STATE OF CONNECTICUT DEPARTMENT OF BANKING
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Transcript of STATE OF CONNECTICUT DEPARTMENT OF BANKING
STATE OF CONNECTICUTDEPARTMENT OF BANKING
INVESTOR EDUCATION SERIES
Always Be Careful
When Choosing a Financial Planner
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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
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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
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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
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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)
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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?
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F is for Fees
There is no such thing as a free lunch
(that mailed “dinner seminar invitation”
notwithstanding!)
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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
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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
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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)
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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
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G is for Guaranteed Profits
• If your planner guarantees profits
RUN TO THE NEAREST EXIT!
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H 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 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 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.• 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 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 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 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 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 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 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 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 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 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)
• 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 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 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 Variety
Interview several planners before deciding on one
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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 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
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Y is for You Are in Control
Make the Adviser
WORK For Your Business
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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