My Experiences with Financial Advisors

High income professionals generally do well assembling a team to efficiently manage aspects of their life. Many CRNAs hire a professional to do their taxes. Payroll for 1099 income. Some hire assistance establishing an LLC.

Aside from business, we can build a team to save us time. Someone to care for the lawn, clean the house, or wrangle the kids. I'm not the person to say which of these are worth it, but I would like to share my insights on an avenue I see many CRNAs inquiring about -- Financial planners.

 I ask myself, how much time and effort is required to make up for a given service? 

Pay a lawn service $50 to cut the grass instead of you walking back and forth pushing a mower for 2 hours. Basically paying for time. Perhaps a bit of knowledge if landscaping or extensive lawn care is involved. 

It would take years to understand the nuances of plant care, but a quick internet search or inquiry at a reputable plant establishment to know enough to be dangerous. 

I think there is a time and place for financial planners. They are a source of information and guidance. Some CRNAs feel they need a great deal of assistance, but what's the tradeoff? Cost. Certified financial planners (CFPs) are expensive. If you have less than $1M in assets under management with them, they are quite expensive. 

Humble Beginnings

I first purchased equities in high school. I had $2,000 to invest. Half of that may have been from my parents, but nevertheless. With guidance from my parents, I approached one of the big CFP firms and told them my goals of growing the account. 

There was a father/son duo managing this small branch. They were both conservative and attracted similar clients. Dad was a knowledgeable salesman and son was the nerdy brainiac type who loved numbers – Good guy to have in your corner.

They did a great job explaining investment options to a lay highschooler. I settled on a mutual fund comprised of large value companies. I was afraid to lose the money and a basket of blue chip stocks met my criteria. 

The fund was front loaded meaning a hefty fee is taken out during the initial investment. The tradeoff is the maintenance fee is lower. 

Anyway, it was expensive and underperformed the market because of 1. The front load. And 2. The fees. 

Years later, I liquidated the account barely having more than the $2,000 initial investment. Pretty disappointing. 

Round 2 

My next experience with a financial planner was during anesthesia school. I paid for most of didactic at this time. The first 4 semesters (9 total) made up 66% of the total tuition bill. I ran the numbers on how much I expected to spend the next 2 years on tuition and living expenses to determine if I had any left over. 

Turns out I would graduate with $40-50k to my name. For the first time, I had significant money to put to work. Significant being relative.  

I had a bit more investing insight at this point as I had read a couple books. The market was experiencing a significant pullback during 2020 and I didn't expect this to last forever. I expected something similar to 2008. And if I could leave the money sit for a couple years, it would be well worth it. Low-cost index funds were looking bulletproof. 

This CFP, let's call him Edward, was knowledgeable. We started with an intro visit where I told him I was in school and had that cost was accounted for. I filled him in on the future wedding and what I expected to make and live off as a CRNA to paint the full picture. 

He was open with his personal investments, which was beneficial because we were both looking to grow our portfolios. 

We settled on a variety of ETFs with reasonable fees. No front load this time. There were fees to be in the fund and a fee to Edward for managing the portfolio. No commission for buying or selling, just to manage.

As I said before, low value accounts have higher fees proportionally. I was paying about 180 basis points or 1.8% of my total portfolio in annual fees. Win or lose...1.8%.

He talked me out of investing the entire $50,000 because he wanted  plenty of leeway to finish school debt free. So, I invested $40,000 with Edward and the remaining $10,000 I self-managed through Vanguard. 

Not accounting for the nearly $750 in fees, the accounts with Edward slightly underperformed the market the couple years I had my money there. The accounts with Vanguard mirrored the markets because the fees were negligible. 

At this point, I had done a bit more reading on what a 2% annual compounded difference looked like over a lifetime. It was unbelievable.

Why Vanguard?

Intuitive and minimal fees. Opening an account was free. No cost to manage.  Most of their investments have a 0.03-0.09expense ratio, which was below my goal of 0.2 for passively managed funds 

Vanguard is cheap because they profit from volume. And many of their investment products have low turnover meaning they just let ‘em ride. Many of their funds are designed to be boring investments that will do reasonably well over the decades. That was good enough for me. 

My Vanguard Experience

I started a personal brokerage with the $10,000 I may need for school. Later I rolled over a 401k that I had from my time as a nurse. I eventually rolled over my entire account with Edward. And when I start a Solo401k, you can probably guess where that is going. 

The self-managing aspect sounds pretty intimidating, and it is. Or was until I discovered the financial advisors were doing the same thing in an overly complicated way. In lay terms, they were buying a bunch of index and mutual funds that equated to a total stock market index fund. Basically making their job sound fancy by adding more weight to certain sectors, but usually not seeing increased profits despite their efforts.

Most brokerages offer a total stock market index fund. It’s what I recommend because it’s easy and performs well. This is a basket of every publicly traded company. It's pre diversified. 

Want to get fancy and add some bonds? Try a total bond market index fund. Now you have equities poised for growth mixed with bonds for fixed income. 

We can have many conversations about diversification, but just know this index fund will outperform most financial advisors after they take their fees. 

And that's what it's about -- profit after the dust settles. Consistent investing historically outperforms timing the market. CFPs hopefully don’t claim to successfully time the market. They don't know. No one knows.

This means their stock pics aren't any better, nor is their timing any better. So what are you paying for? Comfort and education. Education that I attempt to offer you on The Financial Cocktail. Comfort comes with time and success.

And if I don’t make any sense, there is a must-read list that explains things superiorly.  

If you want to pay for a CFP, it doesn't bother me, just know what you are paying for and what you may be leaving on the table.

Anyway, food for thought. I'm not sponsored by vanguard, so feel free to choose any brokerage that meets your criteria of fees or investment selection. There has been a trend over the past few years where brokerages decrease fees to attract new clientele. There are more brokerages offering services with minimal fees, so look around.