![]() Suggesting a SEP-IRA without discussing this consequence is bad financial advice that an advisor working directly with physicians should know about. You can do it, but you are going to get slammed by the pro-rata rule. While a solo-401K takes a little more work to set up, it has one major benefit for a high income earner that cannot be overlooked.Ī solo-401K still allows you to participate in a backdoor Roth IRA. This is one of the options you have when you have self-owned (employer) side hustle income. If you have a side hustle and you are making 1099 money, a financial advisor may tell you to open up a SEP-IRA also known as a Simplified Employee Pension – Individual Retirement Account. A SEP-IRA is brought up without mentioning a Backdoor Roth IRA If someone is mixing investments with insurance, it’s probably whole-life insurance with a new name. The point is… whole life insurance, which goes by many names (permanent insurance, cash value insurance, cash value policy, etc), is bad for the overwhelming majority of doctors. What You Need to Know About Whole Life InsuranceĦ reasons not to buy whole life insurance for your children I am not going to repeat what he says, but you can trust that it’s a bad idea for the vast majority of people. If you want to read more on this, WCI has written a bunch of posts on it. It is shocking how many people fall for this stuff. I mention this separately because it gets pitched to physicians all the time. The advisor tries to sell you whole-life insurance It’s called fee-only flat hourly rate advising where you pay by the hour or for a specifically priced product. It’s a really good system that isn’t morally reprehensible. One of the biggest reasons this rubs me the wrong way is that there is an alternative to this. So, don’t feel bad when you break free from this system. ![]() If those 50 have a million, its $500,000, which is more than a lot of doctors make. Compound that on 6% interest for thirty years and you’ll begin to get an idea of how big of a number AUM costs you.Ī financial advisor working under the AUM model needs to find 50 people who all have 500,000 in assets to manage. At 1%, which is the industry standard, that is going to cost you a boatload ( A boatload = millions of dollars).įor example, at 1%, of your $3 million dollar IRA in retirement a 1% AUM will cost you $30,000 per year. It is swept out of your assets unbeknownst to you every quarter. With an Assets Under Management (AUM) model where you pay financial advisors a percentage of your assets each year. For example, before someone replaces your water heater they are going to give you an estimate and tell you what the expected bill is. When you pay someone for a service you usually have a very concrete idea of what that service will cost you. Advisors who operate under an Assets Under Management Model Who then should you buy disability/life insurance from? A recommended independent insurance agent that can get you quotes from multiple companies and find what’s best for you. Often, this will come in the form of a free lunch/dinner/coffee. So, the first rule of spotting bad financial advice is when the financial advisor is trying to sell you a product. In fact, this happened to me and it is the reason I can’t get personal disability insurance to this day… and he was the brother of a medical school classmate of mine. No matter how good of a person they are, it is going to be extremely hard for them not to sell you their products. Why then would you use a fee-based financial advisor who works for an insurance company? Their job is to sell insurance products and to make money from the commission they get when they sell it to you. It’s pretty regular advice these days that you shouldn’t mix investments and insurance. In knowing them, you can seek better financial advice or at least mitigate the conflicts that exist. More specifically, here are eight ways that you can tell if a financial advisor has a major conflict of interest. So, today’s post will be about separating the wheat from the chaff. And it really got me fired up about how to avoid conflicts of interest and what a good financial advisor looks like. In this episode, he interviews Sarah Catherine Gutierrez, a financial advisor, who spells it all out. In the process of writing that chapter, I had the opportunity to hear a WCI podcast episode. Why? Because conflicted financial advice is one of the biggest reasons that physicians make financial mistakes. ![]() In The Physician Philosopher’s Guide to Personal Finance, one of the chapters is on conflict of interest.
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