1. 2 Does the Suit Mean Honesty? Spotting Inappropriate Investments and working with your Financial Professional.

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Does the Suit Mean Honesty?

Does the Suit Mean Honesty?

Spotting Inappropriate Investments and working with your Financial Professional

Spotting Inappropriate Investments and working with your Financial Professional

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The Maine Office of Securities

The Maine Office of Securities

Part of Maine’s Department of Professional and Financial Regulation

www.investors.maine.gov

A source of objective and impartial information

Part of Maine’s Department of Professional and Financial Regulation

www.investors.maine.gov

A source of objective and impartial information

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Useful brochures on our website

Useful brochures on our website

www.investors.maine.gov

Five Keys to Investing SuccessA Primer for Investing in StocksA Primer for Investing in BondsMutual Funds May be all You’ll Ever

NeedGetting Help with your InvestmentsMaximize Your Retirement Investments

www.investors.maine.gov

Five Keys to Investing SuccessA Primer for Investing in StocksA Primer for Investing in BondsMutual Funds May be all You’ll Ever

NeedGetting Help with your InvestmentsMaximize Your Retirement Investments

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Topics CoveredTopics Covered

What the Office of Securities does

The Rise of investment abuse

Types of financial professionals and their obligations

Finding a financial professional and questions you should ask

Record keeping

Warning signs

What the Office of Securities does

The Rise of investment abuse

Types of financial professionals and their obligations

Finding a financial professional and questions you should ask

Record keeping

Warning signs

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The Mission of the Maine Office of Securities

The Mission of the Maine Office of Securities

Protection of Maine investors

Licensing financial professionals

Reviewing registration statements and exemptions filings

Investor education

Protection of Maine investors

Licensing financial professionals

Reviewing registration statements and exemptions filings

Investor education

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How the Maine Office of Securities can help youHow the Maine Office of Securities can help you

Verify whether your financial professional is licensed

Provide you with disciplinary history

Examinations

Prior work history

Red flags

Formal enforcement actions

Informal assistance

Verify whether your financial professional is licensed

Provide you with disciplinary history

Examinations

Prior work history

Red flags

Formal enforcement actions

Informal assistance

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The Rise of Investment Abuse

The Rise of Investment Abuse

Weaker returns in the stock market

Shortfalls in retirement money

Investment decisions based upon fear or greed

Fewer government resources since 9/11

Financial illiteracy

Weaker returns in the stock market

Shortfalls in retirement money

Investment decisions based upon fear or greed

Fewer government resources since 9/11

Financial illiteracy

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Why Directed at Seniors?Why Directed at Seniors?

“That’s where the money is.”

More trusting generation

Perception that you are an “easy target”

Demographics – more of you

“That’s where the money is.”

More trusting generation

Perception that you are an “easy target”

Demographics – more of you

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Types of Investment Abuse

Types of Investment Abuse

Inappropriate investment recommendations

Misrepresentation of risk

Churning

Unauthorized trading

Failure to execute

Inappropriate investment recommendations

Misrepresentation of risk

Churning

Unauthorized trading

Failure to execute

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More Serious Forms of Investment Abuse

More Serious Forms of Investment Abuse

Ponzi schemes

Sham promissory notes

Pump and dump market manipulation schemes

Prime bank schemes

Ponzi schemes

Sham promissory notes

Pump and dump market manipulation schemes

Prime bank schemes

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Examples of Investment Abuse in Maine

Examples of Investment Abuse in Maine

The Portland AttorneyUse of position of trust

The Gourley caseSecurities are broadly defined

The Portland AttorneyUse of position of trust

The Gourley caseSecurities are broadly defined

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Techniques used by Scam Artists

Techniques used by Scam Artists

Undercover tape Tactics used

Phantom fixation (dangling prospect of wealth and riches) Scarcity (marking the product offered seem rare to

increase its value) Source of credibility (claiming to be from a known

legitimate business) Comparison (juxtaposing a more expensive price with the

offered price) Reciprocity (the con will do a small favor putting pressure

on the victim to reciprocate) Landscaping (structuring the interaction leading to where

the con wants to go) Profiling (identifying victim’s psychological buttons through

extensive questioning) Fear (use of fear and intimidation to persuade) Authority (con plays the role of authority figure) Dependent (con plays the role of young helpless

dependent)

Undercover tape Tactics used

Phantom fixation (dangling prospect of wealth and riches) Scarcity (marking the product offered seem rare to

increase its value) Source of credibility (claiming to be from a known

legitimate business) Comparison (juxtaposing a more expensive price with the

offered price) Reciprocity (the con will do a small favor putting pressure

on the victim to reciprocate) Landscaping (structuring the interaction leading to where

the con wants to go) Profiling (identifying victim’s psychological buttons through

extensive questioning) Fear (use of fear and intimidation to persuade) Authority (con plays the role of authority figure) Dependent (con plays the role of young helpless

dependent)

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Financial Professionals’ Responsibilities

Financial Professionals’ Responsibilities

Honesty and fairness

What does this mean?

Full and accurate information about the investment

Disclosure of risksDisclosure of costsDisclosure of obligations and restrictionsSuitable recommendationsAccurate records

Honesty and fairness

What does this mean?

Full and accurate information about the investment

Disclosure of risksDisclosure of costsDisclosure of obligations and restrictionsSuitable recommendationsAccurate records

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Selecting a Financial Professional

Selecting a Financial Professional

Do you need one?

Types of financial professionals:Investment advisersBroker-dealers

Do you need one?

Types of financial professionals:Investment advisersBroker-dealers

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Differences between Investment Advisers and

Broker-dealers

Differences between Investment Advisers and

Broker-dealers Investment advisers are fiduciaries –

they must put your interests first

Compensation Investment advisers are fee-based Broker-dealers receive commissions

A broker-dealer’s conflicts of interests Potential to over-trade Tied to particular securities products

Investment advisers are fiduciaries – they must put your interests first

Compensation Investment advisers are fee-based Broker-dealers receive commissions

A broker-dealer’s conflicts of interests Potential to over-trade Tied to particular securities products

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Differences, continuedDifferences, continued

No such conflicts with investment advisers

One conflict may be a desire to manage all of your assets when not in your best interests

No such conflicts with investment advisers

One conflict may be a desire to manage all of your assets when not in your best interests

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Investment AdvisersInvestment Advisers

How they charge: a percentage of assets under management

Example: 1% of $100,000 yearly equates to a fee of $1,000.

How they charge: a percentage of assets under management

Example: 1% of $100,000 yearly equates to a fee of $1,000.

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Types of Broker-dealersTypes of Broker-dealers

Full-service

Discount brokers

Online brokers

Full-service

Discount brokers

Online brokers

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Types of Broker-dealers, continued

Types of Broker-dealers, continued

Full-service brokers – will pay higher commission

Discount brokers – no specific recommendations

Online brokers – internet trading only

Full-service brokers – will pay higher commission

Discount brokers – no specific recommendations

Online brokers – internet trading only

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Types of Investment Advisers

Types of Investment Advisers

Financial planners

Provision of financial planRelationship is not ongoingUsually hourly fee, or hourly fee with

a capYou are responsible for executing

Financial planners

Provision of financial planRelationship is not ongoingUsually hourly fee, or hourly fee with

a capYou are responsible for executing

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Types of Investment Advisers, continuedTypes of Investment Advisers, continued

Portfolio Manager

Will manage your assetsOn an ongoing basisWill generally charge you a

percentage of your assetsGenerally, have discretionary

authority

Portfolio Manager

Will manage your assetsOn an ongoing basisWill generally charge you a

percentage of your assetsGenerally, have discretionary

authority

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Finding a Financial Professional

Finding a Financial Professional

Yellow pages

If investment adviser, any credentials?

CFP (Certified Financial Planner) ChFC (Chartered Financial Consultant) CPA (Certified Public Accountant) PFS (Personal Financial Specialist)

Be wary of “Senior Specialist” designations

Yellow pages

If investment adviser, any credentials?

CFP (Certified Financial Planner) ChFC (Chartered Financial Consultant) CPA (Certified Public Accountant) PFS (Personal Financial Specialist)

Be wary of “Senior Specialist” designations

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Finding a Financial Professional, continuedFinding a Financial Professional, continued

References from

Family, friends, co-workers Lawyers, accountants, insurance

agents

Always check first with our Office!

References from

Family, friends, co-workers Lawyers, accountants, insurance

agents

Always check first with our Office!

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Other Organizations that may Assist

Other Organizations that may Assist

The Financial Planning Association

The National Association of Personal Financial Advisors

The American Institute of CPA’s

The Society of Financial Service Professionals

The Financial Planning Association

The National Association of Personal Financial Advisors

The American Institute of CPA’s

The Society of Financial Service Professionals

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Questions to AskQuestions to Ask

Fee structure

Investment record

Other clients

How would they invest?

Demeanor

Fee structure

Investment record

Other clients

How would they invest?

Demeanor

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How to Deal with your Financial ProfessionalHow to Deal with your Financial Professional

Give the matter your full attention

Does the suggestion fit in with your investment plan?

Ask for more information

Give the matter your full attention

Does the suggestion fit in with your investment plan?

Ask for more information

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Record-keepingRecord-keeping

Log of all conversations

Documents and statements

Emails/notes

Clippings/research reports

Always review statements promptly and thoroughly and have mistakes corrected

Log of all conversations

Documents and statements

Emails/notes

Clippings/research reports

Always review statements promptly and thoroughly and have mistakes corrected

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Warning SignsWarning Signs

Guarantees investments

Puts money into one investment only

Argues with you or ignores your instructions

Is vague about commissions or fees

Requests you to sign documents without giving you the opportunity to read them

Guarantees investments

Puts money into one investment only

Argues with you or ignores your instructions

Is vague about commissions or fees

Requests you to sign documents without giving you the opportunity to read them

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ConclusionConclusion Clear communication is the key

Two-way obligation

Always be candid and specific about goals and financial assets

Let your financial professional know about major changes affecting your financial situation

Let your financial professional know about your comfort level with investment risk

Make sure you always understand any investments recommended

Clear communication is the key

Two-way obligation

Always be candid and specific about goals and financial assets

Let your financial professional know about major changes affecting your financial situation

Let your financial professional know about your comfort level with investment risk

Make sure you always understand any investments recommended

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Any questions?

www.investors.maine.gov

Any questions?

www.investors.maine.gov