A financial advisor is a professional with specific skills in managing the financial goals of clients. Those goals differ based on the specific needs of each client. For doctors, the needs are quite different than those of other professions. If you are looking for financial planning guidance and support in making big decisions, you need an advisor who understands your unique financial situation and who can offer highly tailored advice.
Doctors Have Numerous Unique Challenges in Personal Finance
As a doctor of any type, you likely have unique challenges that others do not. You must consider the following as you work to build your financial future:
- High student loan debt: The American Medical Association reports that the average medical student loan debt was $200,000. Leaving school with that type of debt to start a career creates a unique need to manage that debt effectively and quickly.
- Tax planning strategies: High-income earners need tax planning guidance early on. Tax-advantaged savings strategies can substantially reduce their tax obligations, and implementing these strategies now could mitigate financial risk later.
- Retirement planning: Most medical professionals do not expect to work 30 or more years. Early retirement goals are one factor for some professionals. The sooner you establish retirement goals and strategies, the sooner you can manage those goals without a significant impact on your personal finance budget.
These are just some areas of concern a financial advisor can help you with as you work to build your career as a doctor. With specialized financial advice crucial for doctors, you can learn the strategies that may help you build wealth, manage debt more effectively, and make wise decisions to build an investment portfolio.
It’s critical to know that many financial planners provide specific services to doctors and other medical professionals. Yet, it is up to you to seek out the right professional to guide you. To do that, consider the factors that play a role in which financial advisors may be the best choice for your situation.
Do Most Physicians Use Financial Planners?
Data indicates that most doctors need and can benefit from a financial advisor, with about 80% of medical professionals likely to benefit from hiring one (according to data reported by Forbes).
Also, many doctors and other medical professionals often feel as if they are not achieving their personal finance objectives. One study reported by the American College of Physicians found that only 10% of internal medicine physicians believe they are ahead of schedule when it comes to planning for retirement, including just 14% of those who are considered advanced career professionals.
Professional financial guidance continues to become increasingly beneficial and necessary for physicians. Consider some of the reasons why such decisions are so critical.
- Debt: Early state career physicians must tackle their significant medical school debt to build financial wealth. Not doing so could create financial turmoil for years to come. Debt is expensive, even medical school debt with lower interest rates.
- Building a private practice: For doctors who hope to have their own practice, it is critical to start building financial well-being and worth early on. Financial advisors can structure plans to achieve these goals early on in life, making them a reality sooner.
- Early retirement: Many physicians want to practice for a period of time but also expect to retire early. They must have financial goals and strategies in place to achieve those goals.
- Insurance is a costly oversight if not in place: Many physicians face financial risks if they do not have the right type and level of insurance products in place to protect them. That could put your personal assets at risk should you face a lawsuit.
- Taxes are costly: As a medical provider’s income grows, so do tax obligations. Without a tax planning and reduction strategy, physicians may end up overpaying on taxes.
Common Financial Mistakes Without an Advisor
More so, many doctors make financial mistakes that could put them behind the goal of building wealth. Some of the most common mistakes include:
- Underestimating retirement needs
- Filing to optimize their tax strategy, meaning they overpay in taxes
- Facing lawsuits that put personal assets at risk due to a lack of insurance products
- Having to work longer because of failed investment strategies
- Buying into private practice without a financial safety net
- Delaying retirement savings too long, missing out on core opportunities for employer match or tax-advantaged accounts that reduce costs
- Poor debt management, which can ultimately lead to poor investments, high credit card debt, high mortgage debt, and other costly losses
Financial advisors help reduce these risks. They can help you create financial goals, oversee those goals over time, and make changes as needed. Even as your life continues to change, your financial advisor ensures you are always on the best path to achieving your personal finance goals.
If you are ready to find an advisor, Invested Better can help. Use our free advisor match tool now to match with a financial advisor with experience.
What to Look for in a Financial Advisor for Doctors?
For doctors, the first step in gaining control over personal finance goals is to find the right financial advisor for their unique needs. As you compare the professionals available to you, take the time to carefully consider how each of the following areas impacts the way you want to build your wealth.
- Fiduciaries: Work with a financial advisor who is a fiduciary. That means the recommendations and decisions they make are in their client’s best interest. They are not making decisions for their own benefit.
- Proven experience and track history working with doctors: Choose a financial planner or advisor with specific skills and experience working with physicians. They already know the limitations and concerns you have.
- The advisor’s credentials: Review the financial advisor’s education, licensing, and credentials. Determine what makes them qualified to provide you with personal finance guidance and support.
- Types of financial advice offered: You need a professional who will provide financial advice based on your investment goals and philosophy. Carefully evaluate their beliefs about building wealth, minimizing taxes, and paying off student loan debt.
- Review the financial advisor: Learn as much as you can about this professional, including how their clients interact with them and whether they would recommend working with them on an ongoing basis. Look at the financial advisor’s track record.
A financial advisor must understand the complexities of managing fluctuating income, tax-efficient investment strategies, and wealth-building goals that apply to physician needs. Carefully discuss why the financial advisor believes they would be the ideal professional to work with you.
Key Financial Areas Doctors Should Focus On in a Financial Advisor
A financial advisor provides guidance. Yet, you have to have some insight into what you want that advisor to do for you. Many financial advisors with experience working with doctors can offer clear guidance and insight on most of the areas that doctors must carefully consider over their careers.
As a medical professional, be sure to focus on a financial advisor capable of clarifying the areas most important to you at the current stage of life and career building you are in. Some of the most important areas to focus on include the following:
1. Student Loan Management
Financial advisors can help you to:
- Pay off medical school debt
- Reduce what you owe in medical school debt by applying for available incentives and funding reimbursement opportunities
- Use your medical debt to reduce your tax obligations in the future
Financial debt hurts your personal financial goals. Even a low-interest rate student loan can mean thousands of dollars in extra costs the longer you maintain that loan. Let a financial advisor help you find solutions to reduce your costs immediately.
2. Tax-Efficient Investing
Tax planning is a core service financial planners and advisors offer doctors. Tax planning is a multi-component process that aims to:
- Reduce the amount of taxes you pay each year
- Utilizing charitable donations and tax-loss harvesting strategies to lower tax obligations
- Mitigate taxation that is passed down to your heirs as you get older
- Minimize the risk of capital gains taxes
- Build an investment portfolio that is not as heavily taxed but still achieves your financial goals
3. Disability Insurance and Life Insurance
Work with your financial advisor to implement insurance products that protect your investments and minimize risks to your personal finance goals. This includes:
- Disability insurance: A sudden injury or illness can end your career or require significant time off. Disability insurance helps you to maintain your quality of life and personal financial goals if you cannot work.
- Life insurance: Life insurance products enable you to plan for your family’s future. Depending on the type selected, you may be able to increase your retirement income or create low-interest borrowing opportunities during your lifetime.
- Malpractice insurance: Critical to all medical professionals, the right type and level of professional insurance minimizes your financial risks.
4. Retirement Planning
Another of the ways a financial advisor can guide you is in creating a strong retirement planning strategy. This strategy must address your specific goals and needs. Financial advisors for physicians may offer support for solutions such as:
- 401(k) programs: Both solo and employer-based retirement accounts provide amplified tax benefits to enable more aggressive savings in the future.
- IRAs: These retirement planning tools help doctors maximize tax breaks and compound interest over time.
Discuss specific strategies with your financial advisors for physicians that amplify your ability to save at the highest rate possible while keeping your costs in line with your objectives.
How to Vet Financial Advisors for Doctors
Knowing what you need from a financial advisor is a good starting point. It allows you to carefully consider the options in a financial planner that can meet your goals. Yet, you also need to evaluate how well this particular financial advisor works and if they can be the best provider for you.
There are several key factors to consider in order to do that. After making a list of the financial advisors that you want to work with, consider these areas to vet them.
Professional Certifications
Depending on the type of financial advising offered, your financial advisor may have specific professional certifications. A few of the most important to consider include:
- Investment financial advisors: These professionals typically have the ability to provide advice on investment decisions, and these financial advisors manage client assets directly for you.
- Certified financial planner: A CFP has ample training, has passed a certification exam, and is required to maintain high ethical practices. They aid in all aspects of personal finance, including paying down debt, building retirement savings, and providing investment guidance.
- Wealth advisors: For those with a lucrative income, a wealth advisor can help you continue building that wealth over time through full, hands-on services.
Experience with Physician Clients
Seek out a financial advisor with specific experience working with doctors and medical professionals. You want to choose someone with your best interests at heart because they understand your work.
Fee Structures
Learn as much as you can about how the fees are paid. A flat fee service and fee only advisor are two common options. However, you need to fully understand the fee structure before moving forward.
Read Client Testimonials
Choose a financial planner or financial advisor with a strong client review history. Loko for a person that others would recommend.
Seek Out the Guidance of a Trusted Financial Advisor
Choosing a financial planner or advisor requires careful consideration of your goals and the type of services you need. Choose a financial advisor who can offer you the benefits you need, including long-term wealth management, tax optimization, and retirement planning.
To find out what your options are in qualified financial advisors, use Invested Better. Use our tool to find a financial advisor that fits your objectives now. With guidance, you can find a financial advisor that can help you build the wealth you deserve.
