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STATE OF CONNECTICUTSTATE OF CONNECTICUTDEPARTMENT OF BANKINGDEPARTMENT OF BANKING
INVESTOR EDUCATION SERIES
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Always Be CarefulAlways Be CarefulWhen Choosing a When Choosing a Financial PlannerFinancial Planner
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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
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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)
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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?
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F is for FeesF is for Fees
There is no such thing as a free lunch
(that mailed “dinner seminar invitation”
notwithstanding!)
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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
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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
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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)
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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
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G is for Guaranteed ProfitsG is for Guaranteed Profits
• If your planner guarantees profits
RUN TO THE NEAREST EXIT!
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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
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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
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Common DesignationsCommon Designations
• CFP (Certified Financial Planner)
• ChFC (Chartered Financial Consultant –
insurance)
• PFS (Personal Financial Specialist –
CPAs)
• CFA (Chartered Financial Analyst –
securities)
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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
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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.
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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
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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
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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!
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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
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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)
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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
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Q is for QuestionQ is for Question
Ask the planner as many questions
as you want – after all, he’ll be working
for YOU
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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
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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
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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.
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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
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V is for VarietyV is for Variety
Interview several planners before
deciding on one
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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
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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
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Y is for You Are in ControlY is for You Are in Control
Make the Adviser
WORK
For Your Business
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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