Making the Case for Wealth Management

"Wealth management" is a phrase financial advisors use to attract high-earning and/or high-net-worth individuals -- and there is some sense to the concept. Talking a plan through, and then seeing it in writing, can have an impact that is hard to envision otherwise, even if time and circumstances lead to the wholesale revision or even scrapping of elements you once thought essential.

“Wealth management” is a phrase financial advisors use to attract high-earning and/or high-net-worth individuals -- and there is some sense to the concept.

Sometimes we lose sight of the big picture, the overarching goals of our lives as they relate to our financial activities. We tend to focus on one aspect in our thinking, and writing, like investment decisions, or tax deductions, for examples, without integrating them into an overall plan. That is, if we even have an established overall plan.

Aha! Then in steps our financial-planning friends with software and Power Point presentations to organize and reassure us. We want and need these things, so we listen up.

Now some will say, "I don't have the assets for that kind of approach," while others will not want to tackle the tedious, if dreadfully important, job of getting their finances in order. But physicians are of a class of responsible people — ones of generally high income and asset potential – and that compels us to pay attention eventually. As in all areas of personal finance, who among us has not said at some time or another, "I wish I had started earlier?" It is literally never too soon, or too late, for that matter, to get started.

Part of the confusion among those new to the concept is that wealth management has very different meanings for each person, and for each family. Do you want to leave a bequest to family or charity? Do you want to retire early? Do you want to pay for your children’s college education? Your grandchildren’s?

Whatever your goals, the real endpoint for us all is peace of mind. We want to know that we have a reasonable understanding of who we are, what we want, and how we are going to get there. And we just hate making foolish, unnecessary mistakes, even though all of us are bound to do so at some point. When you think about it, we're really talking about minimizing the harm -- remember that perfect is the enemy of the good.

That's why a good, fee-based financial advisor starts out by engaging you in a series of conversations to understand who you are and what you want and need. (Fellow physician and PMD blogger Setu Mazumdar, MD, is doing a series of posts on exactly the kinds of conversations you need to be having.) Only then can the various investment and insurance products be utilized to get you on your way. It isn't just about numbers either; it’s about psychosocial issues and family behavioral dynamics and values. There is no one-size-fits-all when it comes to physician financial planning.

And mind you, even if you get properly organized, all of these issues will inevitably change over time. Individual circumstances, federal and state laws, and available financial products change over time. I look back at the first plan that I arranged years ago and have to laugh. For, like the Heisenberg Uncertainty Principle, just observing its birth led to a stillborn. I had learned and modified my goals that much in the process of creating a financial plan.

If you need hard evidence for encouragement, a study by insurance giant USAA found that people with a formal plan over a six-month period grew their assets by 17%, compared with just 3% for those without a formal plan. Part of the reason is that those without a plan were holding an average of 34% of their assets in cash, compared to 17% in cash assets for those with a plan. The ones holding cash lost out on some important opportunities. Multiplied over time, small differences like these can mount up to surprisingly large amounts of money and assets either foregone or, with luck, gained. And life options consequently reduced or, hopefully, enhanced.

The construction of a well-laid wealth-management plan can establish benchmarks based upon your personal goals to give you a sense of your progress over time. As I mentioned last week, Albert Einstein famously said, "Not everything that counts can be counted," but we do like some objective reassurance that we’re on the right track. It's not so different from practicing medicine in both of those regards, come to think of it.

Talking a plan through and then seeing it in writing can have an impact that is hard to envision otherwise -- even if time and circumstances lead to the wholesale revision or even scrapping of elements you once thought essential. Remember Charles Darwin said that survival belongs to the "fittest" which does not mean the strongest; it means the most adaptive, the most flexible.

So it really comes clear that we all can significantly benefit from creating a financial plan -- and few of us have the specific knowledge or emotional distance to do it without professional help. We do receive focused advice from our bookkeepers, CPAs, lawyers, brokers, and so on, but this is another example of where it truly can be said that the wealth-management whole can be greater than the sum of its parts. Look into it and see what I mean.