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

[jfoxcpacfp]

afan wrote:

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.

To be clear: There is a difference between “planning” and “hiring a financial planner”

I am well aware that there is a lot I don’t know. That is why I read sites like this and bogleheads. But my interactions with planners so far have not given me any confidence that they have much to offer. Several have pitched their services but the answers I get to what has become my standard set of questions have not been impressive. Back to most wanting to talk about investments and imply that their active management will beat the market.

I say I want to work through a strategy to optimize the after tax value of inheritances to my heirs, who likely will have different tax brackets. This requires considering state and federal estate and income taxes for me and for them. I don’t get anything to suggest they even understand the question, let alone know how to help.

I also used to have two insurance questions, one about disability insurance prices vs. the present value of benefits, discounted by the probability of collecting and the duration of the income stream. The other was about need for maintaining and options for getting rid of outgrown cash value life policies. One planner cheerfully agreed that the present value of disability insurance would depend on the probability of becoming disabled long enough to quality, but had no idea what those probabilities might be. When I raise options for life insurance they agree with my list of considerations, but seem out of their depth in providing any information.

When I ask about Social Security claiming strategies most agree that the probability of collecting influences the present value. But they have no idea what those probabilities are or how to calculate the present values taking those into account. They use calculators that assume a known age at death and cannot go beyond that.

So far with any of those questions I have yet to have someone say anything even interesting, let alone that would make me consider hiring them.

Most say that they don’t provide tax advice, which makes them useless, since taxes are my biggest expense.

This is why I keep wondering what planners are doing when they are spending dozens of hours a year on a client. The answer appears to be none of the above.

If I could find someone who I thought could handle these introductory questions then at least I would consider paying them for advice.

Hiring someone to invest for me is not going to happen. I could imagine paying a flat fee or an hourly fee for advice. But so far I have not found one for whom I would be willing to pay.

I definitely plan. I just don’t use a planner.

 

It is very disappointing to me that you have had this experience. This is not a-typical and why so many consumers are jaded about our profession. You can find many “advisors” but few who have an interest in real planning, even fewer with the necessary knowledge and experience to go beyond the commonplace. I would say most physicians go their whole lives without ever interacting with the kind of financial planner who could fill the needs listed above. It’s a crying shame and mostly luck if you do find such a person.

[afan]

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.

To be clear: There is a difference between "planning" and "hiring a financial planner"

I am well aware that there is a lot I don't know. That is why I read sites like this and bogleheads. But my interactions with planners so far have not given me any confidence that they have much to offer. Several have pitched their services but the answers I get to what has become my standard set of questions have not been impressive. Back to most wanting to talk about investments and imply that their active management will beat the market.

I say I want to work through a strategy to optimize the after tax value of inheritances to my heirs, who likely will have different tax brackets. This requires considering state and federal estate and income taxes for me and for them. I don't get anything to suggest they even understand the question, let alone know how to help.

I also used to have two insurance questions, one about disability insurance prices vs. the present value of benefits, discounted by the probability of collecting and the duration of the income stream. The other was about need for maintaining and options for getting rid of outgrown cash value life policies. One planner cheerfully agreed that the present value of disability insurance would depend on the probability of becoming disabled long enough to quality, but had no idea what those probabilities might be. When I raise options for life insurance they agree with my list of considerations, but seem out of their depth in providing any information.

When I ask about Social Security claiming strategies most agree that the probability of collecting influences the present value. But they have no idea what those probabilities are or how to calculate the present values taking those into account. They use calculators that assume a known age at death and cannot go beyond that.

So far with any of those questions I have yet to have someone say anything even interesting, let alone that would make me consider hiring them.

Most say that they don't provide tax advice, which makes them useless, since taxes are my biggest expense.

This is why I keep wondering what planners are doing when they are spending dozens of hours a year on a client. The answer appears to be none of the above.

If I could find someone who I thought could handle these introductory questions then at least I would consider paying them for advice.

Hiring someone to invest for me is not going to happen. I could imagine paying a flat fee or an hourly fee for advice. But so far I have not found one for whom I would be willing to pay.

I definitely plan. I just don't use a planner.

 

[afan]

That is a straightforward pricing system. It could work well for someone who does not need investment management- 3 fund portfolio- but needs a lot of advice. At $250-$500/hour the Basic plan works out to 10-20 hours per year of advice. It still sounds like a lot to me, particularly not including preparing tax returns, but I will take your word that some people use it.

My bigger concern about the AUM investment management deals is that they distort the focus of the service. Since revenue is based on the amount of money under management, the advisor has a great reason to encourage the client to park more money with the advisor. The advisor also has every reason to focus marketing and work on investment returns.

But there is no evidence that the advisors can do as well as a simple 3 fund portfolio after fees. The advisor could add value by contributing non-investment financial planning. Advisors could compete on the quality of their financial planning, as opposed to investment management. They could focus on their own continuing education and market their training. This gets back to my lawyer example. I don't pay my lawyer a cut of my networth. I pay for a service and I select the lawyer based on reputation for expertise in that area.

Financial planners who have a lot to offer in expertise should be encouraged to continue to develop their knowledge. But to pay AUM for management bases the cost on something that has nothing at all to do with the quality of the noninvestment advice. If I need help on a tax question I want someone who is an expert in tax, not in investments. Same for Roth conversions, estate planning, or any other financial question. None of this requires expertise in investment management. The time my planner spends staying up to date on investment matters is wasted. But the planner has to be paid for this time and effort even if it cannot provide value.

 

[jfoxcpacfp]

Steven Podnos MD CFP wrote:

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.

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That is similar to ours, in a way, except as follows:

1. Basic Tier: $5k/yr - ongoing comprehensive flat fee financial planning, no asset management but portfolio advice (client implements) for all investments (including employer accounts)


2. Premium Tier: $10k/yr - same as Basic except investment management up to $1M + quarterbacking with client advisors (attorney and insurance, for example) + additional meeting before Initial Foundation Plan.


3. Concierge Tier: $15/yr - same as Premium but adds personal tax preparation and includes asset management above $1M. At the time, we have no cap on total investments managed, because we haven’t needed to for the reasons cited above - we just don’t see the added complexity for $1M versus $5M. I’m not promising that we won’t get a client with such complexity (15 different accounts with multiple transactions, comples trusts, 100+ real estate properties, etc.) that we won’t have to adjust on a per-case basis, but that would be disclosed in advance so the prospective client could make an informed decision.

To me, this is the most fair to both the advisor and the client.

I don’t think it will be possible to find a system that is perfect for everybody - you have to find what works for you and your clients and go with it. If Steven Podnos’s system works for him, I have no problem with it. Ours works for us, and everybody is free to set up their business in such a way as to profit from it and enjoy what they do. If it is a bad system, clients will leave and the business owner will make changes. That’s the supply and demand system I learned as an Econ minor in college 42 years ago. I don’t remember much else   .

[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.

[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.

[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.

 

Click to expand...

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

 

[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.

 

[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]

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.

 

[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.

[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.

[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?

[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.

[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.