Always Be Careful When Choosing a Financial Planner


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Always Be Careful When Choosing a Financial Planner

  2. 2. Always Be Careful When Choosing a Financial Planner
  3. 3. A is for Advice <ul><li>What kind do you need? </li></ul><ul><li>Examples: Securities, Taxes, Estate Planning, Insurance </li></ul><ul><li>Planners giving advice on securities for compensation must be registered with </li></ul><ul><li>the State of Connecticut Dept. of </li></ul><ul><li>Banking or the SEC </li></ul>
  4. 4. B is for Background Check <ul><li>Find out if the planner has any disciplinary history (lawsuits; regulatory actions) </li></ul><ul><li>You can do an online check, or we will send or e-mail you the information </li></ul><ul><li>We do not tip off the planner that you </li></ul><ul><li>are asking for information </li></ul>
  5. 5. C is for Conflicts of Interest <ul><li>Planners must tell you about any conflicts of interest that prevent them from giving you unbiased advice </li></ul><ul><li>Example: Planner also works for a brokerage firm and gets commissions </li></ul><ul><li>for securities product sales </li></ul>
  6. 6. D is for Disclosure <ul><li>By law, investment advisers must give you a disclosure document (“brochure”) describing their compensation, background, investment strategies, services and areas of expertise </li></ul><ul><li>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) </li></ul>
  7. 7. E is for Experience <ul><li>How long has the planner been giving investment advice? </li></ul><ul><li>Does the planner have experience in </li></ul><ul><li>your area of interest? </li></ul><ul><li>What is the planner’s work history? </li></ul>
  8. 8. F is for Fees <ul><li>There is no such thing as a free lunch </li></ul><ul><li>(that mailed “dinner seminar invitation” </li></ul><ul><li>notwithstanding!) </li></ul>
  9. 9. Fee Only Planners <ul><li>Only get paid for giving advice </li></ul><ul><li>Does not matter if you follow the advice </li></ul><ul><li>and buy a securities product </li></ul><ul><li>Usually an hourly charge or by project </li></ul>
  10. 10. Commissions <ul><li>Paid to a securities product seller (like </li></ul><ul><li>a broker-dealer) for buying or selling </li></ul><ul><li>securities </li></ul><ul><li>Decrease your total investment </li></ul><ul><li>Planners can get commissions if they </li></ul><ul><li>are also associated with a brokerage firm </li></ul>
  11. 11. Fees and Commissions <ul><li>Planner receives both </li></ul><ul><li>Also called “fee based” or “fee offset” </li></ul><ul><li>Watch out for other fees (initial consultation fee; follow-up review fee) </li></ul>
  12. 12. Wrap Fees <ul><li>You get a bundled set of investment services (brokerage; advice) for a set fee </li></ul><ul><li>Planner may get a portion of the wrap fee you pay to the product sponsor </li></ul>
  13. 13. G is for Guaranteed Profits <ul><li>If your planner guarantees profits </li></ul><ul><li>RUN TO THE NEAREST EXIT! </li></ul>
  14. 14. H is for High Return/No Risk <ul><li>If you planner tells you a product </li></ul><ul><li>has no risk and high returns </li></ul><ul><li>HE’S LYING </li></ul>
  15. 15. I is for Industry Designations <ul><li>Show that the planner is pursuing </li></ul><ul><li>continuing education in her field </li></ul><ul><li>But beware of titles suggesting a </li></ul><ul><li>specialty in seniors’ affairs </li></ul>
  16. 16. Common Designations <ul><li>CFP (Certified Financial Planner) </li></ul><ul><li>ChFC (Chartered Financial Consultant – </li></ul><ul><li>insurance) </li></ul><ul><li>PFS (Personal Financial Specialist – </li></ul><ul><li>CPAs) </li></ul><ul><li>CFA (Chartered Financial Analyst – </li></ul><ul><li>securities) </li></ul>
  17. 17. R.I.A. <ul><li>Stands for Registered Investment Adviser </li></ul><ul><li>Not an industry conferred designation </li></ul><ul><li>Just because an adviser is registered </li></ul><ul><li>with Connecticut (or with the SEC) does not mean that the government has given him its stamp of approval </li></ul>
  18. 18. J is for Jawboning <ul><li>Beware of planners who brag about their past performance </li></ul><ul><li>Unscrupulous planners prey on your greed, reluctance to object, guilt, unwillingness to look dumb, etc. </li></ul>
  19. 19. K is for Know Your Client <ul><li>By law, investment advisers have a fiduciary duty to recommend products </li></ul><ul><li>that align with your financial goals and </li></ul><ul><li>risk tolerance </li></ul>
  20. 20. L is for Liquidity <ul><li>Tell your planner if you need ready access to funds (e.g. to pay bills) </li></ul><ul><li>If you need to access your funds, long- </li></ul><ul><li>term or locked up investments are not </li></ul><ul><li>for you </li></ul>
  21. 21. M is for Multiple Hats <ul><li>Your planner must tell you if she is working for multiple firms (e.g. selling securities products for a brokerage firm) </li></ul><ul><li>It is not uncommon for brokerage firms to set up shop in banks – looks aren’t everything! </li></ul>
  22. 22. N is for Number of Clients <ul><li>Ask the planner how many clients he has, and whether he only services high- </li></ul><ul><li>income clients </li></ul><ul><li>Beware if his only experience is managing his own securities portfolio </li></ul>
  23. 23. O is For One Size Fits All Plans <ul><li>Ask to see a sample of financial plans </li></ul><ul><li>the financial planner has prepared </li></ul><ul><li>Beware if the plans look the same – </li></ul><ul><li>or recommend the same product(s) </li></ul>
  24. 24. P is For Personal Attention <ul><li>Ask the planner whether she (or an </li></ul><ul><li>assistant) will be working with you </li></ul><ul><li>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 </li></ul>
  25. 25. Q is for Question <ul><li>Ask the planner as many questions </li></ul><ul><li>as you want – after all, he’ll be working </li></ul><ul><li>for YOU </li></ul>
  26. 26. R is for Risk Assessment <ul><li>Before you meet with the planner, </li></ul><ul><li>think about how much investment risk </li></ul><ul><li>you are able to bear </li></ul>
  27. 27. S is for Schooling (and Services) <ul><li>Did the planner graduate from the Wharton School of Business – or the </li></ul><ul><li>local academy of hair design? </li></ul><ul><li>Nail down the planner on precisely what services he will provide </li></ul>
  28. 28. T is for Take Your Time <ul><li>You don’t have to follow the planner’s recommendations right away </li></ul><ul><li>If the planner pressures you to buy </li></ul><ul><li>a particular product, be wary. </li></ul>
  29. 29. U is for Understand the Strategies <ul><li>Beware of the “Einstein Effect” – the planner telling you that the investment strategy is so complicated, only he understands it </li></ul>
  30. 30. V is for Variety <ul><li>Interview several planners before </li></ul><ul><li>deciding on one </li></ul>
  31. 31. W is for Writing (Get it in) <ul><li>Ask for a copy of the adviser’s </li></ul><ul><li>brochure – and read it beforehand </li></ul><ul><li>Review the advisory contract before </li></ul><ul><li>you sign it </li></ul>
  32. 32. X is for X Marks the Spot <ul><li>Don’t give the adviser discretion – </li></ul><ul><li>the ability to trade securities for you </li></ul><ul><li>without your permission – without </li></ul><ul><li>granting that authority in writing and thinking it through </li></ul>
  33. 33. Y is for You Are in Control <ul><li>Make the Adviser </li></ul><ul><li>WORK </li></ul><ul><li>For Your Business </li></ul>
  34. 34. Z is for Zero In on Your Finances <ul><li>Familiarize yourself with your financial </li></ul><ul><li>plan </li></ul><ul><li>Read your account statements carefully </li></ul><ul><li>Keep up-to-speed on finance by reading newspapers and periodicals </li></ul>