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STATE OF CONNECTICUT DEPARTMENT OF BANKING

STATE OF CONNECTICUT DEPARTMENT OF BANKING. INVESTOR EDUCATION SERIES. Always Be Careful. When Choosing a Financial Planner. A is for Advice. What kind do you need? Examples: Securities, Taxes, Estate Planning, Insurance

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STATE OF CONNECTICUT DEPARTMENT OF BANKING

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  1. STATE OF CONNECTICUTDEPARTMENT OF BANKING INVESTOR EDUCATION SERIES

  2. Always Be Careful When Choosing a Financial Planner

  3. A is for Advice • What kind do you need? • Examples: Securities, Taxes, Estate Planning, Insurance • Planners giving advice on securities for compensation must be registered with the State of Connecticut Dept. of Banking or the SEC

  4. Licensing At A Glance • June 30, 2010Broker-dealers Registered 2,509Broker-dealer Agents Registered 140,300Investment Advisers Registered 496SEC Registered Advisers Filing Notice 1,871Investment Adviser Agents Registered 9,947

  5. B is for Background Check • Find out if the planner has any disciplinary history (lawsuits; regulatory actions) • You can do an online check, or we will send or e-mail you the information • We do not tip off the planner that you are asking for information

  6. Check First • FINRA BrokerCheckwww.finra.org/Investors/ToolsCalculators/BrokerCheck/ • IAPDwww.adviserinfo.sec.gov/ Connecticut Department of BankingConsumer Affairs (860) 240-8170Securities Division (860) 240-8230Toll-free 1-800-831-7225 www.ct.gov/dob

  7. C is for Conflicts of Interest • Planners must tell you about any conflicts of interest that prevent them from giving you unbiased advice • Example: Planner also works for a brokerage firm and gets commissions for securities product sales

  8. D is for Disclosure • By law, investment advisers must give you a disclosure document (“brochure”) describing their compensation, background, investment strategies, services and areas of expertise • You should receive the brochure prior to, or when you sign the contract (you have 5 days to cancel the contract if you get the brochure at the time of contract signing)

  9. E is for Experience • How long has the planner been giving investment advice? • Does the planner have experience in your area of interest? • What is the planner’s work history?

  10. F is for Fees There is no such thing as a free lunch (that mailed “dinner seminar invitation” notwithstanding!)

  11. Fee Only Planners • Only get paid for giving advice • Does not matter if you follow the advice and buy a securities product • Usually an hourly charge or by project

  12. Commissions • Paid to a securities product seller (like a broker-dealer) for buying or selling securities • Decrease your total investment • Planners can get commissions if they are also associated with a brokerage firm

  13. Fees and Commissions • Planner receives both • Also called “fee based” or “fee offset” • Watch out for other fees (initial consultation fee; follow-up review fee)

  14. Wrap Fees • You get a bundled set of investment services (brokerage; advice) for a set fee • Planner may get a portion of the wrap fee you pay to the product sponsor

  15. G is for Guaranteed Profits • If your planner guarantees profits RUN TO THE NEAREST EXIT!

  16. H is for High Return/No Risk If you planner tells you a product has no risk and high returns HE’S LYING

  17. I is for Industry Designations • Show that the planner is pursuing continuing education in her field • But beware of titles suggesting a specialty in seniors’ affairs

  18. Common Designations • CFP (Certified Financial Planner) • ChFC (Chartered Financial Consultant – insurance) • PFS (Personal Financial Specialist – CPAs) • CFA (Chartered Financial Analyst – securities)

  19. R.I.A. • Stands for Registered Investment Adviser • Not an industry conferred designation • Just because an adviser is registered with Connecticut (or with the SEC) does not mean that the government has given him its stamp of approval

  20. J is for Jawboning • Beware of planners who brag about their past performance • Unscrupulous planners prey on your greed, reluctance to object, guilt, unwillingness to look dumb, etc.

  21. K is for Know Your Client • By law, investment advisers have a fiduciary duty to recommend products that align with your financial goals and risk tolerance

  22. L is for Liquidity • Tell your planner if you need ready access to funds (e.g. to pay bills) • If you need to access your funds, long- term or locked up investments are not for you

  23. M is for Multiple Hats • Your planner must tell you if she is working for multiple firms (e.g. selling securities products for a brokerage firm) • It is not uncommon for brokerage firms to set up shop in banks – looks aren’t everything!

  24. N is for Number of Clients • Ask the planner how many clients he has, and whether he only services high- income clients • Beware if his only experience is managing his own securities portfolio

  25. O is For One Size Fits All Plans • Ask to see a sample of financial plans the financial planner has prepared • Beware if the plans look the same – or recommend the same product(s)

  26. P is For Personal Attention • Ask the planner whether she (or an assistant) will be working with you • If you’ll be working with an assistant, do the same background check and homework on the assistant that you’d do on the financial planner

  27. Q is for Question Ask the planner as many questions as you want – after all, he’ll be working for YOU

  28. R is for Risk Assessment • Before you meet with the planner, think about how much investment risk you are able to bear

  29. S is for Schooling (and Services) • Did the planner graduate from the Wharton School of Business – or the local academy of hair design? • Nail down the planner on precisely what services he will provide

  30. T is for Take Your Time • You don’t have to follow the planner’s recommendations right away • If the planner pressures you to buy a particular product, be wary.

  31. U is for Understand the Strategies Beware of the “Einstein Effect” – the planner telling you that the investment strategy is so complicated, only he understands it

  32. V is for Variety Interview several planners before deciding on one

  33. W is for Writing (Get it in) • Ask for a copy of the adviser’s brochure – and read it beforehand • Review the advisory contract before you sign it

  34. X is for X Marks the Spot Don’t give the adviser discretion – the ability to trade securities for you without your permission – without granting that authority in writingand thinking it through

  35. Y is for You Are in Control Make the Adviser WORK For Your Business

  36. Z is for Zero In on Your Finances • Familiarize yourself with your financial plan • Read your account statements carefully • Keep up-to-speed on finance byreading newspapers and periodicals

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