Do You Have the Right Financial Adviser?

If you pay a financial professional to handle wealth management for you, are you getting the right services for the fee? This is an important question, yet many dermatologists do not feel comfortable answering it because they do not have context. They do not know what other firms provide—only what their professional provides—so they cannot evaluate whether their service mix measures up.

OJM Group’s book Wealth Management Made Simple addresses this topic in detail. It maps out the different types of financial advisers in the marketplace, what their business model looks like, how they make money, and what types of conflict exist. While these are all critical factors in finding the right adviser, this article focuses on services provided.

Here is a checklist of 5 key factors to consider when talking to financial advisers.

#1: TO MATCH RISK TOLERANCE

Most dermatologists have given their advisers an idea of their risk tolerance—at least at the outset of working together. Age and a shortening retirement horizon, as well as changes to career and family, can dramatically affect an investor’s risk tolerance. Does your adviser periodically calculate the risk score of your current portfolio and compare it with your personal risk score? Nothing can take all the risk out of investing, but a thorough adviser will stress test a portfolio in a variety of market scenarios and optimize asset allocation to match risk tolerance, even if it has changed over time.

QUESTIONS TO ASK AN ADVISER:

1. How often will we review my (and my spouse’s) risk tolerance and compare it with our portfolio?
2. How do you handle recurring rebalancing so that the investments don’t “drift” away from an agreed-on risk profile?

#2: TAX-SAVVY ASSET MANAGEMENT

Many busy dermatologists focus primarily on portfolio performance while overlooking the impact of taxes on their investment returns. The cost of federal and state income and capital gains taxes on a portfolio depends on many factors: the structure in which the investments are held, the investor's other income, and state of residence.

Recent US stock market performance has exacerbated this impact for physicians in the top tax bracket, and new tax proposals may make this issue even more critical in the near future. A tax-savvy adviser understands the effects of current tax law on a portfolio’s assets and works to maximize the net after-tax return. The adviser should implement tax harvesting strategies where applicable, coordinate the tax consequences of rebalancing, and allocate investments to optimize the tax diversification of a portfolio.

QUESTIONS TO ASK AN ADVISER:

1. What is your process for determining how to match investments with the tax treatment of their accounts (ie, what goes into a tax-deferred account like an individual retirement account vs personal accounts)?
2. How often do you review my portfolio for possible tax loss/gain harvesting?

#3: ACCESS TO PRIVATE INVESTMENT OPPORTUNITIES

To offset the risk associated with market volatility, most advisers will recommend a portfolio that is diversified across a variety of asset classes. Traditional bonds often are used as a risk mitigation strategy for many investors; however, many dermatologists may turn to their advisers in search of investment alternatives with returns that do not correlate with stocks or bonds. An adviser who is well versed in alternative investments can offer investors a broad menu of options, including real estate investment trusts, commodities, managed futures, private debt, and private equity, and review the risk and fees associated with each option. Some advisers can also provide access to vetted private nontraded alternatives to help investors maximize returns while reducing overall portfolio risk.

#4: REGULAR REPORTS TO CLARIFY HOW A PORTFOLIO IS DOING

If reports from an investment adviser do not paint a clear picture of a portfolio’s performance, then it becomes difficult to work with that adviser to make decisions regarding your financial future. Reports should track net contributions and withdrawals, present a customized portfolio summary, and transparently show the portfolio’s performance, net of all fees.

#5: TOTAL WEALTH MANAGEMENT, NOT SIMPLY INVESTMENTS

Does your adviser’s firm work only with investments, or is your adviser backed by a solid wealth management team? A multidisciplinary wealth management firm includes specialists in areas of expertise affecting clients’ overall financial well-being. For example, attorneys can analyze each asset and make recommendations to improve protection and reduce the asset’s level of exposure to lawsuits and other risks. CPAs can review tax returns and suggest ways to reduce or defer tax liability, and insurance experts can review existing policies and present options that could reduce premiums and/or improve coverage. An adviser who can offer these areas of expertise within their firm is well equipped to become your financial quarterback and a resource for questions concerning any financial matter.

QUESTIONS TO ASK AN ADVISER:

1. Does your firm provide other planning areas, like asset protection, tax review, insurances, and financial planning?
2. How are we charged for these services?

CONCLUSION

Multiple surveys show that the No. 1 financial goal of physicians of all specialties, including dermatologists, is to achieve a comfortable retirement on their own terms. To reach that goal and others, many dermatologists engage a financial adviser at some point. A crucial part of choosing—and deciding to remain with—a financial adviser or firm involves feeling comfortable with all the services provided.

Disclosures:

OJM Group, LLC (OJM), is a US Securities and Exchange Commission (SEC)–registered investment adviser with its principal place of practice in the state of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact practice in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec. gov). For additional information about OJM, including fees and services, send for a disclosure brochure as set forth on Form ADV using the contact information on the website. Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice or as a recommendation of any particular security or strategy. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently; accordingly, the information presented here is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed here.