Physician’s Ultimate Guide to Choosing a Financial Planner – Part 3: Best Financial Planners for Type 1 Physicians

Best Financial Planners for Type 1 Physicians:

A fiduciary, fee-only financial planner who charges an Assets Under Management (AUM) fee no more than 1%/yr.

For physicians looking to delegate management of their assets to a fiduciary, fee-only financial planner, their best choice is a financial planner who charges an AUM fee model. For an example, if a financial planner is managing $200,000 of a physician client’s investments in a given year and charges 1% AUM, the cost will be $2,000 for that year. The physician doesn’t get a bill for the $2000 – rather, $2000 is taken off the top of the invested assets for the planner. The best AUM financial planners will provide a ton of value for their clients by providing advice and planning on cash flow management, debt management, insurance, tax planning, and estate planning without additional costs. They are rewarded by loyal clients who trust them, and as the client’s assets grow, so do the financial planners’ compensation. A win-win if you’re a Type 1 Physician who wants an ongoing relationship with someone you trust to delegate management of financial matters.

Pros of AUM Financial Planners:

• AUM financial planners can make it more affordable for early-career physicians to get financial planning (e.g. you will pay less in fees if you have $100k to invest vs. $1M.) However, some AUM financial planners will have minimum investment amounts to protect their business model, and that may limit the equity in access they would otherwise provide.
• AUM financial planners have a vested interest in keeping you happy and loyal as clients; the longer you stay with them (and your portfolio grows), the more they will continue to make over time. If your portfolio loses money, they hurt alongside you.
• Since AUM planners are doing the actual implementation of their investment plan for you, you have guaranteed compliance with your investing plan.
• If you are tempted to panic-sell in a down market or FOMO-buy in a frothy market (i.e. sell low and buy high), you will have a barrier from doing so – a good AUM planner will be able to ensure a steady hand in management of your assets and protect you from yourself.
• Many AUM planners will reduce their AUM fees as your investable assets reach certain milestones.
• AUM financial planners are the most plentiful and easy to find. ~80% of financial planners choose this payment structure because they enjoy performing comprehensive planning, investment management, long-term relationships with clients, and being well-rewarded financially for the value they provide.

Cons of AUM Financial Planners:

• Imagine if you got an inheritance and could either pay off your student loan balance or invest it with your AUM financial planner. Which choice would they be incentivized to recommend? Regardless of whichever option is a more optimal financial choice, an AUM planner would be more financially rewarded by having you invest the assets with them rather than paying off debt (or any other investment) outside of their management. This is a clear conflict of interest that physician clients must be aware of.
• AUM planners are the most expensive option for physicians with higher net worths. That 1% fee may not sound like a lot, but by the time your investments reach $1M with them, you will be paying them $10k/yr. AUM fees compounded over 30 years can equal hundreds of thousands or even millions of your nest egg that have gone to your planner instead of you. There are often additional fees on top of that 1% as well.
• There is no guarantee that AUM planners can provide investment returns that more than justify the fees you pay them compared to you doing it yourself. If they employ an active approach to investing (picking winners and losers), they are historically more likely to underperform a broad-based index fund anyone can invest in over time. Underperformance plus high fees is the worst of both worlds.
• Financial planners are human too and can succumb to gaps in knowledge, cognitive biases or rash decisions about your money and make mistakes. You introduce manager risk into your investing by letting someone other than you be able to manage it.
• What you get for that 1% fee can vary. The focus on AUM may lead some financial planners to excessively focus on investing, and less on other critical aspects of financial wellness such as debt management, employer benefits outside their control such as 401(k) plans, tax planning or estate planning.
• Breaking up with an AUM financial planner is hard. Not only is it awkward to fire your financial planner, the process of transitioning your investments to the management of someone else can be difficult or even expensive if your money was invested in complicated, proprietary or tax-inefficient investments.

If you are a Type 1 Physician, we recommend you find a great AUM financial planner on the National Association of Personal Financial Advisors (NAPFA) Directory or the XY Planning Network (XYPN) Directory – both are reputable organizations who include only fee-only, fiduciary planners who hold the respected CFP® designation in their directories. About 80% of these financial planners will be AUM-based.

Disclosures: The links above are identical to what you’d find on a search engine, and we receive no benefit or payment if you click on the links above. DocEmpowered is a proud member of XYPN and an Associate Member of NAPFA, and our recommendation stems from our belief in their shared mission to elevate the financial planning industry. DocEmpowered is an Advice-Only Financial Planning firm that does not provide investment management services; therefore, we would not be an appropriate service for Type 1 Physicians.