When is it Time to Hire a Financial Advisor? – Episode 58

How do you know when it’s time to hire a financial advisor? For a lot of dentists there’s a trigger that goes off ― a shortage of cash, an investment gone bad, stagnant collections ― and they wonder if it’s time to call for help. But it’s not always clear what’s causing your pain or which professional has the right prescription. In this episode of Dentist Money™, Reese & Ryan explain when it makes sense to hire a financial advisor, and when it makes sense to look elsewhere for solutions.

 

Show Notes:

Click here to read the Character Studies article from DentalTown

Podcast Transcript:

Reese Harper: Welcome, to the Dentist Money Show, where we help dentists make smart financial decisions. I am your host, Reese harper, here with my trusty old co-host, Sir Ryan Isaac.

Ryan Isaac: Good morning, Reese. How are you doing?

Reese Harper: This is a bad morning because I have cat food residue all over my hands.

Ryan Isaac: Care to elaborate?

Reese Harper: Not Really. Did you see that picture I sent you last night? All those little specks all over the floor?

Ryan Isaac: Cat food.

Reese Harper: My little girl got into, I don’t know what happened. I told my son to go feed the cat last night which is already kind of hard for me because I am not a huge cat person. I believe cats should be able to survive in the wild on their own. Find their own food. So the cats got fed last night, and my son left the cat food bag open close to the door. Now the problem with that is, in a normal home that would be fine, but I don’t live in a normal home. I live in a home with a Tasmanian devil, two ninjas, and some kind of Minecraft character that breaks things. This is the life I live. So my daughter took the cat food, lifted it up in the air, and dumped it. The ten lb. bag of cat food, ok at least 5 lb., a very large bag, and she just walked it all around the carpet and just dumped it all around and left it as a surprise for me. Which is a perfect lead into our podcast.

Ryan Isaac: I think it’s great actually.

Reese Harper: About…financial planning.

Ryan Isaac: I think it is perfect because would you hire a financial planner to fix your cat food problem?

Reese Harper: Is that a good reason to hire a financial planner today?

Ryan Isaac: Of course, not.

Reese Harper: Trick question. Sometimes I feel like clients hire us to handle their cat food problems. Sometimes I feel like that’s the case.

Ryan Isaac: Let’s roll with that. I like the analogy.

Reese Harper: Tell everyone what we are going to cover today and how it came about.

Ryan Isaac: Today we are going to talk about reasons why you should or should not hire a financial advisor. We will cover three great reasons that are pretty common to hire a financial advisor. Then we will cover three less obvious, but good reasons to hire a financial advisor. Then we will cover three, let’s call them, incorrect reasons to hire a financial advisor.

Reese Harper: This is very helpful for anyone who either has an advisor currently, or does not have one. There is a relationship that you can establish with a financial advisor that will help your life and help your finances move forward in the right direction. There are also expectations that you might have or a relationship where you are being provided service in a way that isn’t going to actually help you. It will create problems for you. Let’s start out with some of these with no further adieu. I will let you take it over, Ryan, because the cat food part, my part has been cut short. I wanted to go off on the cat food for a long time, but the producers cut me.

Ryan Isaac: Spoiler alert, that is one of the number three reasons at the end.
I will read off a few reasons and then you can help us elaborate on that a little bit. We are going to start with three common, good reasons, to hire a financial advisor. Number one would be someone who is thinking to themselves, “I need someone to help me answer financial questions or make financial decisions.”

Reese Harper: Ya, these first three that we go through are kind of the ones that most people intuitively think about. The first one that you said is, “I need someone to help me make decisions with my finances. I need to get some information and know what to do.” This is important. I think to help people make wise decisions by having someone who can have the full context of their overall situation, looking at their balance sheet, net worth, income, tax situation, debt situation, all of these things allows a financial advisor to make better financial decisions than you probably could on your own. On your own it can sometimes be difficult to take everything into consideration and think big picture. What do you have to add?

Ryan Isaac: This is probably the most common because these decisions or these questions are really the triggers for wanting to hire someone in the first place. Not just a financial advisor but the same ones that trigger someone to want to hire a practice consultant or marketing expert. When someone is considering buying a building and trying to decide to lease or buy, what kind of financing should I take on this purchase? Others are wondering what to do with their retirement plan, I am getting pitched different products from different product providers and I want someone to tell me not only what to do, but what to do in context of the whole thing. The part I think is the most important is when you have to make a decision, and it is made in isolation, maybe it is the, “how do I purchase my building?” decision and the only input coming in is from the people selling the real estate or the lender offering financing. You still want to know how that affects my saving rate and spending rate and what does that do to my taxes or will that change the way that my retirement looks? If I take a whole bunch of cash and put in into a different type of asset then that shifts the way that you are going to be able to withdraw and live on your money and assets later in life. So yes, it does affect your whole picture. I think that is why it is such a common time to consider hiring a financial advisor.

Reese Harper: One thing to add to this point about someone help you with financial questions is that it allows you to get a second opinion. That is really important because it is the only opinion that may not be coming from a product provider or an insensitive or conflict of interest. It doesn’t mean this is a bad person, but if I am selling you real estate or a loan, I may not give you the best advice about whether the particular location, building, or financing is the right way. I might not know enough about your situation to give you the context of maybe now is not the right time to buy property, or you don’t need to own a building, or you shouldn’t put your loan on a seven year term, or you shouldn’t put your financing at the lowest interest rate. You need to structure your financing this way and pay down the debt this way. You can’t get the most objective opinion from someone who is telling you here is the way to structure things. They are getting paid to do a transaction. That happens with insurance, investments, sales on real estate, practice acquisitions, employment, hiring and firing people.There are a lot of conflicts of interest that can happen from people who are giving you opinions. It is good to have an unbiased second opinion from someone who is getting paid for their time and knowledge not because they are selling you something. That is an important contextual issue. Anything else to add to this section? There is maybe one or two other things to bring up.

Ryan Isaac: One that goes along with these other ones is the fear of making a big mistake. People have gone through these situations and we have seen plenty of them where a lot of good progress can be completely wiped out by one single mistake. A lot of good decisions can be reversed by one bad one. I think these big decisions that come up frequently and the questions that are associated with the decisions, they kind of create this fear of making mistakes and wanting to do it right the first time. Which I think is totally appropriate.

Reese Harper: Ok, so that finishes number one, let’s move on to number two. Number one is that you hire them to help you make decisions with your finances. The second one is that you want to hire someone to put a retirement plan together. That is an appropriate reason for hiring an advisor, correct?

Ryan Isaac: Ya, definitely. This is likely the person that is in the first five years of practicing that is just wondering, “how much should I set aside and in what types of accounts and retirement plans?”. What should I do with my money? Should I give it all to debt reduction, should I save it for my kids and myself, put it back into the business, buy real estate with it, put it into a 401 k or something? It could be that person or someone towards the end of their career thinking, “now what? How do I pull money out of this old life insurance policy? Should I sell this building or lease it back to the new guy buying this place?”.

Reese Harper: Ya, I think lot of people at the end of their career are struggling with withdrawal rates and wondering which accounts should I pull money from and at what percentage? Should I start saving money into any type of account that I haven’t been saving up until this point? It is difficult to figure out how to combine all of your different accounts into a really diversified plan. Not only of investments that you own, but the way that your withdraw money. The timing of withdrawing it. When do I take money out of my 401 k or my profit benefit plan? When do I take money out of my emergency fund or taxable account? Should the market affect what account I withdraw money from? That is a really hard thing to do on your own. That is an objectively good reason to hire an advisor. Even if this person is a hobbyist and enjoys investing, that part of financial planning is really easy to make mistakes on. Even if you have avoided the cost of hiring an advisor your whole career, you can wipe out the benefit of that in like one year of poor tax planning in retirement or poor investing planning in retirement during withdrawal phase.

Ryan Isaac: That is the question that people are having near retirement phase and I think that is a really fair question that people have super early on. I love hearing when people in the beginning of the career are asking those questions about, “how do I know when I can retire?”. Really early on, that is when it really helps to start tracking progress, so you actually know when that time is coming. Anything to add?

Reese Harper: No, let’s go to item number three.

Ryan Isaac: Item number three on our list of good, common reasons to hire a financial advisor is somebody that says, “I need someone to help me invest my money properly.”

Reese Harper: Ya, this is not which accounts and everything to put it in, that’s a different issue. Well, I guess it’s not. Let’s talk about types of accounts and things to put in them. I think a lot of people could do a decent job, we had an episode a while back where we talked about people picking a low cost investment, like a low cost index or ETF solution and they buy those funds and feel comfortable doing it. What we have found is that it is not really something that people do well on their own when they try to do it. Then there are a lot of people who just don’t feel comfortable even tackling it because it is an intimidating process, and for good reason. Having too much confidence in your ability to pick your own investments just doesn’t show a lot of wisdom in my opinion. It is not an easy thing and just picking a fund and keeping it for twenty five years is not necessarily the right approach either.
I think it is really good to get someone to help determine the type of fund to pick and the percentage of money to put into each fund. Whether you are using ETF’s or mutual funds, which assets category should have which type of fund. So we may have mutual funds, indexes, different types of indexes where the indexes re-balance at a different rate or they emphasize different characteristics of companies or bonds. They have different fee structures and the performance is so different fund to fund, based on the objectives that the fund has, and how well they follow those objectives. It is just not an easy thing to pick the right mutual funds at the right exchange traded funds.
The harder thing is to determine how much to put into each fund and whether that should ever change. Let’s say in 1980 you were to build a mutual fund portfolio that was going to last you. Now you are a thirty year old and you are going to build a mutual fund portfolio that will last you until you are age sixty five, which was you know, last year. You went from 1980-2015. If you would have built a mutual fund portfolio in 1980, the percentages that you should have used at that point, if you would have kept them the same and never changed them, saying I will give the U.S. a certain amount, real estate a certain amount etc. If you would have just kept that the same, you wouldn’t have had as good of returns as you would if you had continued to acknowledge and add things to your portfolio that started to come into existence. For example, the creation of Brazil as a capital market or seeing certain emerging countries actually start to create public exchanges where they could have public companies. A lot of emerging countries started to develop and grow to where they are becoming almost 16%-17% of the world’s equity market. Back in 1980, that was not the case. It was a small single digit, low percentage of the world. My point is that there isn’t a static amount of money that you can just put into a fund and then just sit it there for 30 years. If you don’t make adjustments to the percentages and weights that you have in your portfolio, you can become very un-diversified. If that is even a word? I don’t know how to say the opposite of diversified.

Ryan Isaac: No that’s fair, it is now. Let it be on the record: un-diversified.

Reese Harper: I think that’s the reality of picking your own mutual funds. It is an annual process at a minimum and reviewing their performance, understanding the percentages that should go into each funding, determine if those funds that you have selected are following the goals and the performance objectives that you had for them in the first place. It is important to consult people with that even if it is not an ongoing process, just make sure that someone gives you counsel and guidance on a regular basis.

Ryan Isaac: Ya, I think the same argument could be made for the types of accounts that you hold. We did a podcast a few weeks ago about how to select the most appropriate retirement plan for your situation and we had the emphasis on tax qualified retirement plans, but the same could be said for the types of accounts. Maybe as a student the Roth IRA was the most appropriate type of account to hold. It doesn’t mean that you should do it for the next decade. Maybe the 401 k that you first put in the office was a good idea, but that doesn’t mean that it is a good idea heading into the last ten years of your career. It might not mean that. Same argument could be said about the set it and forget it mentality about the types of accounts as well.

Reese Harper: Right, and to touch a little bit about what we talked about a few weeks ago, the episode was called, “everything you need to know about retirement plans.” If anyone would like they can go listen to that. You know when you set up your first retirement plan it is not likely that the way that you set that up will be the way that it should be throughout your entire career. How many times in the last month have we had to go back and change someone’s retirement plan that was a perfectly suitable recommendation four years ago, but as their income has risen and as their profitability has increased, and as their staff composition has changed, it is now no longer the right formula for their retirement plan. It changes! I can think of like five to ten percent of our clientele that in the last year I have had to adjust their retirement plan and make adjustments to the matching formula or the contribution limits or the testing. When you just set up a qualified retirement plan that isn’t something that you can just keep for thirty years and never change it without losing money and losing opportunity cost and taxes that you could have deferred.

Ryan Isaac: Ya, think about why is that? Think about all of the moving pieces in somebody’s situation that make one plan more appropriate than the other or type of account or investment. You know there is age, collection, net income, tax rate, debt rate…

Reese Harper: Staff ages, staff composition…

Ryan Isaac: Goals, purchases coming up in your life…

Reese Harper: Interest rates on their debts, new debts, old debts, debts being retired, cash flow…

Ryan Isaac: A lot of moving pieces like a very intricate clock.

Reese Harper: What kind of clock are you talking about. I have been thinking about getting me a watch these days.

Ryan Isaac: Like a handmade Bulgarian watch.

Reese Harper: Target is going to start carrying some of those.

Ryan Isaac: Ok, I think that covers “I need someone to help me invest my money appropriately.”
Let’s move on to three less obvious reasons to hit a financial advisor, but still good ones. Less obvious, but very goodies.

Reese Harper: I think these are the ones that are more important, or at least equally as important, but they are less obvious to people.

Ryan Isaac: Ok.

Reese Harper: I want you to hit the first one because you are most passionate about it.

Yes, this one makes me yell, but I won’t because I’m happy today. I don’t have cat food all over my carpet, so I am in a fine mood. The first one is to have another set of eyes on your personality type and your natural tendencies and behaviors with finances to keep you from quitting or changing a good plan. I say this all the time when I talk to dentists for the first time that are calling us and wanting to know how we can help. I don’t think that anybody ever hires a financial advisor because they say, “you know what, I am human, and I don’t think I am going to stick to this thing. I think I am going to make some behavioral mistakes over the years.” We all view ourselves as the exception. I personally think, and a lot of data shows this, that the reason a financial advisor might have the most value, or maybe one of the most important reasons a financial advisor adds value, is to keep someone from self destructing over a long period of time. Sticking to a good plan for thirty years or more of your life is probably the hardest part out of all of the planning, I would say.

Reese Harper: Ya, no I think that is essential. I think that it is something that is definitely underestimated and it is something that people don’t go out thinking, “I am going to hire someone to help me call into question some of the decisions that I am going to make throughout my life.” We had a podcast about this awhile ago, I don’t remember the episode number, maybe you can look it up for us while I’m rambling through this. There are personality profile types we call archetypes. I wrote an article for Dental Town magazine, probably three or four months ago, called “Character Studies.” In that article, I walked through the types of personalities that we often bump into and the type of decisions that they make. We call them family stewards, independents, anonymous people, gamblers, innovators, VIP, moguls, and accumulators. All of these personality types have tendencies. For example, the family stewards tendency is to focus a lot on his family. The kids, grandkids, and people around him that depend on him or her for their livelihood. They tend to make a lot of sacrifices that can put their own finances at risk because they stretch themselves so thin for the people that they love. Now, that is an admirable thing on one hand. Who wouldn’t want to be that persons child or grandchild?

Ryan Isaac: I do, adopt me!

Reese Harper: Ya, you need that. You need a little bit of support.
But that person tends to put their own finances in jeopardy quite often. They make decisions that are not in their best interest and in reality, rather than being able to support family and grandkids in the latter part of their life, they stretch themselves thin right up to retirement and force themselves too late. They gave too much, too early, to too many people. They put too many kids through private school, or whatever it was. That is a real issue and it is something that I can list fifteen examples of these behavioral characteristics that affect people and you will hear yourself in one or two of them. You will think that could be me, I could be a little bit of this or that. Your financial advisor, if they don’t do any kind of profiling, if they don’t understand your personality well enough to call you out when you are making decisions that aren’t in your best interest, than they aren’t really an advisor. They aren’t really helping you because this behavioral stuff is what will stop you from sticking to a good plan. This behavioral stuff will stop you from changing your plan at precisely times that you shouldn’t. Like you said Ryan, one of the most important things about a service provider, or hiring someone to do something, is that they are going to be on a schedule and they are going to kind of execute something that you wouldn’t do on your own. They will hold you and your personality a little bit distant from the implementation of the plan. The plan is going to happen and you will have the check and balance to pull the plug.

Ryan Isaac: Ya, let me jump in really fast there, you asked which episode we covered that. The article is really concise and you can download that, it is called, “Character Studies”, written for Dental Town. There is also the podcast we did last year it is episode #19, called, “will your personality cost you your retirement?”. Spoiler alert, yes it it will.

Reese Harper: Spoiler alert! I think that it’s human behavior. We tend to want to change things over time, that is just the nature, especially with financial planning. I wouldn’t say that it is the nature of everyone to do that every era of their life, people are most often creatures of habit, but when it comes to finances people tend to change their mind on things quite often. I think that the perception or feeling that individuals have is that markets change and economic cycles change. Especially as markets go up and down, they feel like they must have something wrong because of how their plan is panning out. There is always a friend or family member that seems to have a better plan at the time when yours doesn’t appear as good as theirs does.

Ryan Isaac: Well, and the interesting flip side to that, Reese. Like you said, is that fear and greed during different market or economic cycles drive a lot of interest in behaviors, but on the other side of that we see people who are doing very well. They know they are doing very well. They are set to have a better retirement than they thought they ever would, but boredom can set in sometimes. I mean we have seen decisions been made that seem to be kind of just out of boredom. It is like everything is going too well, or it is too easy right now, so let’s complicate things a little bit.

Reese Harper: Yes, it is funny how that is the case. You can say boredom is part of it or impatience. Some people have a tendency to just want to always have something new happening, something shiny in their life and that translates over to their finances where there has got to be something better, faster, stronger. That is just something to be aware of. There is an interesting Vanguard study that you and I reference a fair amount. It is called Advisor’s Alpha. They are the originator of the low cost, good behavior index. It is interesting if you read John Vogel’s original books, if any of you are Vogel heads that listen to this or that know John Vogel, he is the founder of Vanguard. He wrote a lot in his early years about how people just need to avoid hiring professionals. He just recommended buying an index and doing it yourself. That was the approach he was espousing in the early years of his philosophy. I think anyone who takes a serious look at the financial services industry would probably come up with a similar conclusion. I mean most advisors are not worth what they are getting paid. They just aren’t, they aren’t adding value. In most cases, according to John Vogel, they are injecting harm into people’s portfolios and financial lives. They are not do no harm, they are inject harm quickly.

Ryan Isaac: Do harm quickly.

Reese Harper: They are super dangerous. I hope that we are not those kind of people. We have really tried to be aware that there is good advice and bad advice. It is one of the reasons we have picked a niche market. I can go to bed at night knowing that we add far more value than we get paid for and to me that is a definition of a good service. If the sum product of a good service can produce more benefit to the client through time saving, increased returns, tax planning, etc. then it’s worthwhile. The Vanguard study ,the reason I like it, the guy John Vogel who was almost anti financial advisor really early on in his career, totally has come around full circle and his firm has become a huge advocate of financial advisors as time has passed. They have seen how it is not just about cost reduction, good retirement planning, and achieving good returns. It is not about cutting the fees completely out of managing a portfolio or getting rid of a financial advisor. What the study found was that clients who worked with a good financial advisor on average would see a 3% increase in the value of their portfolios each year. That was kind of the conclusion, of course this may not always be annually. This isn’t an annual 3% linear thing.

Ryan Isaac: Automatic 3%!

Reese Harper: Ya, no. They were looking at ten, fifteen, twenty year periods of time. That people that worked with a financial advisor would have roughly a 3% increase in the value of their portfolios each year beyond what they would have if they were working with someone. That is what they call Advisor’s Alpha. It computes in collecting somewhere between 2%-3% per year for most people that they were getting a benefit from hiring someone. I think that regardless of whether those numbers are perfectly accurate, that was the sample that they did in their study. The point is that there is a spread between what someone will do with coaching and with guidance and proper portfolio management and what they will do on their own. If you are hiring the right kind of financial advisor, who has a very reasonable fee structure, then you will be in a better financial situation. You will be in a stronger financial situation. This doesn’t count the cost of someone’s time that they could go and re invest and re direct towards more productivity you are just hiring a financial advisor can optimize your returns and you can then save all of that time that you would have spent tinkering and messing around with your portfolio. This is something that we believe and it is why our firm exists. It is why we function and have people call us every day and want to hire us. I do believe that there is a difference between someone who is acting on their own emotional and mental biases about how to manage their money and someone who hires an advisor who has more experience dealing with their personality profile. Anyway…

Ryan Isaac: Ya, I think that is a good tie into, let’s skip the second point, and go to the third point in this section because you just talked about it. It is hiring an advisor to leverage your time. So you just got done saying that offloading some of this stuff onto an expert’s plate who can do it more efficiently, that probably knows more how it runs and works than you, and has more insight into many, many people like you, this can free up time. It is obvious why a dentist wants to free up time! What a dentist can be worth per hour is far greater than what you are going to pay an advisor to help you work on something. So let’s touch on a few of those.

Reese Harper: When you go to dental school you signed up to get a bunch of intellectual capital in your head and a lot of skill that translates to a really high hourly rate. That hourly rate is the way that you can measure your success on a daily, weekly, hourly, and annual basis. I think it is important to get everything off of your plate that does not allow you to optimize that hourly rate. There are very few services, none that I know of, that will cost as much as your time costs. You need to be aware of that and know that if you are working fifteen hundred hours a year or two thousand hours a year and you are collecting a million dollars, your productive capacity in some cases, and you have got to argue that your production supports your hygiene department, you just take your hours, work and divide that by your collections and that kind of tells you what your time is worth as a producer because it is feeding this whole engine. For a lot of people that can be well over $1,000 an hour and in some cases and for some procedures it can be more than that and on an average basis it can succeed $500 an hour for most people. There just aren’t very many services that cost that much! There is no task that costs that much. Any time you find yourself analyzing taxes or investments or looking at administrative procedures in your office or marketing tasks, or tech problems, or trouble shooting things, trouble shooting your operation generally, trying to understand your numbers and there is just so many people out there who can help if you find the right group and the right advisory team. I reference this in a podcast we did a while ago called, “nine people dentists need to know”. That podcast really outlines the people we feel like need to be in your life that can add value. It doesn’t mean that every financial advisor is good or every accountant is good or every practice manager or consultant is great. But the ones who are great, they don’t cost as much as your time does! It is really important for you to help have a good financial advisor help you leverage your time and have other people help you leverage your time in the practice. Focus on that. If I were in a dentist shoes the thing that I would try to do would be to optimize my time, focus on production, and continue to stay focused on my craft and improve my clinical ability to get along with my team and fill my life with people who do everything else and allow me to stay focused. That will retire you faster. That will give you the least amount of anxiety. It will allow you to improve your skills quicker. It is the fastest road to retirement. The other ways are just not as secure. If you want to be an entrepreneur and sell of to a private equity firm that is going to be possible for some people. Most people get lost in that journey. Most people that will not be a successful path for most people who decided to become a dentist. They will get lost in that ambitious journey between being a practitioner and being an entrepreneur. It is inefficient for most people. It is an inefficient journey. I do think there is a better path for most people in just teaching yourself to stay focused, delegate, not get caught up in ancillary details and to bring a financial advisor into your life to handle some of those elements. That is a long explanation for it, but I think it is a really underestimated part of business management.

Ryan Isaac: That is great. Let’s go back to the second point in this section. That would be hiring somebody to keep you on schedule and make routine adjustments that turn into something bigger later on. Small little routine adjustments that have a really large impact later on.

Reese Harper: Let’s let you hit that, man. You are passionate about that.

Ryan Isaac: Ya, it ties in a lot with what you were just talking about. The nature of a dentist’s day and life is very busy. When I talk to the younger side of the market and people that are just getting into practice or maybe just bought a practice in the last few years, they are starting to see how busy running a dental practice can be. You could never be good enough at marketing, you could never have enough marketing skills, you could spend your whole career on just trying to be a better marketer of dental practices, ya know? You could spend 24 hrs a day and the same could be for clinical skills, management skills, just the basics of running a business and teaching and leading people. The same could be said for building better systems in your practice. There is no shortage of places to put your time in a practice is what I’m saying. You will never get to these little things. Like we’ve said before, nothing in a financial plan should be set it and forget it. The types of loans you have and insurance you carry or your tax plan, none of that stuff is do it once and then look at it when you retire thirty years later. To say that you will have enough time to get to all of the things in the practice over an entire career and get to all of these other little things it is just not possible. This does not even include free time or family time or whatever outside the practice life. Somebody to keep you on schedule and make those little things happen. You have got to do it more periodically frequently that one annual meeting where we try to do everything. You just can’t get everything done. We have been really big on doing something little every month. We work on one little thing every month. We track where it is at, we report on our progress there and allows us to see if we are in a good or bad spot. If we are then let’s fix it and we will move on to the next one every month. Do that systematically over a career instead of trying to tackle it all at once.

Reese Harper: Ya, we have been kind of on the cutting edge of that type of financial planning because it is more common for people to sit down and do a big annual plan or quarterly review or something. What is more important is breaking financial planning down into small, small bite size chunks. That way you can analyze it and compare it and make an adjustment. For example, is financial planning getting a census of your staffs ages and incomes every year and determining if you can make adjustments to your qualified plan? Is that financial planning or not? We would say that it is. We would say that every year because your staff demographics change it will allow you to make different contributions into your retirement plan. So should we gather those things once a year and analyze whether we can make more tax qualified deductions to your retirement plan or not? What you have to do is list out all of these things and you say, “if that were done every year, on a schedule, when should it be done? Would that be ideal to do in December?”. No, because if you do that in December you are going to be cramming it to the last minute and you have to make changes to your retirement plan by October. When is the right time to gather that census, maybe June or July? In that period of time? You are going to have to know several months in advance in order to get your payroll adjusted so you are not stressed out last minute making changes. That is one area.
Another one might be life insurance adjustments. Should you carry the same life insurance and death benefit on your spouse throughout your entire career? Or should you have life insurance on yourself that doesn’t change? We all agree that that is something that should be reviewed, but how often? What determines whether it should change? When would there be a reduction in death benefit or what justifies that change and how do you quantify that? Then what time of the year does it make sense to make that change? To do this the right way it is a routine, date based, every financial decision should be tied to a date and it should be tied to a benchmark and it should be tied to the piece of data that you collect.
They are all interrelated and so when your net worth goes up or your liquidity changes then your life insurance need declines. When you save money your life insurance needs decline. Disability insurance is a good example of this. I just saw a client who without us probably would have kept paying on disability insurance for another ten years. It was costing $700 a month or something but because his net worth has increased and we have been working together for ten years we have been pro actively reducing his disability insurance. Seeing how much in premiums this person saved by reducing disability insurance as his net worth increased was like over $100,000. He saved that just by doing the obvious stuff that he wouldn’t have done had we just not even been in the picture. He would have just kept it because the tendency is that you are still working and you need it. Everyone knows you probably could reduce your insurance policy premiums…

Ryan Isaac: I have never seen anyone do it on their own. Never seen it done.

Reese Harper: These are one or two examples of fifty that you have to do to do good financial planning. You just kind of assume that I’ll get to it when I get to it and you feel like you’re getting it, but I’m telling you five years will pass by and you will be like, “oh ya, I was supposed to do that.” That pile of papers in my folder that has been there for three years. It has been three years, not three months! Anyway, I’ll get off my tangent here.

Ryan Isaac: No, I appreciate it. That is not a tangent that was directly correlated to the subject. This section was only supposed to be three long, but I am going to throw a bonus up.

Reese Harper: Bonus question!?

Ryan Isaac: Four good reasons, but not common ones. I would say the fourth one is to say if something were to happen to you who would know about everything in your financial life for your family and your business to pick up the pieces and take care of everything moving forward? We hear that sometimes. It is not that frequent, but it is a big concern. When you are handing things over to the family or the executive of your estate or whoever is taking care of everything. It could be a spouse or children. Who knows just the simple things? Like where the insurances are, or how much is being spent and what is cash flow, and what are we saving, and what is in retirement accounts or what are the debts, or what are things worth? Having some organization just for that scenario merits a fourth bonus point.

Reese Harper: Totally. That is really excellent. We are going to take a quick break before we cover the next three, Ryan. We will come right back after this break and finish up the podcast.

Ryan Isaac: Ok, Reese, can you take a minute and explain who Dentist Advisors is, what is the Dentist Money show, how can people get in touch, and how can we help?

Reese Harper: Well, Ryan, the dentist money show was something we started because we really wanted to make sure as many dentists as possible had as much information as they could to be successful. We use the dentist money show as a way to just share as much unbiased education as we can to help as many as possible. We hope that people reach out and get in touch if they feel like we can help them make good decisions with their own finances. How about you let people know to get in touch with us.

Ryan Isaac: The easiest way is to go to our website, it is www.dentistadvisors.com, and click on the link at the top of the page. It will bring you to our calendar. You can find a day where you have got a few minutes of free time and schedule yourself for a free consultation. We would love to hear from you.

Reese Harper: As always, you will not feel any pressure from any of our advisors, and we hope that you will always leave with a useful takeaway. We pride ourselves in trying to give out as much free advice as we can on this show, and throughout our consultation process. Let’s get back to the show!

Reese Harper: Let’s get into the three reasons why you should NOT hire a financial advisor. You start first.

Ryan Isaac: Ya, I’ll go with number one. To be fair, I don’t think anyone purposely does this, but it happens. One reason you should not hire a financial advisor is just to have somebody else in your life that is kind of a “yes, man.” Someone that you can give orders to or implement stuff that you order them to do. It is not somebody to just, I don’t want to say boss around, no one is mean like that.

Reese Harper: What you are getting to, and I can speak to this a little bit, you shouldn’t hire a financial advisor to just go implement things for you. If your financial advisor is the type of person who is just taking orders without questioning what you are doing, the outcomes of these decisions, it could really lead you to make costly mistakes. Or even unknowingly you might make some illegal ones. We see that a lot. A lot of time people think that they are making good tax planning decisions when in reality it is just illegal. What they are doing is just illegal.

Ryan Isaac: Oh, but it wipes out my tax bill.

Reese Harper: I just saved fifty thousand in taxes, who cares! Well, it is illegal ok!? A good financial advisor isn’t someone who let’s you do illegal things just because you want to or just because you feel like the government is already taking money from you. They are not just someone who takes orders. They have a backbone, they are not yes men or women, they stick up for what they think and they try to defend you. They try to protect you from making poor decisions. The minority of you will be like, “wow there are some mean people out there.” Hopefully most of you can relate to this at some level. We do see it probably in three out of four people that we interact with. They have pretty strong personalities. It tends to be the more successful people have the strongest dictatorship kind of personality. That stops them from making good decisions a lot of times. I say that from having some personal experience dealing with that and realizing the way I want to do things and the way I feel like they should be done as the owner of a business is not always the right way. It is really easy to get caught up in feeling like you are in charge and everyone else should just do what you say, and you have the best ideas. When in reality, not listening to your team and your advisors, not seeking their input can really be costly. You might think that you are headed down the right road when in reality all that you are doing is following your own tendencies to do the same thing over and over and it is limiting your growth. That’s an important one to hit.

Ryan Isaac: Number two! This drives us both crazy. Hiring an advisor because they promise returns on your investments, or they promise to make you a lot of money, or they promise to make you a lot of money through tax avoidance schemes or plans.

Reese Harper: You hit this one. This is one you yelled about on Thursday or Friday or something?

Ryan Isaac: Well, there are a lot of ways you could describe this scenario. Let’s just take it where it is an investment advisor who is promising returns from a portfolio because of his or her abilities to pick the investments or his or her ability to know crashes before they come or you know, see the market cycle before they come. This drives me crazy because that is just a fundamental lack of understanding of how markets work. If you are an investor and you hold a portfolio of stocks and bonds or mutual funds or ETF’s in your 401 k or brokerage account or IRA and you believe somebody that says that they have control over what is going to happen with that then they are taking advantage of you and selling you something. It is not right. It drives me crazy. It makes me mad, it makes me want to yell!

Reese Harper: Ya, an advisor does not have control over it.

Ryan Isaac: It is not the way it works! That’s what I am getting at.

Reese Harper: A good investment plan harnesses the power of the economy, and companies, and governments ability to repay debt, that kind of thing. A good portfolio is a diversified way to harness that power, but the advisor does not control the economy nor the company’s ability to grow, or the government’s ability to pay debt. That is what Ryan is trying to articulate. It is nuanced, but some financial advisors will position themselves as forecasters…

Ryan Isaac: That’s it!

Reese Harper: People who can understand what you can’t see. When in reality that is a way that they can shield you from the real issue. That should not be a value proposition that a financial advisor has. A value proposition that a financial planner has should not be forecasting or predicting the future. When you hear that or see that, we believe that is manipulative. We don’t feel like that is fair. We feel like they are preying on fear and greed and their customers lack of understanding. It will disappoint you every time because at some point during your investment life cycle they will disappoint you if they are forecasting or speculating with your money. They will miss the mark big time and you will be disappointed. When the market goes for a long rally your portfolio will go the opposite direction. Maybe they avoided some downsize once but they didn’t capture any of the upside when the market returned. If they are doing things that are so different from the overall economy they will disappoint you at some point in time and that will cause you to change plans, switch advisors, do something different and the more you change your plan throughout your career and the more you shift and switch things… You got to do it and make a change if things are bad, but you don’t want to change a good thing! We just don’t like people who promise their value proposition of great returns. The returns are going to be there if you have a good diversified portfolio and a low cost approach to investing and you are being patient and rebalancing properly and shifting the percentages of your assets into the right groups of weights the way that they should be. Then the market will create the returns. It is not the advisor. If he is taking credit for that, it is just kind of disingenuous.

Ryan Isaac: My personal experience too Reese, I feel is kind of interesting. That is a really common marketing technique and mentality in our industry as a whole. To be honest I feel like a lot of dentists avoid that pitch about the market returns from investment advisors about, “I control the returns.” We certainly see it. I feel like the more common ones in this category are people selling, usually insurance type products, that promise great returns and complete avoidance of any downside whatsoever. We have covered this before, we have dived into this enough already, but I feel like that is almost a more common one to fall into the sales pitch of a product is the ultimate fix for making tons of money and avoiding 100% of the downside. That is just ludicrous. The other thing that you had mentioned in here was making a lot of money through really complex tax avoidance schemes. We have seen these where it is multiple entities and implementation of insurance products inside of qualified retirement plans, pushing money back and forth between different entities when in reality it is one guy working three days a week in a leased building and a small staff. Yet he has multiple companies and retirement plans and money is shifting everywhere. We have seen that and you know..

Reese Harper: It’s a mess.

Ryan Isaac: Just don’t do it ok?

Reese Harper: Yes, don’t hire an advisor based on excessively great returns or tax avoidance schemes or guarantees on those returns. Not a good value proposition. Third and final reason for not hiring a financial advisor…

Ryan Isaac: This one actually I feel bad when I hear these cases because you want to help so much and there are aspects of it you could help with, but don’t hire a financial advisor to fix a broken dental practice. If you are struggling a lot with managing your people or you have a high turnover rate and you are losing front desk staff twice a year or for some reason new patients come in the practice and then never come back, collections are going down, maybe it is stagnant but profitability is going down, you are taking less and less money out of the practice, this is not something that a financial advisor only will be able to fix for you. Now a financial advisor, a good one, that understands dentists and your whole picture, will certainly be able to give you context and insight into the problem, but there are specific industries and careers and people that do this professionally, full time, for a career, to help you fix that problem. You want to elaborate on that?

Reese Harper: I feel so bad when I hear that, oh crap, wish I could fix it. It is tough. You can imagine as financial advisors we get a lot of questions and you can kind of see the difference between someone who is struggling with getting their income higher and getting stability and someone who just doesn’t know where to put money. I don’t know what to do with all of it. I need another plan and organization. There are different goals that people have. If you are at a point in your career where you are feeling pain and you are not sure what to do with your practice to get to where you’ve got a good healthy cash balance in your practice checking account and an emergency fund and some basic savings going then it is not really time to hire a wealth manager or a financial planner that will help you with retirement planning. You can engage them on limited basis to get pointed in the right direction, maybe. In our case, we talk to people for free about that kind of stuff all day and try to get them in touch with the right people. You have AR experts out there, you’ve got staffing experts, you’ve got front desk training, digital marketing, direct mail programs, you’ve got great digital content creation, you’ve got great coaching, practice management, clinical consulting etc. There are a lot of really, really important areas that you need to invest in and determine which areas you are struggling in the most.
I would also say you should never over invest in fixing the practice, just do it slowly and consistency and in small increments that you can afford. If you can’t afford it, or if something feels too expensive then look at your collections and anything that is more than 10% of what you are collecting, if something is going to cost you more than 10% of what you are collecting that is a pretty crazy expense. If you are collecting a million and five and you are still spending $500,000 a year on practice management consulting and you’ve been at that level for four or five year than you are down with the value of whatever the value proposition was from the consultant. It is not changing your collections and it is not increasing your profitability. We have seen people continue to fund practice fixing programs and practice fixing issues for ten years while that has done nothing but lower their income and keep their collections stagnant so we don’t want to encourage people to get too overzealous with fixing the practice, but it is really not time to do wealth management and financial planning when you don’t even have three months worth of overhead in your practice emergency fund.

Ryan Isaac: I think that is they key: cash flow. That is the big indicator. If there is no money left over than that is kind of the indicator that there is something wrong. There could be something wrong in the business, it could be on the personal side if cash flow is a problem, but if there is none whatsoever than financial planning and investing is only based on cash flow, so that’s the key.

Reese Harper: Alright man, these have been really helpful. We are always willing to talk to you whether you have got a broken business or a booming business. We would love to be a resource to help get you going in the right direction. Never feel like you can’t call. You are never too small, and you are never too little and your practice is never at a point where we wouldn’t be able to point you in the right direction and get you started on something. Don’t ever hesitate to reach out and get in touch. Ryan how would people do that if they need to?

Ryan Isaac: How would they do that?? They would go to our website dentistadvisors.com. There is a link at the top to schedule a free phone call on our website at your convenience any time and see our calendar and what works for you. We also love to hear feedback too. If you go to our website, click on the listen tab at the top, go right to this episode and you can leave some comments. You can leave nice ones or mean ones, or neutral ones.

Reese Harper: Ouch. I am worried about this now. We could get some mean ones coming in.

Ryan Isaac: Reese, Thanks for the intro. about spilling cat food and the right person to hire to clean up that mess. We covered three good common reasons to hire a financial advisor, three good uncommon reasons, and three bad reasons to hire a financial advisor.

Reese Harper: Thanks Ryan, great conversation today. We will look forward to getting in touch next week for another episode!

Ryan Isaac: Another one, thanks Reese.

Reese Harper: Carry on!

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