In this article, we address why we believe the decision of a dentist hiring an advisor should not be based solely on fees. While fees are a major factor in selecting an advisor, the quantity and quality of the services provided varies greatly from advisor to advisor.

When dentists interview potential advisors, they should look for the advisor who gives the best advice and is the best fit for them, their family and practice. The best advisors begin earning their fee from the day they are hired by helping the doctor effectively address issues such as:

• Determining proper debt reduction and savings strategies (increasing net worth)
• Maximizing tax deductible retirement savings
• Maximizing tax savings
• Funding children s / grandchildren s education expenses
• Maximizing asset protection and proper estate planning
• Improving practice profitability
• Creating automatic savings programs
• Working with the doctors staff to ensure an efficient retirement plan for the practice
• Leading or participating in staff meetings to enhance further understanding of benefits
• Working in concert with other professionals on the doctor s team, CPA, attorney, consultant...etc.
• Determining, executing and maintaining a portfolio tailored to the doctors needs that fits their ability, willingness and need to take risk
• Rebalancing when the portfolio has moved outside of its tolerance ranges
• Offering separate account management for fixed income portfolios whenever the size of the portfolio allows for this
• Providing risk management expertise and evaluating appropriate insurance coverage
• Integrating your investment plan with your estate plan
• Providing Roth conversion strategies and Social Security claiming strategies
• Offering advice on mortgage refinancing and real estate analysis

These are issues we address with every single doctor who becomes a client.

In determining a doctors need to take risk, we will typically run retirement projections. This can be a particularly eye opening experience if the doctor s portfolio is much more aggressive than needed.

Investment advice is not a commodity. There is no free lunch. Hiring an investment advisor is an important decision, and all factors should be considered. We believe that high quality and high levels of service are typically accompanied by a fairprice.

Examples of Bad Advice or Service

• Incorrect asset location Academic evidence has shown that investors should locate their tax inefficient assets in tax advantaged accounts. Many low cost/low service providers use the same allocation for all accounts, regardless of whether they are taxable or tax advantaged. This model structure is much easier for advisors to set up and maintain, but it costs you in taxes. Tax-loss harvesting Many low cost/low service advisors will do tax loss harvesting infrequently, if at all. Again, this makes portfolio management easier for the advisors but can cause you to pay more in taxes.
• Using too many funds Advisors who slice asset classes too fine or use too many funds increase the costs of rebalancing. These costs do not show up in performance related marketing materials based on model portfolios, but they should not be ignored.
• Infrequent rebalancing Low cost/low service advisors will often only check for rebalancing opportunities once per quarter, if even then. We use sensible tolerance ranges to determine when to bring the portfolio back to its intended risk/return profile.

There are 650,000 registered advisors in the U.S. 85% are sales representatives who are paid commissions to sell investment and insurance products. In otherwords, they are not paid to help clients achieve their goals. Bad advice is a bigger financial risk than the volatility of the stock market because it impacts all of the doctor s financial decisions.

Why is bad advice so hard to avoid?

• Dentists and physicians are a constant target for sales people
• Ethics and competence are hard to measure
• Low quality advisors far outnumber good advisors
• Bad advisors use personalities and sales skills to appear to be good advisors

The Value of Good Advice
When selecting an advisor, fees are an important consideration. However, doctors should also consider the services offered for those fees. Dentists should select an advisor that is a Registered Investment Advisor (RIA) or Investment Advisor Representative. These advisors are fiduciaries and have a legal obligation to act in the doctor s best interest. Doctors should work with an advisor that is compensated based on fees paid by them versus commissions paid by an investment or insurance company. The advisor should work for the doctor, not for a company. High quality, independent advisors don t have employers telling them what to sell and have fewer conflicts of interest.

Making the Decision
When hiring an advisor, we strongly advise meeting the advisor in person. This is the best way for a dentist to determine whether they can truly trust this person with their financial future. Many times, low cost/low service providers will only communicate via telephone and e mail. Further, these advisors likely have 500 to 1,000 customers, making it nearly impossible for the advisor to have any type of personal relationship. Merit Wealth Management does not want hundreds of clients. Our goal is to serve a select group of high performing dentists andspecialists exceedingly well.

The key to making the decision is for the doctor to find an advisor who they believe will give them the best advice and is the best fit for their family and practice. When making this decision, the doctor needs to be sure to consider not only the feesadvisors will charge but the services they will provide. While good advice doesn t have to be expensive, bad advice almost always cost doctors dearly.

Copyright © 2010, Merit Wealth Management, LLC. This material and any opinions contained are derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. Information regarding references to third-party sites: Referenced third-party sites are not under our control, and we are not responsible for the contents of any linked site or any link contained in a linked site, or any changes or updates to such sites. Any link provided to you is only as a convenience, and the inclusion of any link does not imply our endorsement of the site.