Many advisors start their interaction with potential clients by using a simple prompt: “Tell us about your goals.”
But while understanding a potential client’s goals is essential when forging a long-term relationship between advisor and client, it is not the critical first step. I believe the most important first step for an advisor to take with a prospective client is to conduct what we call a baseline financial assessment.
Our baseline financial assessment is designed to inform where you currently stand in your finances, as compared to, where you should be given your age, earnings, and family situation. Think about it as something comparable to ordering blood tests, checking vitals, and recording height and weight for a patient. These are critical numbers a physician needs for a baseline assessment of a person’s health. The biggest benefit received from the baseline financial assessment is it helps to address critical concerns immediately and provides a basis for making logical, informed financial decisions going forward.
According to the National Health, Lung, and Blood Institute (1), blood tests show whether the levels of different substances in your blood fall within a normal range given an individual’s age, gender, race, and other factors.
Blood test results may fall outside of a normal range for a variety of reasons and must be interpreted by the physician. Abnormal results might be a sign of a disorder or disease. But other factors—such as diet, physical activity level, alcohol intake, and medicines (both prescription and over the counter)— can also cause abnormal results.
Many diseases and medical problems are not solely diagnosed with a blood test. However, a blood test helps a physician to learn critical information about a patient’s current state of health. Moreover, a blood test can identify potential problems early when treatments or lifestyle changes may work best.
After you evaluate the patient’s overall health and identify critical health issues, you can then talk to them about their long-term health goals and create a plan to help reach them.
I take a similar approach with your wealth as you do with your patients’ health. I first seek to understand your overall financial health by performing our baseline financial assessment, then address any critical or potential problems upfront when simple action steps may work best. Without addressing the critical needs and problems first, your long-term vision isn’t likely to be achieved. Finally, I listen intently to understand your long-term vision and help to craft a customized roadmap to reach it.
So, what does our baseline financial assessment entail?
It starts with clients providing us with some information on their current finances. This information is critical for us to develop a Health of Your Wealth profile.
Some key information we request and review includes:
- Assets, including investment accounts, retirement accounts, bank accounts, houses, or business value
- Liabilities, including mortgages, credit card debt, student loan debts, and business loans.
- Value of the medical practice
- Amount and type of life insurance (term or permanent)
- Annual and anticipated earnings
- Amounts saved annually to retirement, investment, or college savings accounts
- A copy of the latest income tax return to evaluate missed savings opportunities
- Other insurance coverage, such as disability, health insurance, property, and casualty coverage
Once we review this key financial information, we then develop a Health of Your Wealth Profile. The profile’s outcome shows where your finances are and where they should be based on your earnings, age, and family makeup.
Using the data from your baseline assessment, your Health of Your Wealth Profile will show us your:
- Annual earnings versus the national average of specialty
- Net worth
- Total amount of liquid and retirement assets
- Total amount and type of debt
- Amount of gross income being saved for retirement
- Amount of exposure to a low probability, high consequences event, such as death or disability
- Amount of college funded and how much is committed
- Annual spending and the 3 largest spending items
- Marginal and effective tax brackets; comparison to other similar wage earners
- Opportunities to potentially lower tax bill
Finally, our baseline financial assessment identifies risks and opportunities that can impede or enhance your ability to reach your long-term vision. The greatest service Rx Wealth Advisors provides is to organize and synthesize your financial data while providing a framework for helping you make financial decisions going forward.
When working with any advisor, your first goal should be to take steps now towards assessing your financial health, which will pay dividends throughout your lifetime.
1. https://www.nhlbi.nih.gov/health-topics/blood-tests
Disclaimer:
Rx Wealth Advisors is a physician-focused financial advisory firm located in the Pittsburgh, Pennsylvania metropolitan area. Their primary focus is to help medical doctors maximize their earnings, keep more money in their pocket, and cultivate wealth so they can live the life they’ve earned and deserve. Rx Wealth can be reached at 412-227-9007, via email at croe@rxwealthadvisors.com, or on the web at rxwealthadvisors.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.