient with minimal issues.

For the CFA the geriatric patient is the young fresh of residency with tons of loans, little savings and tons of questions regarding insurance, house purchase etc. Or the doc who keeps up with the Jones and is broke with no savings or assets. The CFA may not get their effort adequately reimbursed from these people with little money to pay. They cannot hope that once they sort out these people that they will stick around and repay them later on with more money for less effort. Hence the need to charge AUM/ maint fees from people with big amounts and  not much work for that money gotten.

[Kamban]

A better fairer solution would be to charge for work done. Maybe set up a payment plan for those who need more work. Or set up a minimum 500 dollar minimum per review / consult or follow up.

[jfoxcpacfp]

Kamban wrote:

A better fairer solution would be to charge for work done. Maybe set up a payment plan for those who need more work. Or set up a minimum 500 dollar minimum per review / consult or follow up.

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If we charged for work done, we would most likely be charging more. Clients tell us that they like knowing the exact cost in advance, which is why we developed a flat fee model. Our Financial Checkup is $3,500 and, truth be told, it is a loss leader for the time we put into it. I know other advisors who don't offer them for that reason. I think you may be underestimating the amount of complexity involved for a real financial plan to be beneficial. Or maybe we just do too much work  . We have a waiting list stretching to November at the moment and I'm here 7 days a week, so there seems to be a bit of demand for it. I realize we can't please everyone, though, and that some folks prefer hourly planners.  Different strokes...

[Kamban]

jfoxcpacfp wrote:

Our Financial Checkup is $3,500 and, truth be told, it is a loss leader for the time we put into it. I know other advisors who don’t offer them for that reason. I think you may be underestimating the amount of complexity involved for a real financial plan to be beneficial. Or maybe we just do too much work . We have a waiting list stretching to November at the moment and I’m here 7 days a week, so there seems to be a bit of demand for it. I realize we can’t please everyone, though, and that some folks prefer hourly planners.

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I think that you are overworking for the amount of money charged. The problem with a flat fee structure is that a few will overuse and abuse the system since they know they won't pay more, some will try and use services they might not need since they feel that they need get that "bang for the buck" for the money they paid and some will grumble at the money spent for work they could have been done with fewer hours.

Obviously your system works well for you and I actually prefer it to an AUM model based on amount of money deposited. But I am just trying to explain why some might balk at the fees since they either underestimate the work done or feel that they could make do with less. Charging for the actual work done ( time and complexity) with the hourly rate might satisfy them.

[The White Coat Investor]

I'd like to see an AUM advisor with a cap on fees. "I'm going to charge you 1%, to a max of $10K a year." But I have yet to see it. The only folks who cap fees are those who charge an annual retainer. Why is that? Well, the reason is because, and these are the words of a fiduciary, fee-only financial advisor who knows his stuff, "AUM fees are the best passive income there is." Every year they go up while the work required to earn them stays the same (or even goes down.)

My problem with AUM fees is that I don't want to be someone else's best source of passive income.

That said, the next best thing is to quickly decrease AUM fee % as assets grow, and yours decreases much more quickly than most. So kudos for that but I think I'd rather see you move away from AUM fees all together. Tough to do that AFTER starting a successful practice though.

So the entrepreneur in me is impressed with a nice AUM fee on a growing pile of assets while the physician advocate in me wishes for AUM charging advisors to have such a difficult time attracting clients (and losing the ones they have) that they are forced to change their model.

[afan]

I suppose some people live very different lives.

'most doctors maintain a level amount of predictable spending, year in and year out, they purchase vehicles on a predictable schedule for a predictable amount, inflation stays the same, nobody ever changes jobs, moves, renovates their house, becomes a partner, changes goals, buys or sells rental property, and bonuses remain the same, income never changes"

Well, we know our spending and it is gradually declining in nominal dollars. Checking spending vs budget is something I would hope anyone permitted to practice medicine should be able to do without help. If their cognitive ability has declined to the point that they cannot manage simple arithmetic it is time to find a less challenging job.

We purchase vehicles so rarely and pay so little for them that there is no purpose served in budgeting for this. An inexpensive used car every 10 years, on average, when they are no longer worth trying to repair...

It has been a long time since anything interesting has happened with inflation. If I had been paying for years for someone to help me when there was a sudden change in inflation I would have wasted a lot of money. But even if inflation does go up, what is the planner going to do? Bonds will go down by amounts related to their duration. I can count on that. What do I want the planner to do? If inflation goes down, then opposite changes in bond prices. Again, what do I want help with?

I have been through almost all the things on your list but for most of them it never occurred to me to seek out a financial planner. What would I need them to do? And even then, I have gone through years at a time, on average, with none of those taking place. So what would I have been paying for?

If your typical client is using 30-60 hours a year,, I still don't get it. Say a client hears on the radio that inflation has gone up. They then call you? And ask you what? What do you tell them?" The yield on your bond funds will go up but the share price will go down? "

Really, what does someone do that requires that amount of advice, year in and year out?

[jfoxcpacfp]

afan wrote:

I suppose some people live very different lives.

‘most doctors maintain a level amount of predictable spending, year in and year out, they purchase vehicles on a predictable schedule for a predictable amount, inflation stays the same, nobody ever changes jobs, moves, renovates their house, becomes a partner, changes goals, buys or sells rental property, and bonuses remain the same, income never changes”

Well, we know our spending and it is gradually declining in nominal dollars. Checking spending vs budget is something I would hope anyone permitted to practice medicine should be able to do without help. If their cognitive ability has declined to the point that they cannot manage simple arithmetic it is time to find a less challenging job.

We purchase vehicles so rarely and pay so little for them that there is no purpose served in budgeting for this. An inexpensive used car every 10 years, on average, when they are no longer worth trying to repair…

It has been a long time since anything interesting has happened with inflation. If I had been paying for years for someone to help me when there was a sudden change in inflation I would have wasted a lot of money. But even if inflation does go up, what is the planner going to do? Bonds will go down by amounts related to their duration. I can count on that. What do I want the planner to do? If inflation goes down, then opposite changes in bond prices. Again, what do I want help with?

I have been through almost all the things on your list but for most of them it never occurred to me to seek out a financial planner. What would I need them to do? And even then, I have gone through years at a time, on average, with none of those taking place. So what would I have been paying for?

If your typical client is using 30-60 hours a year,, I still don’t get it. Say a client hears on the radio that inflation has gone up. They then call you? And ask you what? What do you tell them?” The yield on your bond funds will go up but the share price will go down? ”

Really, what does someone do that requires that amount of advice, year in and year out?

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Your point is well taken about inflation, although I have yet to find a client who is not fairly well shocked when reviewing the whole picture including the effect of inflation on the totality of their lives. If inflation changes, no, I don’t expect a call. But I do expect the lifetime projected values to change by an order of magnitude that causes people to take notice regarding their future plans.

While I’ve done my best to give a few examples, not the digest of planning, it is, of course, not a fit for everyone. And that is ok. Not everybody needs a cardiologist. But trying to explain the actual process to someone who hasn’t experienced it is kind of like trying to put into words the taste of a pineapple to one who has never eaten fruit. Prospective clients come to us knowing they really need some kind of help, but still not understanding how we can help until we are fully involved.

You sound like someone who will get to the end quite comfortably, but never knowing how much more you could have had because you’ll probably have plenty to spare. That doesn’t mean planning wouldn’t help you, just that you can get by fine without it. You are limited to the facts you know, but I think even you might be surprised by what you don’t know.

[jfoxcpacfp]

@afan: You know what? I just realized that I should have added something that might make more sense to you - not every client sticks with a planner throughout their lives. Some go through a year of it and that’s all they want or need - just to get everything squared away and have a good sense of their direction.

There is no obligation to continue year-in and year-out. Some clients will come back for periodic check-ups, others won’t. I think that or even a one-time checkup might be more logical to someone in your situation.

[MPMD]

Fascinating discussion. On my end while I will likely start paying for some hourly advice in the relatively near future but for me an AUM structure is a deal breaker. Jim hit the nail on the head, I don't want to be someone's passive income source.

I think what happens for people with $1M+ portfolios esp in the last few years is that they are making good money as long as they are even in a B- portfolio. So they see the massive gains and think that the $10-15k AUM fee is a good trade. There are also a lot of people out there who really think their asset manager spends hours a month scrutinizing their personal portfolios. I was recently talking to a friend of mine who is in exactly this situation, he has enough money that he literally doesn't care about what his AUM fee is -- he doesn't even know. Again, what an absolute whale for a financial planner.

The point that others have made about the unchanging work profile as your client's assets build is probably the most troubling thing for me. Why should someone be getting a multi-thousand dollar raise year after year to do the exact same work? Like many on this forum I have toyed w/ the idea of doing financial planning as an exit strategy but I don't think I would be comfortable with an AUM model unless I had basically done informed consent with the client.

 

[Steven Podnos MD CFP]

MPMD-You make some good points, but as is true quite often, you get what you pay for.  We use primarily an AUM model for several reasons.

 

First, flat fee models seem to fall  into two categories.  The first is a unchanging flat fee per year based on various variables-net worth, complexity, assets to be managed, etc.  If the fee is low, the service has to be proportionally low to remain solvent. If the fee is high, it may reflect the rough equivalent of an AUM charge.  In addition, when we have a nice downdrop in the markets, the financial planner suffers along with their client (even though they didn't make the market move)-so that goes both ways.  In 2008-9, my income dropped 30%, and my clients benefited from lower fees while their asset levels were lower.  Flat fee clients paid a higher percentage of their assets for the same service.

The second model of flat fees is tiered to rise with AUM, etc.  So wealthier individuals pay higher fees with higher AUM-just not a direct proportion.  Again, the flat fee might exceed proportional AUM charges in "down" years.

The reason I started this thread was to point out what is quite reasonable for established physicians.  Again, we are not talking about the average physician on this forum.  We are talking about the other 98% of physicians that use stockbrokers and insurance agents as "advisors."  They are paying 1.5-3% a year on average and getting either just an asset allocation or much worse.  As I mentioned at the beginning of the thread, a physician with 3M in assets pays us (and many other firms) about 0.5% a year for both asset management and comprehensive Fiduciary fee only planning.  As assets go up, the fees go up also (but only at 0.25% a year), but so often does the complexity and risk associated with larger AUM management.  For the 98% of physician that do not want to put in the time to be a WCI superstar-that's the bargain of the century.

 

[MPMD]

Even comparing 0.5 to 3 I like the idea of a cap, $10k seems like the absolute max.

To me it's like real estate brokerage, I just don't think it's reasonable for someone to make what an EM doc makes in a month of shifts on a single transaction or portfolio management.

I'm sure there's a figure at which portfolio management really becomes more complex but I think that's in the $15M+ range or higher. Maybe even way higher.

 

[q-school]

MPMD wrote:

Fascinating discussion. On my end while I will likely start paying for some hourly advice in the relatively near future but for me an AUM structure is a deal breaker. Jim hit the nail on the head, I don’t want to be someone’s passive income source.

I think what happens for people with $1M+ portfolios esp in the last few years is that they are making good money as long as they are even in a B- portfolio. So they see the massive gains and think that the $10-15k AUM fee is a good trade. There are also a lot of people out there who really think their asset manager spends hours a month scrutinizing their personal portfolios. I was recently talking to a friend of mine who is in exactly this situation, he has enough money that he literally doesn’t care about what his AUM fee is — he doesn’t even know. Again, what an absolute whale for a financial planner.

The point that others have made about the unchanging work profile as your client’s assets build is probably the most troubling thing for me. Why should someone be getting a multi-thousand dollar raise year after year to do the exact same work? Like many on this forum I have toyed w/ the idea of doing financial planning as an exit strategy but I don’t think I would be comfortable with an AUM model unless I had basically done informed consent with the client.

 

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if your friend is happy, why do you care if the planner is getting paid a lot?  is it that different than buying a mac instead of a pc?  or a cadillac instead of buick?

isn't the purpose of money to help you manage resources efficiently?   if time is your most precious resource, then you have to figure out what you are willing to pay for.  if you don't want to manage the money, there is a cost associated with that.  if you are bad at it, or lack discipline, have not planned for the future, or lack confidence, which even a lot of physicians do, they may benefit from planning.  i get that almost no one here thinks that the price is a good value for themselves, but that doesn't intrinsically or automatically make it a bad value for anyone else.

ymmv

 

[Steven Podnos MD CFP]

An ER physician has no overhead.  I know of financial planning practices with 80% overhead.  It's the "net" income that counts, right?

Anyway, we all have the right to choose who we deal with, but not the right to charge perhaps what we are worth.  I spent many nights as an ICU physician trying to save a life with either no or pitiful reimbursement.  Physicians are "cost controlled," i.e. we have no right to charge what we are worth (one size fits all).

Good advice is priceless-whether medical, legal or financial.  The right advice can mean the difference in health and wealth.

[MPMD]

q-school wrote:

MPMD wrote:

Fascinating discussion. On my end while I will likely start paying for some hourly advice in the relatively near future but for me an AUM structure is a deal breaker. Jim hit the nail on the head, I don’t want to be someone’s passive income source.

I think what happens for people with $1M+ portfolios esp in the last few years is that they are making good money as long as they are even in a B- portfolio. So they see the massive gains and think that the $10-15k AUM fee is a good trade. There are also a lot of people out there who really think their asset manager spends hours a month scrutinizing their personal portfolios. I was recently talking to a friend of mine who is in exactly this situation, he has enough money that he literally doesn’t care about what his AUM fee is — he doesn’t even know. Again, what an absolute whale for a financial planner.

The point that others have made about the unchanging work profile as your client’s assets build is probably the most troubling thing for me. Why should someone be getting a multi-thousand dollar raise year after year to do the exact same work? Like many on this forum I have toyed w/ the idea of doing financial planning as an exit strategy but I don’t think I would be comfortable with an AUM model unless I had basically done informed consent with the client.

 

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if your friend is happy, why do you care if the planner is getting paid a lot?  is it that different than buying a mac instead of a pc?  or a cadillac instead of buick?

isn’t the purpose of money to help you manage resources efficiently?   if time is your most precious resource, then you have to figure out what you are willing to pay for.  if you don’t want to manage the money, there is a cost associated with that.  if you are bad at it, or lack discipline, have not planned for the future, or lack confidence, which even a lot of physicians do, they may benefit from planning.  i get that almost no one here thinks that the price is a good value for themselves, but that doesn’t intrinsically or automatically make it a bad value for anyone else.

ymmv

 

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I don't really care, except to the extent that someone may be screwing him especially when he doesn't even know his fee.

I'm definitely not arguing that many people/docs won't benefit from planning, they absolutely will. I do think this is an area where we are charged far above value for the service provided especially when dumping all of your money into a Vanguard target fund is probably going to do about the same thing.

My standard advise when I give talks to residents is to max out retirement into a target fund until they hit $1M then pay someone an hourly fee for advice.

The market speaks on this, disagrees with me, and I certainly don't begrudge anyone their money as long as they are having honest discussions with their clients.