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 writingand 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