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Solving Your Financial Future Means Fitting in the Pieces
As dental assistants become more in demand, their assets are rising
The financial future for dental assistants is robust. With a projected growth rate of 31%, the profession of dental assisting is one of the fastest growing professions in the country, according the U.S. Department of Labor. Today, 297,200 dental assistants are working in the U.S., and another 91,000 dental assisting jobs are expected to be added by 2020.
With the employment rates as they have been, the dental assistant will have a career that can last as long as desired, with reasonable increases in compensation, job security, and other benefits. Competition for dental assistants is at a peak in many parts of the country. Due to demand, more dental assistants have been coming into the marketplace in recent years. Their greater numbers may push wages and benefits even higher, through more highly skilled competition.
Nationwide, dental assistants’ compensation packages are generally considered to be good and stable with dental practices offering assistants the same benefit packages available to the entire dental office staff. Many packages include retirement plan allocations with employer contributions along with other nondiscriminatory options, such as flexible spending accounts. Some dental practices offer assistants participation in bonus arrangements based on whether the office meets overall revenue goals.
As dental assistants earn more and accumulate some wealth, they, like other dental professionals, should seek financial experts to advise them on how to grow and protect their earnings and help them plan their financial futures. Some dental assistants may be new to this search process as their compensation and other rewards have recently had upward adjustments to the point at which seeking financial advice is now important. The following is information to help the beginner get started.
Who Are Financial Advisors and Planners?
Advisors can be professionals such as certified public accountants (CPA) who do have a license. They advise on matters such as financial points about buying or leasing, mortgage terms, tax issues, and when to sell investments. Planners are more involved with personal budgets, how much is available to spend, how much should be saved, and where the savings should go as far as which investment to make. They are also involved with the management of those savings.
Many individuals present themselves as financial advisors or planning experts. Some have a background in finance and cash-flow analyses but may have had little or no experience working with clients in dentistry. These advisors may be retired business controllers who know retail-store operations, manufacturing companies, or other such nonprofessional-type operations. Some are CPAs who have worked with varied enterprises during their careers and know about collections of accounts receivable, paying bills and taking discounts, and other areas of financial management that do not include the uniqueness of dentistry. They may not familiar with the types of questions posed by dental assistants.
The dental assistant should find someone who not only knows financial matters but also understands dental-related points of concern. The advisor should realize how much a dental assistant will be expected to earn and how much money may be allotted to a retirement account, if any. Another point to remember is that a non-dental business advisor may be accustomed to working with huge sums for a large corporation. The dental assistant is just starting to gather wealth and needs a more focused perspective from someone attuned with the dental industry. An advisor who understands the dentistry business can help an assistant determine whether to buy or lease a car or how long of a mortgage term should be. Where then does a dental assistant look for someone who can help advise first on how to manage money?
A good place to start the journey for finding a financial advisor may be to approach the dentist or other dental professionals and ask for a financial advisor’s name or the name of a CPA working with the dental practice where the assistant is currently employed. That advisor knows the financial side of dentistry and would understand what type of income and benefits the dental assistant would be expected to earn. The advice would be given with the knowledge of the dental assistant’s financial future. In an interview with the prospective advisor, the dental assistant should learn how many dental practices the advisor has worked with or is currently advising. Any professional finance background experience of the advisor such as banking and other dental office personnel advisory service work would be helpful, as well; however, the dental experience is the most important. The dental assistant should always remember that he or she is the client and should interview and feel comfortable about the expertise of the advisor who will be retained. Request a resume for review of the advisor’s credentials before the interview. Utilize online resources such as SEC.gov to look at services, certifications, and disciplinary history.
The advisor and planner can be the same person; however, it is better to have someone watching over the person who is involved with the management and/or the direction of the dental assistant’s wealth. This is due to the risk for conflict of interest and mismanagement of assets.
Advisory Fees and the Time Required with an Advisor
Dental assistants may think that in order to find an advisor who understands and can help people in their positions that enormous fees would be expected. That is not true. To help minimize the advisor’s time and reduce the price, the dental assistant can do much of the preliminary work before the conference. Similar to how a dental office charges based on skills and knowledge of the dentist and supporting staff and the time expected for the procedure, the financial advisor has a charge based on similar price points, especially regarding the time involved. The overall knowledge of dental finances is an important attribute for the advisor to possess. An advisor who wants to work with dental assistants should provide a 15- to 20-minute free consultation to explain what is needed to begin. If the assistant can be prepared before the first paid conference, the charges can be minimized and the assistant can be on the road to wealth accumulation and improved living standards. The initial free consultation should allow the assistant to understand what can be done in advance so that the advisor can study the information and be prepared for the paid conference.
Typically, an annual review can help make sure that things are going smoothly. This service is usually not free; however, the advisor should not charge for short phone calls during the year to respond to questions. Not overwhelming the advisor with calls is an important point.
There is a difference between advising the dental assistant on the short term such as answering questions that arise occasionally and the more long-term approach taken when financial planning is discussed. Let’s look at an example. A first step with an experienced advisor would be to have the dental assistant prepare a list of assets and liabilities, which would be itemized to include the purchase price of a particular asset, such as a house, its current value, and the date of purchase. The liability, which would be the mortgage, should include the date of the financing, the interest rate, the term, the monthly payment, and whether the loan is fixed rate or variable rate. By having the dental assistant spend the time to prepare the information regarding the house, the advisor will know about the monthly expense for the financing and can discuss various types of financing for the dental assistant.
Suppose the assistant states to the advisor that the monthly payments are high. The advisor may see that the assistant took a 15-year mortgage term, with a lower interest rate than a 30-year mortgage term. The advisor may suggest that by converting to a 30-year mortgage, the monthly payment will probably be reduced by one half, even with an interest rate that will probably be about one-half percent higher than the 15-year rate. This will afford the dental assistant significant relief with the monthly cash flow requirements and allow the assistant to enjoy life more. The advisor would then discuss the housing market, the historical data involving price increases and decreases for those at the same home for many years, and the eventual upside potential for the value of house increasing over the 30-year term while living a much less stressful life during the payment period. The advisor may also talk about how most people don’t typically stay in the same house for the mortgage term. An advisor who knows finance will also describe the benefit of the fixed-rate mortgage and how inflation makes the cost of carrying the mortgage cheaper with time. Today’s dollar is worth more in 30 years. If the assistant’s compensation increases modestly, it costs less in future dollars to make a payment on a fixed basis using today’s interest rates that remain fixed. This is commonly known as a present or future value calculation.
If the assistant is concerned about spending the extra money that would have been created by the longer-term mortgage, the advisor may suggest investing in a retirement plan strategy, such as a Roth IRA, which will create future wealth and not harm the assistant’s current living standard.
A fee paid to an advisor could be a one-time charge. The time spent after the review of the data presented by the assistant during the conference can be used to discuss long- and short-term goals, needs, and any other questions that the assistant has. If the advisor is a good dental CPA, the preparation of the tax return may be included for a small additional fee. These advisory services are good to help the assistant get started as well as for getting help with types of financing available and other questions regarding daily living and improving cash flow.
Savings methods using the dental office for assistance based on the kinds of retirement plans and other types of benefits that they offer will be discussed and more readily understood as well by utilizing the services of an experienced dental advisor. The advisor may suggest taking the next step to wealth accumulation. This may include meeting with an additional person whose specific focus is on financial planning and wealth management.
The Financial Planning Approach
As the financial advisor will have an expertise in short-term problem solving and will give some long-term advice, the financial planner is the one who will continue the process by discussing what to do with the dental assistant’s asset accumulation. The planner’s objective is how to help the assistant attain wealth goals. The ability to enjoy a comfortable living is an important factor. The model that the planner will build takes more of a time investment in order to create something enduring. The financial planner may need more data than the advisor but will definitely have a head start in the process because of the work already prepared.
The planner keeps the assistant on track and presents a plan that, if followed, will allow the assistant’s lifetime financial goals to be achieved. Because the advisor may be a good dental CPA with excellent knowledge of the current financial path the assistant will take, that CPA is probably not a financial planner with long-term asset management ability. It is possible that the CPA may have these skills and abilities, but it is rare to have a CPA involved with long-term asset management wisdom as well as being able to oversee a certified public accounting practice. The ability to find a good planner will be helped along by the advisor because that person has probably dealt with at least a few planners during his or her career. An assistant can find someone much quicker if the advisor makes a referral to a planner.
Time and Money Invested with a Financial Planner
Although most of the initial work will probably have been completed by an advisor, the financial planner must still build the model with input from the dental assistant regarding acceptable risk-tolerance level. A good planner may lay out advice and goals and need significant time for the first conference and follow-up meeting to discuss the final plan. The planner will cost more than the advisor. The effect may be more of a term for reaching goals so that the initial money charged may be for a 3- to 5-year goal, depending upon the dental assistant’s career stage when the retention of the planner begins. It is important to have an advisor who is willing to work with the dental assistant and sees the upside potential for the dental assistant’s career path. Some planners are fee based, meaning that they don’t sell any products and do charge for their advice because they do not earn their income from their sales. Others are not fee based and sell products such as stocks, bonds, mutual funds, and annuities. They earn commissions. There is no right or wrong with either approach. It depends on the comfort level of the dental assistant, who is the client, to choose which financial planner to retain.
The Choice of the Advisor and Planner
The final choice of a financial advisor and financial planner for the dental assistant is important to a successful financial future. Reviews of resumes and referral sources are important to obtain a comfort level for an informed decision in the final choice for each. Dental assistants need to remember that they are the clients and, thus, they are the ones who choose and pay for the advice that will assist in allowing their lifetime financial goals to be achieved.