Financial education for doctors 101

An excerpt from the Docs Outside the Box podcast, episode 4: Financial Ed. for Docs 101

Dr. Nii: All right, everyone. Welcome to another episode of “Docs Outside the Box.” We have a treat for you today. Today, we’re going to be interviewing Katie Brewer, CFP, and owner of Your Richest Life. Katie, thank you for joining the show. Can you tell us a little bit about yourself before we go ahead and start the interview?

Katie Brewer: Yeah, I’m so glad to be on the show. It’s going to be a lot of fun. I’m a certified financial planner. I’ve got some fancy schmancy credentials behind my name. I’ve been in the industry for about 11 years now. Started off more in the brokerage world, decided I wanted to do more comprehensive financial planning where I got to look over people’s entire finances, so I went into that and I started my own firm about a year and a half ago so that I could work with people more around my age, like in their 30s and 40s, being able to give them advice without having any sales or products tied to it.

Dr. Nii: What you just said at the last end of your sentence, that is what we call the fee-only approach?

Katie Brewer: Yes, it is. There’s commissioned based, or there’s commission only, there’s fee and commission also known as fee-based and there’s fee only. There’s actually not really that many of us fee-only financial planners out there.

Dr. Nii: You guys are like unicorns.

Katie Brewer: Yeah. You have essentially three ways that financial advisors can get paid. The first is a commission-only financial planner. I will say that this used to be a lot more prevalent, but honestly, I don’t see that many people that are only commission. Really, even if they worked for an insurance agency, a lot of times they can get an additional license and do financial planning and charge for it. Commission-only would be they don’t get compensated any other way other than selling products. With a fee-based financial planner that’s somebody who has a license to be able to actually charge a fee for a financial plan but they can also sell products on the back end. For some people, that might be fine, but once again, you need to just think about if I’m getting advice back, is that advice going to be because it’s truly in my best interest or because that’s the product that this person is getting better compensated for this month, or that their sales manager is telling them that they need to sell more of this month?

Dr. Nii: I’ve been pitched cash value/universal life insurance. Everything that you said earlier in the interview, I’ve heard that. Variable annuities, all of that stuff. This is being pitched this product after saying that, and I’m very open and honest. Me and my wife combined have about $600,000 close to $700,000 in student loan debt. Obviously, that should be the priority above other things, but yet we still get pitched these plans.

Katie Brewer: Yep, exactly. There’s a lot of different things that are being pitched but they can even go beyond traditional investments where somebody might convince you that you should buy this real estate property so that we can develop it so that we can put medical offices in it, and then you’d be able to rent one of your own offices and you’d be able to actually make income off of it. All of that sounds great, but if you’re a doctor, you are probably not a real estate professional nor are you a real estate investor, and if you wanted to do that, maybe you should hire an impartial third party instead of reacting to somebody else telling you what a great deal that it is.

Dr. Nii: All right. The first one is what is a 401k?

Katie Brewer: All right. A 401k, along with other retirements accounts, it’s not actually an investment vehicle. I always tell people to think of it as an umbrella. You’ve got an umbrella and it’s over different types of investments. A 401k is an umbrella that is over retirement accounts. A 401k is not actually an investment. Within a 401k, usually you have mutual funds, but you could also have ETF’s or stocks or bonds, or things that you shouldn’t have in 401k’s like options and stuff like that. It’s always connected to an employer. If you’re self-employed, you could start up a self-employed 401k, but if you are a W-2 employee at a place where they don’t have a work retirement plan, then unless you have income that’s outside of it, you usually can’t establish a 401k for yourself because it’s an employer plan.

Dr. Nii: OK. 401k, you have to be attached to a job.

Katie Brewer: Yes, exactly.

Dr. Nii: It seems like after 2007, 2008, this whole notion of passive versus active investing has come to light, and it’s almost like two people at each ends corner of a boxing match, like who’s going to win. It seems like there is a lot of studies that are showing that passive investing is just as good as active investing. Can you explain the difference and basically the philosophy of each approach?

Katie Brewer: Yeah. Passive versus active. Passive means that you essentially buy into a mutual fund or an ETF or stocks or bonds, and that you essentially buy into different types of investments in the market. Then, you leave it alone. That’s the buy and hold strategy is passive investing. Active investing is where somebody, usually not you but it could be you, but usually people have a money manager that will go out and do research and say we project out that this particular segment of the industry is going to make more money than another segment of the industry. They might skew or they might focus on a particular industry or country, but they charge a premium for it because they’re actually having to go out and do the work to actually find those investments. That’s usually the difference between passive and active.

Nii-Daako Darko is a surgeon and founder, Docs Outside the Box.

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