STATE OF CONNECTICUT DEPARTMENT OF BANKING INVESTOR EDUCATION

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 • Planners giving advice on securities for compensation must be registered with the State of Connecticut Dept. of Banking or the SEC 3

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

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 5

Check First • FINRA Broker. Check www. finra. org/Investors/Tools. Calculators/Broker. Check/ • IAPD www. adviserinfo. sec. gov/ Connecticut Department of Banking Consumer Affairs (860) 240 -8170 Securities Division (860) 240 -8230 Toll-free 1 -800 -831 -7225 www. ct. gov/dob 6

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 7

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) 8

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? 9

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

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 11

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 12

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) 13

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 14

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

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

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 17

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

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 19

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. 20

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 21

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, longterm or locked up investments are not for you 22

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! 23

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

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) 25

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 26

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

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

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 29

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. 30

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 31

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

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 33

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 writing and thinking it through 34

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

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 by reading newspapers and periodicals 36