STATE OF CONNECTICUT DEPARTMENT OF BANKING INVESTOR EDUCATION SERIES.

STATE OF CONNECTICUTSTATE OF CONNECTICUTDEPARTMENT OF BANKINGDEPARTMENT OF BANKING

INVESTOR EDUCATION SERIES

Always Be CarefulAlways Be CarefulWhen Choosing a When Choosing a Financial PlannerFinancial Planner

33

A is for AdviceA 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

44

Licensing At A GlanceLicensing At A Glance

• June 30, 2010

Broker-dealers Registered 2,509Broker-dealer Agents Registered 140,300

Investment Advisers Registered 496SEC Registered Advisers Filing Notice 1,871Investment Adviser Agents Registered 9,947

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B is for Background CheckB 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

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Check FirstCheck First• FINRA BrokerCheck

www.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

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C is for Conflicts of InterestC 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

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D is for DisclosureD 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)

99

E is for ExperienceE 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?

1010

F is for FeesF is for Fees

There is no such thing as a free lunch

(that mailed “dinner seminar invitation”

notwithstanding!)

1111

Fee Only PlannersFee 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

1212

CommissionsCommissions

• 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

1313

Fees and CommissionsFees and Commissions

• Planner receives both

• Also called “fee based” or “fee offset”

• Watch out for other fees (initial consultation fee; follow-up review fee)

1414

Wrap FeesWrap 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

1515

G is for Guaranteed ProfitsG is for Guaranteed Profits

• If your planner guarantees profits

RUN TO THE NEAREST EXIT!

1616

H is for High Return/No RiskH is for High Return/No Risk

If you planner tells you a product

has no risk and high returns

HE’S LYING

1717

I is for Industry DesignationsI 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

1818

Common DesignationsCommon Designations

• CFP (Certified Financial Planner)

• ChFC (Chartered Financial Consultant –

insurance)

• PFS (Personal Financial Specialist –

CPAs)

• CFA (Chartered Financial Analyst –

securities)

1919

R.I.A.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

2020

J is for JawboningJ 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.

2121

K is for Know Your ClientK 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

2222

L is for LiquidityL 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

2323

M is for Multiple HatsM 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!

2424

N is for Number of ClientsN 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

2525

O is For One Size Fits All PlansO 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)

2626

P is For Personal AttentionP 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

2727

Q is for QuestionQ is for Question

Ask the planner as many questions

as you want – after all, he’ll be working

for YOU

2828

R is for Risk AssessmentR is for Risk Assessment

• Before you meet with the planner,

think about how much investment risk

you are able to bear

2929

S is for Schooling (and Services)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

3030

T is for Take Your TimeT 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.

3131

U is for Understand the StrategiesU 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

3232

V is for VarietyV is for Variety

Interview several planners before

deciding on one

3333

W is for Writing (Get it in)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

3434

X is for X Marks the SpotX 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

3535

Y is for You Are in ControlY is for You Are in Control

Make the Adviser

WORK

For Your Business

3636

Z is for Zero In on Your FinancesZ 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