5 steps to selecting an investment advisor

For a variety of reasons, more dentists are looking for investment advisors to meet their needs in the ever-changing economic environment.

John K. McGill, JD, MBA, CPA

Warren Poe, CFP

For a variety of reasons, more dentists are looking for investment advisors to meet their needs in the ever-changing economic environment. With many doctors having a difficult time making investment decisions due to minimal (0% to 1%) returns on cash and a volatile stock market, investors are increasingly nervous about how their investments are managed.

Recent stock market uncertainty has forced many doctors to realize that their asset allocation (percentage of investment assets in stocks, bonds, real estate, and more) does not align with their actual risk tolerance, and they're looking to change to someone who understands their needs. Some doctors elect to maintain their own investments but are not happy with the stress or results. As baby boomers age, there's an increasing trend among doctors approaching retirement who have large account balances that represent the fruits of their entire careers. These retiring doctors are becoming painfully aware of the limited skill in the investment arena, and they're seeking qualified professional advice during the most important financial time of their lives.

While it's easy to spot a poor investment advisor, what are the indicators of a quality advisor? Here we outline five steps a doctor should take when selecting a new investment advisor for improved performance and greater peace of mind:

1. Use a fee-only advisor-While all advisors may have potential conflicts of interest, fee-only advisors limit these conflicts since they do not accept commissions. Note that a "fee-based" advisor is not a "fee-only" advisor. "Fee-based" advisors receive a blend of commissions and fees. Doctors can find fee-only advisors in their area through the National Association of Personal Financial Advisors at napfa.org. Fee-only advisors typically charge a percentage of assets under management, usually 1% a year, to manage the doctor's money and provide advice on an ongoing basis, which takes the focus off transactional compensation.

2. Use a Certified Financial Planner professional (CFP)-Financial advisors may have any number of designations indicating their particular areas of expertise. The chartered financial analyst (CFA) designation indicates documented investment expertise. Meanwhile, a certified public accountant (CPA) has more limited investment acumen but is significantly more tax savvy. Also common are chartered financial consultants (ChFC), who have extensive training in insurance and estate planning.

While these professional designations can be important, a Certified Financial Planner professional is usually the best choice for doctors. This is because the designation is indicative of a generalist who is capable of helping the doctor with his or her entire financial picture and who can provide value-added services to boot. Compared to most brokers, certified financial planners have more extensive educational backgrounds, greater continuing education requirements, and higher ethical standards.

More importantly, like other registered investment advisors (RIAs), they have a fiduciary duty to put the dentist's interest first by selecting the best available investments for them. On the other hand, brokers are held to a much lower standard of providing investments that are "suitable" for their doctor clients.

3. Interview several candidates-Doctors should ask colleagues for referrals and should interview several candidates before settling on an advisor. Personal chemistry is important, and feeling at ease is an essential part of any investment management relationship. Most advisors will provide a complimentary introductory session to explore your needs, explain their process, review the services they provide, and discuss their fee schedule before entering into a formal arrangement.

4. Ask tough questions-Doctors need to gather a complete picture of an advisor's background, areas of expertise, fees, and investment philosophy. Doctors should feel free to ask for references from other clients before signing a formal agreement. Prospective advisors should understand exactly what services they will be providing for a dentist. Furthermore, doctors should hire an investment advisor only after they're satisfied that the advisor will communicate regularly (at least quarterly) to discuss their investments and that the advisor will develop appropriate investment strategies customized for the doctor's unique circumstances.

5. Insist on using a third-party custodian-Dentists looking for someone to manage their investments should insist that their advisor use a third-party custodian to hold the investments. Convicted swindler Bernie Madoff held client funds in his own custody, which is how he was able to drain their savings and forge their account statements without their knowledge. If your advisor uses an independent custodian, such as Charles Schwab, TD Ameritrade, or Scottrade, those institutions maintain physical possession of your money, and your account statements come from their offices rather than from your advisors.


John K. McGill, JD, MBA, CPA, provides tax and business planning through John K. McGill & Co., and Warren Poe, CFP, provides investment advice through McGill Advisors Inc. (RIA). Both are members of the McGill & Hill Group LLC, your one-stop resource for tax and business planning, practice transition, legal, retirement plan administration, CPA, and investment advisory services. Visit mcgillhillgroup.com.

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