Robert: Josh, thank you for joining me! This evening for me, afternoon for you. Perhaps you can give me an introduction as to who you are, what you do, and perhaps how you got into advising.
Joshua: My name is Joshua Fallenstein. I’m an investment advisor representative. I started my current role as an advisor back in 2014. I had kind of a roundabout way of getting into this. I initially started in unrelated fields, but then I got into proprietary trading, so I was trading firm capital. After that, I started working for a discount stock broker. I was a customer service representative. I got my Series 7. From there, I went into the insurance industry. I was working for an insurance company, and got my insurance licenses there. I then left to become a financial and investment advisor, so I picked up different licenses and qualifications along the way. At my current role, I have many different ways I can interact with clients and many different ways I can help clients with different needs and goals.
Robert: Very good. In terms of hiring an advisor, why would somebody want to hire an advisor? Perhaps you can maybe break up the different types of advisors and how that makes sense?
Joshua: Yes, okay. There are two questions there. One, why would you hire an advisor? First of all, what I do, is a full time job; staying on top of the economic environment, the political environment, the tax environment, and the investment environment. There’s no way somebody could spend the amount of time staying on top of all those different areas and have a full time job doing whatever else that they’re doing. If you want to have your money to be managed by somebody that is staying on top of all those things, you’re going to have to get help. There’s nobody that has enough time to be an expert at everything, and when it comes to saving for your retirement, for your child’s education, for whatever your investment goals are, you may have a much better chance of maximizing your resources and achieving those goals if you enlist the help of a financial services professional.
Joshua: Now, there are four different roles that I have when it comes to interacting with clients and serving their needs. One is as a registered representative, so I’m basically a stock broker. I can help people buy and sell securities such as stocks, bonds, ETFs, mutual funds. In that role, I’m generally compensated through commission. In contrast, as an investment advisor, I get paid through advisory fees which are a percentage of your account. I am also an insurance agent. In that role, I help to potentially transfer risk from you to the insurance company. The two major ways I help people do that are death benefits and life insurance. So if you die unexpectedly, the death benefit could help complete your estate plan or take care of your family. It also potentially transfers risk through income guarantees, so if you live a very, very long time, are you going to outlive your money? These are the ways we can transfer risk to an insurance company; because they pool amongst all the different people that work with them. Like other kinds of insurance you’re more familiar with if you think of car insurance or property and casualty insurance, these are ways that we can take care of your family if something were to happen to you, and make sure you don’t outlive your money.
Joshua: I’m also an investment advisor representative, which is usually how I introduce myself, and in that role, I can help people create financial plans, or I can help manage their money. I can do that in a couple of ways. I can find a money manager for them, or under that title, I can also manage the funds directly, which I personally don’t do, but other investment advisors can actually buy and sell your accounts for you. In that role, you usually receive a fee, which is a percentage based on your account. A fourth role that I have is as an enrolled agent, which for the people that deal with the IRS in the United States, that means I’m qualified to practice or represent somebody in front of the IRS. However, I choose not to represent people under that title. I keep the qualification and do a lot of continuing education, in which I learn a lot about the tax ramifications of the financial planning that I do. I think that really compliments my financial planning because I don’t ignore the tax element of it, which can have huge ramifications. If you don’t account for the taxes, you could be giving a large percentage of your return away in taxes, dramatically reducing your overall return.
Robert: Okay. Very good. How would I, or anybody for that matter, go about hiring an advisor? How does somebody find one for example?
Joshua: Okay. This is something that’s much easier for me to answer now that I’ve done this for a number of years, but there’s a number of ways to find them. You can ask for referrals from people that are happy with their advisor. You can go to different workshops or webinars. You can ask for a referral from maybe your other financial professionals that you work with. Maybe you have an insurance agent or a CPA, but I would suggest meeting with at least two or three different professionals. There’s a number of things that I would suggest looking for when you meet with these people. In my opinion, you want to be looking for someone who’s an independent advisor versus a captive, meaning they are allowed to work with as many companies as they want, not selling proprietary accounts. If they can only offer you products from the company they work for, that may limit them as to what they are able to offer you, and it may or not be the best thing for your situation.
Joshua: Another thing I would be looking for when interviewing an advisor: are they goal driven, or are they a product driven? Are they asking you, “What are your financial goals? Where are you now? How do we get you from point A to point B?” That would be a good thing. If they’re just talking about a particular investment or a particular insurance product without even asking you exactly what it is you’re trying to achieve, that would be a major red flag for me. How do they know what works for your specific situation if they haven’t even asked you? Another thing I would be looking for is do they have the ability to open security accounts, insurance accounts, and to manage money? Each of these different licenses and abilities to invest in different accounts may be better or worse for each individual situation. Sometimes you want a managed money account. Sometimes you need insurance. Sometimes you want a security. If the person you’re talking to can only offer you one of those- like I was talking about with the captive agent versus the independent agent- if they’re only selling insurance, well, then, everything they advise is going to be insurance.
Joshua: If you have a hammer, everything looks like a nail. You definitely want to look for someone who either can do all of the different types of investments themselves or someone who works closely with people that do.
Robert: Great. That’s good advice. A question that occurred to me, are you limited by geography? Is it like, for example, a lawyer can only practice in a certain state? How does that work? You need to pass exams in different states? How is that organized?
Joshua: Generally you get a license for your home state, and then depending on what kind of license it is, you probably need a license for the state of the person where you’re talking to them or where they live. A lot of that depends on are they visiting your home state and in your home office, or are you talking to them or visiting them in their home state? It also depends on what kind of license you have. Some licenses allow you to have up to five clients in a state without getting the license for that state. Others, if it’s a single client you need the license in that state. Normally, if you’re okay in your home state, it’s just a matter of getting a license for the other state. Those states will honor the home license state, but you do have to have the license in the other state as well.
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