Financial Planning for the Physical Therapist: What You Need to Know

The following article is designed for educational purposes only. It should not be considered individual financial, legal, or tax advice. 

As a physical therapist, you have many goals that you would like to achieve. Specializing in a patient population, getting a board certification, or finding time to enjoy life with friends and loved ones are but a few examples. This article is designed to walk you through a roadmap of what you should be considering with respect to financial planning as you start your career and pitfalls to avoid. If you take a proactive approach to financial planning early in your career, you will likely position yourself to meet your goals much earlier and with much less anxiety. Regardless of whether you are a new graduate or have been practicing for 10 years or more, these tips can help you get off to the right start with respect to financial planning. Although this article is geared towards physical therapists and other early career medical professionals, the principles apply to anyone who wants to be better educated on how to seek financial planning assistance. 

What is financial planning

The CFP® board of standards has defined financial planning as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances”¹. This is delivered as part of a process that involves the following steps that are outlined by the board¹:

1. Understanding you personally and your financial circumstances
2. Identifying and selecting goals
3. Analyzing the client’s current course of action and identifying potential alternative courses of action
4. Developing the financial planning recommendations
5. Presenting the financial planning recommendations
6. Implementing the financial planning recommendations
7. Monitoring progress and updates

Does this sound familiar? You would be right if you said it looks a lot like a physical therapy evaluation, diagnosis, prognosis, and treatment plan. This process would be familiar to many physical therapists, and you are most apt to determine if you are getting true financial planning compared to a sales-oriented process. If you are reading this, you may have already met with a financial advisor or are seeking content to help you on your financial journey. Take your experience and compare it to the 7 steps above and ask yourself, particularly on steps 4 and 5, if you have a plan or just an account/product. Realize that the goal of financial planning is for the client to collaboratively develop a plan that requires multiple steps to be implemented by you over the long term. Could you explain your financial plan to a stranger? If you can’t, you probably don’t have one.  

Why to engage with a financial planner

You may be wondering why you should work with a financial planner. The answer might surprise you, and it is simply this: you may or may not need to. Almost everyone would benefit from at least a consultation to determine if you are on the right track, but it is true that some people may never need to talk to a financial planner and can still do ok. Let me give you an analogy that will make sense to a physical therapist. I am a patient who has developed anterior knee pain, and I found some YouTube exercises that I saw were good for knee pain. Will this work? You would be right in saying that the response to this would be variable, and this person may get better on their own if their function is low and the goal is to walk without pain. What if this person is a competitive athlete? Would your answer change? This person doesn’t just need to be pain free, but they need optimal performance and so a physical therapist would be needed in that case. The same can be said for financial planning. My goal for clients as a financial planner is not for them to be “ok” but for them to be optimized. You likely need a financial planner if you want to set yourself up for a future full of possibilities, travel, experiences, and stress-free financial freedom. If you want to simply retire and live off of social security, then you likely don’t have enough complexity for an advisor to be necessary. Basic principles can help you get started but cannot optimize and help you fit the puzzle together like a planning relationship. 

Who should I work with

In the financial planning world there are three large channels that advisors work in to deliver their services. 

1. The Wirehouse Model– This is the model where advising is done through large bank channels with hundreds of locations worldwide. Think power suits, expensive cars, and high-rise buildings. These have traditionally dominated in terms of the sheer number of advisors that operate in this model. There is a slightly smaller version of these that is termed the regional brokerage (such as Edward Jones, for example) that is not as large but comes with the same overall philosophy. There are several problems with this model with one being that these advisors are employed and work under large corporate structure that may prioritize commissioned investment products. The advisors themselves are often lacking in creative solutions and are forced to use outdated technology and company resources that are not always in the best interest of clients. Wirehouses and regional brokerages can typically be investment-driven and narrow in focus. If you need a quick investment account managed or a product solution then the need can be serviced well.  You will get something solved, but analogous to the physician in the medical world, they stay in their lane and likely will not give you the wholistic plan you are looking for. 
2. The Insurance Model– The financial planning industry began in the late mid 20^th century and was birthed out of the insurance industry. Formulating a formalized profession and the CFP® credential and board came much later. As a result, many insurance companies have evolved, and instead of simply selling insurance, they will offer financial planning services. This model is heavily sales-focused, and often, all roads lead to insurance of some kind. The philosophy is not broad enough, and internally, many of these advisors can receive commissions on investment products in addition to insurance products. The planning philosophy here is analogous to chiropractic in that every problem fits into a neat treatment paradigm based on their training. Insurance model advisors are meticulously trained to sell and push insurance that is not always in the clients’ best interest. They are often disadvantaged by overbearing internal company compliance that does not allow access to the broader industry’s best technological resources to serve clients. 
3. The Independent Model– Those who work in this model are termed investment advisor representatives (IARs) and are legally obligated to act in clients’ best interest at all times. The term for this is fiduciary. The insurance and wirehouse models do not always act in this capacity, and at times, it can be confusing at to which capacity they may be acting (if not disclosed to you). Financial planning practices in the independent must disclose all conflicts of interest to you (such as if they receive investment commissions or insurance commissions) and ALWAYS act in your best interest. Brightworks Financial Planning is an independent and fiduciary financial planning practice. Firms that are registered investment advisors (RIA) focus on providing financial planning for a fee. With a duty to put the client first and a comprehensive approach, the advisor is free to create a plan for you that is in your best interest. This is why I chose this model of financial advising and why I’m committed to this model for the long run. Some independent practices can choose whether they want to continue to utilize a broker-dealer, and in that case, they would need to disclose this relationship and how it affects you as the client. 

How do I know the difference?

It is fairly simply to determine when you meet with a financial advisor which model they are operating under. Here is your crash course to prepare for your meeting with an advisor. 

1. Check regulatory websites- Broker check is a website that houses data on all financial services professionals including credentials, examinations, and disciplinary disclosures. The website can be found here. It may be helpful to open this up and follow along as you read the article. Once you are on broker check, you can begin to determine the status of the financial professional you are working with by typing in their name. There is one additional website for financial professionals known as the Investment Advisor Public Disclosures (IAPD) website, which is regulated by the Securities and Exchange Commission (SEC). This website can be found here and only includes advisors who operate exclusively in the independent model as described previously. 
2. Evaluate the examination and certifications- On broker check, you will see a series of examinations passed and licenses. You will also see a circle with either a “B” or an “IA” on the website. If the individual only has a “B” by their name this means that they are likely not acting as a fiduciary in your best interest. If they have not passed either the series 65 or series 66 examinations then they are not acting as a fiduciary in your best interest (with one exception noted below). 

Example 1: Broker Check

The financial professional above is not a fiduciary as they are working in the capacity of a broker-dealer and not as an investment advisor. The difference between an investment advisor and a broker-dealer is that a broker-dealer only has to make “suitable” recommendations but an investment advisor has to make recommendations held to a fiduciary standard at all times. Notice, they have not passed the 66 or series 65 exam and only the series 63 exam. This professional is a representative of an insurance company or a broker-dealer and does not represent you exclusively. 

Example 2: IAPD

Notice above that this individual has passed the series 66 exam which indicates that they are acting on behalf of an investment advisor and must provide recommendations in your best interest. The other exam that is more common to act in this capacity is the series 65 exam. If someone has passed the series 66, you need to ask them if they are acting in your best interest at all times. The difference between the 65 and the 66 is that the 66 means this person is currently or was previously associated with a broker-dealer making this question more important. 

1. Ask direct questions- Great questions for a prospective advisor would be: are you a fiduciary? How is compensation structured for your services? Do you work with other professionals on my team? Do you sell insurance products, and if so, how are you compensated? Do you receive commissions on investment-related products? Can you provide me with a client reference that I could speak to?

What about the CFP®

If someone is registered as a certified financial planner then they must provide investment and financial planning advice in your best interest at all times. If you are working with someone who is a CFP, then the exam history mentioned above is not important moving forward in that relationship; however, you can check the status and history of the professional on the CFP Board website here. Said another way, if the person you are working with is a certified financial planner, they are always working with you in a fiduciary capacity. 

When should I engage with a financial planner

The answer here is different for everyone and depends on your life’s complexity and goals. There are many financial planning practices that allow for flexible engagements (including Brightworks Financial Planning) such as hourly, retainer, and AUM based fees depending on what may be the best fit for you in your current life stage. Some people never engage with a financial planner due to the plethora of resources and free media material available to the general public. As a general rule, I would recommend that if you can’t confidently answer the following questions, you probably would benefit from a consultation with a  financial planner:

1. I know why I have chosen my current 401k and/or retirement investments, including how to fund these investments (Roth versus pre-tax/post-tax) and how they impact me upon distribution based on long-term goals. 
2. I know exactly why I have the particular life, disability, and health coverages that I do and how they fit into my overall financial plan.
3. I am comfortably saving 10-20% of my income yearly according to a strategic plan that includes the order of debt payoff, tax efficiency, and wealth accumulation that I could explain to a stranger in less than 5 minutes. 

Where to start

No matter where you are on your financial planning journey, I would encourage you to start with a few simple principles. 

1. Don’t skip emergency savings- You should save 3-6 months of monthly expenses to prepare for unforeseen events that may happen in your life and give you the freedom to continue to execute your financial plan even in times of uncertainty. 
2. When in doubt, choose Roth- If you are reading this and you are in the first 5 years of your career (whatever that might be), the chances are you are in the lowest tax bracket you will ever be in for your working career. Saving money into a Roth investment account (401k or IRA) will allow you to grow and distribute money tax-free when you retire. This is extremely valuable and highly recommended. 
3. The HSA can be a powerful tool- In addition to the Roth account for tax-free growth, the HSA can be very effective as an additional investment vehicle. This is an account that is only available for those who have an HSA-eligible HDHP through their employer. Many employers will match a certain amount you place in this account on a pre-tax basis each year. This account has the ability to be tax deductible to you in the year of contribution, grow tax-deferred, and be utilized tax-free when distributed for qualified medical expenses. If you are young with very little need for healthcare, I highly recommend funding this account yearly and investing most of it. 
4. If you have dependents or are married, you need life insurance- If you are married and/or have children, you need life insurance. Term insurance is best and often can be relatively cheap if purchased while young and healthy. 
5. Long Term Disability is worth it- Many employers may offer you long term disability coverage at no cost to you, but if you have inadequate coverage or would like to replace your salary if you are disabled, a third party policy can be worthwhile and will not break the bank.

Conclusion

Financial planning can be a confusing landscape, and I hope this article clarifies how to get started and some first principles to consider no matter where you find yourself in your early professional career. At Brightworks Financial Planning, we strive to educate clients and put their needs above ours in creating financial plans that achieve lifelong goals and provide peace of mind. 

References

1. https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct