Being knowledgeable about your financial situation is the first step toward financial freedom. However, it can be difficult knowing where and how to start. Sometimes the catalyst can be working with a financial advisor. So should pharmacists seek out their advice?
There are mixed views on working with a financial advisor. It really comes down to personal preference and whether the benefits outweigh the costs for you. Personally, I have not hired a financial advisor. At the same time, I do know people who have one that are very satisfied with their portfolio returns, and I also know people who have had financial advisors and no longer use them due to the expense and ability to manage their own investments. I have not completely ruled out never using a financial advisor, and I believe I can benefit from one in the near term.
With the average pharmacist’s salary being six figures, is it worth paying someone else to manage your money? Let’s first make a list of the pros and cons of having a financial advisor to better assist you in the decision to get one.
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Pharmacists spend many years of training to be drug experts, with minimal exposure to management of finances. In fact, many pharmacists graduate with a negative net worth due to high student loan burdens, with the average student debt for a pharmacy graduate in 2019 being $170,000. But how to tackle debt while trying to get to a positive net worth? Having a financial advisor can help fast-track to your financial goals.
Financial advisors often have years of experience managing investments and providing financial advice. They have the knowledge base and expertise to help maximize your rate of investment returns. That’s because they have a better grasp of what investments and allocations to make based on your risk tolerance, and on when and how to rebalance your investment portfolio. They are not as likely to buy high and sell low, since they do not base their financial actions on impulses or emotions. Financial advisors are also there for personal wealth planning, from helping to manage stocks to funding retirement accounts.
Just as you would get a second verification check on a chemotherapy order, it never hurts to have a second set of eyes to look at your finances to provide advice on your investment portfolio. A second opinion can result in a higher rate of return that would offset the cost of having a financial advisor.
Many pharmacists do not work a 9-to-5 job, whether that’s in retail or hospital settings; some pharmacists even moonlight on top of their regular workweek. This leaves little time to do research on money management and investing. A financial advisor’s job is to manage investments, dedicating their time to help build your wealth.
Below are a few scenarios where a financial advisor could be worthwhile:
You’re an amateur investor: If you are barely getting started on investing and unsure of where to start or what type of investments to make, having a financial advisor for even a short period of time can be beneficial and an investment in your financial future. With someone managing your money, you can learn the ins and outs and eventually learn enough to manage it on your own.
You’re an inactive Investor: If you are someone who doesn’t have the time or drive to research and invest and just have a large sum of money in a low-yielding savings account, you can benefit from a financial advisor who will manage your investments for a much higher rate of return, even after covering the fees.
You have high debt: If you are a new graduate with a sizable debt load, you likely do not want to shell out more money to pay for financial advice. But if you find that you’re still swimming in debt years after graduation with no end in sight, you may benefit from getting advice on how to pay off your debt and increase your savings.
A financial advisor typically charges a fee; in fact, that’s one of the biggest downsides to having one. Before we even get into the actual costs of a financial advisor, you will first need to have enough assets, as many have a minimum initial amount you need to invest — usually $100,000. (Some have a higher minimum threshold of $500,000 or $1 million.)
For new graduates who do not have a positive net worth yet, this minimum threshold can be a blocker. For healthcare professionals who have been working for years and have built up savings with meager returns, though, a financial advisor might be worth the cost.
Once you’ve built enough assets for financial advisors to take you on as a client, you’ll need to do the work of finding one that’s the right fit for you. Keep in mind that there are different fee models used by financial advisors:
Fee for services: These advisors charge for each service they provide you, no more and no less.
Assets under management: Many advisors charge a percentage based on your total assets, usually between 0.5% to 2% a year.
Hourly: Other advisors will charge for their time managing your money, on average $100 to $400 an hour.
Commission-based: Some advisors work on commission, paid for by the providers of financial products and services. (Some of these products and services will be valuable to you, some won’t; the advisor is compensated anyway.)
Which one will be appropriate for you? Depending on the total assets you have, a fee-for-service advisor may be more cost-effective than one that charges a percentage of your total portfolio. For example, if you have $100,000 to invest, a 1% annual fee will come to $1,000. However, if you have $1 million to invest, that annual fee will increase to $10,000 So the amount you have to invest may determine which financial advisor you choose.
When researching financial advisors and their fee structures, you’ll want to check whether they are a fiduciary that will work in your interest, to benefit you and not themselves. Financial advisors that rely on fees for services and are not commission-based are generally fiduciaries. You want to ensure you find someone you trust and that remains unbiased, since you are considering putting your financial future in their hands.
Now that you know some of the advantages and disadvantages of having a financial advisor, is hiring one appropriate for your financial situation? You will have to do a cost-benefit analysis. If you have the time, interest, and fortitude to actively manage your investments similar to what a financial advisor would do, it may make more sense not to have an advisor over the long term. However, financial advisors are not just there to yield higher returns; they also offer counsel, suggest investment strategies, and guide your financial planning.
Many find financial advisors through referrals from friends and family. Shop around and do your research before hiring one.