Keep An Eye On Your Advisors

Many doctors don’t want anything to do with investing money. They feel investing is not what they were trained to do and therefore a waste of their valuable time. I think this attitude gets some doctors into trouble.

It is true that our time is best spent in our main area of training, but it’s very important for us to also have an adequate knowledge of investing. Being somewhat familiar with investing can help prevent us from being taken advantage of.

Doctors are, in general, an “easy mark” for people in the financial world. We are assumed to have a lot of money and are willing to invest in anything without taking time to understand the investment. It doesn’t have to be that way. With about the same amount of effort as learning the Krebs cycle, we can learn the basics of the financial world.

The ostrich approach to finance, burying our head in the sand and letting someone else make all the decisions, will often lead to a financial catastrophe. I’m thinking of the doctor who hires a financial advisor and then turns all the activity over to them and never looks back. These are usually the conditions that precede the news story where someone loses all their money due to an unscrupulous financial advisor, or getting in trouble with the IRS for not paying their taxes and blaming it on their manager instead of bucking up to the responsibility themselves.

If you are the type who doesn’t want to be involved with finances, then hire multiple advisors and get enough basic financial education to look over their shoulders to see that all is well. By giving each adviser a portion of your portfolio to manage, each one managing their specialty, you can feel confident that your finances are being well cared for. If any one advisor has only access to a portion of your wealth, there is less likelihood of embezzlement or any other miss step on their part.

For example, you can have a property management company manage your investment real estate. Your 401(k) can be in the hands of your company’s investment advisor. Your IRA’s handled by another firm. Your taxable account investments can be in the hands of yet another advisor. Additionally, an accountant can be in charge of overseeing all of your investments when doing your taxes each year.

In this example, if you have mistaken the qualifications or honesty of any one advisor, only a portion of your wealth is at their mercy. You are very unlikely to select bad people to be in charge of all the accounts, since most advisors are honest and are not out to cause financial mayhem.

I know a property owner, let’s call him Tim, who owned a large apartment complex which provided him with a good cash flow, accounting for the bulk of his retirement income. The property had no mortgage. At age 65, Tim decided he wanted to retire and travel the world. He hired a friend who was knowledgeable in managing property to become the property manager for his apartment complex.

Tim began his lifelong dream of travelling around the world, worry free, with his manager depositing the apartment income into his bank account each month. He could draw money from this account from anywhere in the world as he traveled from one country to the next. Tim had great trust in his friend and didn’t feel the need to check up on how the apartments were fairing.

Several months into Tim’s world tour, Tim called one of the tenants living in his apartment complex, just to see how things were going. The tenant was very surprised to hear from Tim. “I thought you were dead” was her comment. It seemed that the trusted manager had been spreading rumors around that Tim had died in some foreign country and left the apartment complex to his trusted manager. The manager had the complex up for sale and prospective buyers had been inspecting the complex. Needless to say, Tim was on the next flight home to fire his manager.

Had Tim not contacted one of his tenants, and just trusted his so called friend to manage his property, he might have found himself in China with no bank account or property anymore. He was lucky he checked up on things before it was too late.

This is a story that happens all too often. Many times it is disguised as a great, can’t miss, investment opportunity. Other times it is simply a money manager who gets a little too greedy. In every case, the problem arises from the owner of the assets leaving one individual with complete responsibility of his assets without paying enough attention to what is going on or having other professionals overseeing that individuals activities.

If you do not want to do all the decision making, don’t just hand the keys over to someone who will not have your best interest in mind.

I had an episode like this happen to me. I was in a partnership with a group of doctors. The annual meeting occurred on a day I was unable to attend so I gave my proxy to someone I trusted, thinking that since he had the same amount of money invested in the project as I, that our interests would be the same and he would vote in the same manner that I would. Unbeknownst to me, the person I gave the proxy to was not in the same ownership category as I was. He had made some additional investments with the group that made his interests different than mine. He voted both his shares and my shares benefiting his interest at the expense of my interest. The motion carried and my position in the company worsened.

I learned a valuable lesson that day. If you are going to give your proxy to someone, you must be sure they will be acting according to your wishes. Make sure their interests are exactly the same as yours.

When you choose to give the keys to your investment castle to an advisor, remember that they do not have the same interest in your investment as you do. They don’t get paid from that investment the same way you do. Because of these differences, you must keep your hand in the pot. You cannot give them complete control thinking they will manage your investment the way you would. Discuss with them the investment parameters you want them to follow and pay attention to the monthly financial statements. After all, it is your money at risk.

I have heard way to many doctors tell me they were fed up with having their investment advisor make more money off their portfolio than they do. The doctor should be making the bulk of the money, not the advisor. We get paid when the value of the account goes up. But if the advisor gets paid only when something is bought or sold, they may be buying and selling more often than is needed for your wealth appreciation. These unsolicited trades will generate additional advisor fees and more taxes for you. Both of which will be coming out of your pocket.

However you set up your investment strategy, be sure to keep your hand in it at all times. Knowing the basics about what is going on with your investments will help keep you from becoming the victim of an unscrupulous advisor. You are smart enough to keep that from happening. Don’t get lazy with your hard earned money. Keep an eye on it and watch it grow.

If you would like more information on this, check out my chapter on “How to Recognize Bad Advice” in The Doctors Guide to Eliminating Debt.

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2 thoughts on “Keep An Eye On Your Advisors”

  1. Regarding your friend Tim’s episode, I just read a similar thing happened to someone else. Three guys decided to get together to flip houses. Two of them put a down payment to buy the house, the third guy didn’t put money down but is the house renovator. The renovator guy sold the house and pocketed the money. The other two guys did not know until the transaction was already completed.

    How is it legally possible for these things to happen if say Tim’s property manager is not the owner of the property? His name is not on the legal ownership papers. I have some rental properties but manage them myself but reading about this kind of stuff does kind of make me anxious about letting anyone manage my properties in the future. Is it at all possible for a tenant sell your property and pocket the money?

    • Linh,
      I’m not sure how possible it is. People try to do things like this all the time. That’s why there are shows like American Greed. I wouldn’t be afraid of getting a property manager though. Most are honest people just doing their job. Just be sure you keep an eye on the business as well.


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