7 benefits your advisor should bring during COVID-19 pandemic
by David B. Mandell, JD, MBA
“Am I getting the right financial advice? Is my financial professional doing what they should for the fee I am paying?” These are common questions that physician investors ask at any time. Today, during the COVID-19 crisis and the financial uncertainty that accompanies it, we believe these questions are even more critical. In fact, choosing who to trust to manage your wealth will be one of the most important financial decisions you will ever make, and these periods of uncertainty and volatility often validate this.
In our new book, Wealth Planning for the Modern Physician, we go into the positives and negatives of doing it yourself when it comes to investing and wealth management. In this article, we address the value you should be getting if you decide to use an outside advisor. We focus on seven benefits – as they all make a quantifiable and qualitative impact on one’s long-term financial success and are crucial during difficult times.
Benefit #1: A portfolio that evolves with you
Does your advisor research funds to identify the best options in each asset category? Only with thorough data on a wide range of investment options can your advisor appropriately allocate funds for a custom-designed portfolio that evolves with you and your financial goals.
Because asset values change, your advisor should regularly assess your portfolio to identify a drift from target allocations and take steps to rebalance as required.
Benefit #2: A portfolio designed to match your true risk tolerance
Most investors have provided their advisors with an idea of their risk tolerance in their portfolios. Often, a “risk profile” is established once at the outset of the professional relationship.
It is important that one’s advisor periodically calculate the risk score not only of the current portfolio, but also of the clients themselves. Nothing can take all the risk out of investing, but a thorough advisor will stress-test your portfolio in a variety of market scenarios and optimize asset allocation to match your risk tolerance, even if it has changed over time.
Benefit #3: Portfolio management with an eye on taxes
Many investors focus primarily on portfolio performance while overlooking the impact of taxes on their investment returns. The cost of federal and state income and capital gains taxes on a portfolio depends on many factors – the underlying investments, asset turnover, the structure in which the investments are held, the investor’s other income and state of residence.
A tax-savvy advisor understands the effects of current tax law on the assets in your portfolio and works to maximize your net after-tax return. Your advisor should implement tax harvesting strategies where applicable, coordinate the tax consequences of rebalancing and allocate investments to optimize the tax diversification of your portfolio. This can be especially critical during market downturns, as the prospect of selling assets and incurring taxes on gains is especially painful when values have also slid significantly from recent highs.
Benefit #4: Private investment opportunities
To offset the risk associated with market volatility, most advisors will recommend a portfolio that is diversified across a variety of asset classes. Traditional bonds are often used as a risk mitigation strategy for many investors; however, high-net-worth investors may turn to their advisors seeking investment alternatives with returns that do not correlate with stocks or bonds.
An advisor who is well-versed in alternative investments can offer investors a broad menu of options, including real estate investment trusts, commodities, managed futures and private equity, and review the risk and fees associated with each option. Some advisors can also provide access to vetted private non-traded alternatives to help investors maximize returns while reducing overall portfolio risk.
Benefit #5: A comprehensive financial plan
In addition to providing investment recommendations, your advisor should work with you to develop a comprehensive financial plan that keeps your big picture in focus. A cash flow analysis, personal balance sheet, income projections and goals for education and retirement are data that your advisor should gather to generate a dynamic plan that becomes your roadmap to guide the financial decisions you make for you and your family.
As part of their wealth management services, your advisor should periodically review your financial plan and update it to incorporate any changes to your income, family situation, goals and time horizon. In fact, many physicians are conducting such reviews of their financial model in response to COVID-19 and its impact of investment values and 2020 income.
Benefit #6: A clear understanding of how you are doing
If reports from your investment advisor do not paint a clear picture of your portfolio’s performance, this is a problem. Your reports should track net contributions and withdrawals, present a customized portfolio summary and transparently show the performance of your portfolio, net of all fees.
Benefit #7: Total wealth management — not simply investments
Does your advisor’s firm work only with investments, or is your advisor backed by a solid wealth management team? A multidisciplinary wealth management firm includes specialists in areas of expertise affecting your overall financial well-being.
For example, attorneys can analyze each asset and make recommendations to reduce the asset’s level of exposure to lawsuits and other risks. CPAs can review tax returns and suggest ways to reduce or defer tax liability, and insurance experts can review existing policies and present options that could reduce premiums and/or improve coverage. An advisor who can offer these areas of expertise within his or her firm is well-equipped to become your financial quarterback, a resource to handle your questions concerning any financial matter.
Best of times, worst of times
In the best of times, quality advisors deliver significant benefits that can add both quantifiable and qualitative value to their clients’ portfolios.
These benefits become even more critical in difficult financial times – as valuable expertise can help guide physicians to remain on track for their long-term financial goals. Often this is because the hard work of aligning a portfolio with a client’s personal risk tolerance and developing a strategic wealth management plan was done in advance of the crisis.
The newly published Wealth Planning for the Modern Physician: Residency to Retirement is available free as a PDF or e-book download by texting HEALIO to 555-888 or at www.ojmbookstore.com. Enter code HEALIO at checkout.
For more information:
David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group www.ojmgroup.com. You should seek professional tax and legal advice before implementing any strategy discussed herein. He can be reached at firstname.lastname@example.org or 877-656-4362.
Disclosure: Mandell reports no relevant financial disclosures. OJM Group, LLC. (OJM) is an SEC registered investment adviser with its principal place of business in the State of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure website: www.adviserinfo.sec.gov.
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This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently; accordingly, information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.