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<p>So, my topic today is on finding a good financial planner.  This was one of our topics at the March 5th Future Impact Program for fourth year medical students. I have been working with a personal trainer the last few months and I can definitely notice the difference in my fitness levels.  So, let’s see, [&hellip;]</p>

How fit are you financially?

So, my topic today is on finding a good financial planner.  This was one of our topics at the March 5th Future Impact Program for fourth year medical students.

I have been working with a personal trainer the last few months and I can definitely notice the difference in my fitness levels.  So, let’s see, I geared up, I purchased a gym membership at Cardinal Fitness in broad Ripple, set my goals and I hired a personal trainer.  Now I feel really prepared to reach my goals.  I will get to a healthy weight (below the overweight on the BMI chart) and in the process I will extend my life expectancy.

Financial fitness is much like physical fitness.  You begin by setting goals.  A simple goal could be playing golf every day or enjoying your passion.  Or, a more complex goal could be to travel the world and expand your horizons.  If this is the case, you obviously need to prepare for that added expense in your future.  This step will take some thought and is as individualized as your physical fitness plan will be.  Most people will put tremendous thought into painstakingly planning a vacation, but will take very little time to plan for their future.

The next step is creating the road map and achieving your goals.  This is where a financial planner may come in, much like a personal trainer to map out your exercise regimen, and sets up a realistic time frame, help you identify the right equipment, evaluate your progress and motivates you throughout to stay on track.

As a fourth year medical student transitioning to residency you may question why you should seek out a financial planner when you owe so much money and you get paid very little as a medical resident.  Choosing a financial planner is like choosing a good doctor.  You want someone who is highly trained, professionally licensed, completely ethical and has your financial best interest in mind.  So, what should you look for in a financial planner?  There are three areas to consider or the three C’s: credentials, credibility and compensation.

Check Ccredentials.  It is much like checking a physician’s credentials; it’s quick and easy to check the licensing, employment history and disciplinary records of most financial professions.  The websites of regulatory bodies like the Financial Industry Regulatory Authority and the U.S. Securities and Exchange Commission have consumer tools to look up individuals or firms who offer investment advice.  Checking the credentials does not guarantee that a financial planner is reputable, but it shows if they’re licensed and in good standing.  Don’t get dazzled by impressive-sounding titles cluttering a business card.  What’s on the card may not mean anything in the long run.  Titles like CPA (certified public accountant) and CFP (certified financial planner) require coursework and professional exams, regular continuing education and adherence to professional standards.

Check Credibility.  Don’t automatically trust your money to someone recommended by friends or family.  Remember the global ponzi schemer Bernard Madoff.  A naïve person tend to be overly influenced by personalities, sales skills and false claims.  It is generally recommended that you meet or talk with several financial advisors before entrusting your financial life to someone.   Also, as medical resident, you want someone who has the experience of working with medical residents and understands your situation as a medical resident and later as a medical professional.  You should ask questions like:

How long have they been in business?
What’s their background and training?
Do they work with clients similar to you and your income bracket?
How are they compensated?

Additionally, you want to ask exactly what services they provide, will they assess your financial picture and lay out a comprehensive plan, do they provide a monthly, quarterly or annual review of your investments?  Finally, do you want a one-time financial tune-up or a long-term relationship?

Check Cost.  Cost depends on the relationship with the financial planner and your particular needs and wants.  You can enter into a “fee only” arrangement where you pay for the financial advice and for a financial roadmap process to “keep you on track” long term, which means they don’t charge commissions, but are paid directly for their services.  That could be an hourly rate or an annual rate.  Later, as you get more involved and begin earning a physician’s income, you may change to a set amount per consultation or as a percentage of your total assets.  As a resident, you want to establish that relationship, so medical residents choosing an annual fee is likely desirable given their needs.

A “fee-based” advisor means he or she can charge commissions based on financial products they sell.  For example, if you are only interested in a particular product, such as life or disability insurance, you may only pay a commission.  If that’s the case, ask for specifics: what are the account fees, front-end fees on investment purchases and so on.

Finally, you may do a combination of the two costs.

The main thing to remember is that getting good financial advice is not free and if an advisor is saying they can do your financial plan for free be cautioned as they will likely try to sell you something for a commission.  According to one professional who works exclusively with medical professionals, “It is difficult if not impossible for a relationship to be formed long term where objective advice and a consistent review process is implemented without a fee.  Typical fees for comprehensive financial planning are 1% of household income as an annual ‘retainer’ fee.  Like anything in life, you get what you pay for, its really all about the results.”

Lastly, start early.  The big mistake some people make is that they wait until their 40’s to begin a plan for retirement.  The best time to begin a relationship with a financial planner is now when you will have your first job or income.  Setting a plan from the beginning will reap large benefits in the end and will serve you well in getting in shape financially.

The views expressed in this content represent the perspective and opinions of the author and may or may not represent the position of Indiana University School of Medicine.
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Jose Espada

Jose Rivera Espada is the director of financial aid at IU School of Medicine, a nine-campus allopathic medical school in Indiana. Jose’s experience includes working as an assistant director of financial aid at Butler University and a financial aid coun...