Michigan Office of Financial & Insurance Regulation

1. Michigan Office of Financial & Insurance Regulation Linda Cena, Director of Securities Roger Hiller, Examiner www.michigan.gov/ofir

2. About OFIR • Agency within the Department of Energy, Labor & Economic Growth • OFIR regulates: • Banks, Credit Unions, Consumer Finance Lenders, HMOs, Insurance Companies, Insurance Agents, Debt Management Firms, Securities Agents and Broker-Dealers and Investment Advisers www.michigan.gov/ofir

3. OFIR – Securities Section • What we do: • Protect Michigan investors/ consumers • Regulate and license: • Investment Advisers • Broker Dealers • Securities Agents • Securities Products • Investor Education • Review of Product Offerings www.michigan.gov/ofir

4. OFIR – Securities Section • What we do: • Broker Check - What Does Broker Check Offer? • Verify Whether Your Financial Professional Is Licensed • Provide The Individual’s Disciplinary History • Provide The Individual’s Work History • Red Flags www.michigan.gov/ofir

5. OFIR – Securities Section • Call our Office (toll free) 877-999-6442 www.michigan.gov/ofir

6. Get the Facts: A Roadmap to Savings and Investing • Purpose Of This Presentation • Briefly Discuss Key Concepts Of Financial Planning • Provide Ideas On How You Can Pursue Your Financial Goals • Encourage You To Take Action As An Informed Investor • Nothing Discussed This Afternoon Is An Endorsement Of A Specific Product, Service Or Service Provider www.michigan.gov/ofir

7. Get the Facts: A Roadmap to Savings and Investing • Outline Of This Presentation • Define Your Goals • Pick A Financial Professional • Make a Financial Plan • Avoid Problems • The Real Journey Begins • Investment Product Options www.michigan.gov/ofir

8. Define Your Goals • What Are My Goals? • Build a nest egg for retirement? • Save for children’s or grandchildren’s higher education expenses? • Use investment income to pay off personal and/or family debts? • Establish an emergency fund from profits generated from investment? • Regardless of your goal, write it down www.michigan.gov/ofir

9. Pick a Financial Professional • Key: Pick a professional who will work to identify your goals and needs and recommend a range of financial products. Questions to ask a prospective professional: • What experience do you have (has the professional experienced both good and bad stock markets?) www.michigan.gov/ofir

10. Pick a Financial Professional` • Questions - Continued • What are your qualifications, training and experience? (CFP, CFA, ChFC, CPA, etc.) • What services do you offer? • Do you offer a wide range of products? • What is your investment philosophy? (Risk-taker or Risk-averse? Age does not necessarily determine investment philosophy www.michigan.gov/ofir

11. Pick a Financial Professional • Questions - Continued • Will I have a specific person dedicated to my account? (Level of Service) • Have you been publicly disciplined for any unlawful or unethical actions during your professional career? (OFIR can provide information on disciplinary action taken against registered individuals) www.michigan.gov/ofir

12. Pick a Financial Professional • Questions - Continued • What is the basis and level of what I will be charged for your services? (commissions, management or other fees?) www.michigan.gov/ofir

13. Make a Financial Plan • Evaluate your financial situation • With your financial professional’s assistance, make a budget based upon your current income and outflow. www.michigan.gov/ofir

14. Make a Financial Plan • Benefits Of Making A Budget: • Enables Monitoring Of Income And Outflow • Assists In Making Financial Decisions • Does The Budget Allow For That New Car, Entertainment System, Home Remodeling? • Can I Put Enough Money Aside For Children’s Higher Education Expenses? www.michigan.gov/ofir

15. Make a Financial Plan • Benefits Of Making A Budget: • Written budget-related goals help In controlling spending (Do I really need that purchase?) • Identifies Areas Of Overspending • Eating out • Recurring subscriptions • Buying unneeded items • Spending too much on gifts www.michigan.gov/ofir

16. Make a Financial Plan • Benefits Of Making A Budget: • Enhances Family Awareness Of Goals • Goal Awareness May Improve Family Communication And Cohesiveness • Improves Family Awareness Of The Need To Budget For Emergencies Or Unanticipated Challenges www.michigan.gov/ofir

17. Make a Financial Plan • When Making a Budget • Start Simple - A small notebook can be used to track what you spend your money on • The budget doesn’t have to be the same each month • Don’t lose sight of the end goal • Allow for small rewards for sticking to your budget www.michigan.gov/ofir

18. Make a Financial Plan • Evaluate your needs and the time horizon that you have to meet those needs • Younger investors may be able to tolerate more risk than seniors • Establish goals and monitor progress made on those goals • What are my goals for retirement? www.michigan.gov/ofir

19. Make a Financial Plan • Establish goals and monitor progress made on those goals - continued • Will I be able to fund education for my children? • Do I have the ability to weather any unanticipated problems? (job loss, career change, medical situation, unexpected bills) • Are my goals realistic given my income level? www.michigan.gov/ofir

20. Make a Financial Plan • Establish goals and monitor progress made on those goals - continued • Does my budget allow for creation of an emergency fund if a surprise happens? • Am I maximizing my opportunities? (company 401K matching programs or similar retirement-type opportunities) www.michigan.gov/ofir

21. Start Your Plan/Avoid Problems • Start your program now! • “A journey of a thousand miles begins with a single step” - Lao Tzu, Chinese Philosopher • One of the most common mistakes investors make is delaying their investment/savings plan until “tomorrow” • Small investments can grow over time www.michigan.gov/ofir

22. Start Your Plan/Avoid Problems • Time Value of Money - $25K invested at 6% compounded rate of return www.michigan.gov/ofir

23. Start Your Plan/Avoid Problems • Common Mistakes Investors Make • Waiting Too Long To Begin • Choosing A Time Horizon Inconsistent With Their Investment Plan • Choosing A Financial Professional Too Quickly • Take Your Time! • Check Their History (Broker Check) • Read The Fine Print On The Contract www.michigan.gov/ofir

24. Start Your Plan/Avoid Problems • Common Mistakes - Continued • Choosing A Financial Professional Too Quickly - Continued • Don’t hesitate to ask questions • Evaluate potential financial service providers until you find one that meets your requirements • Remember: No one will be more committed to your interests than you www.michigan.gov/ofir

25. Start Your Plan/Avoid Problems • Common Mistakes - Continued • Overreliance On Their Financial Professional • Playing A Passive Role In The Management Of Their Assets • Read Your Account Statements • Ask Questions For Things You Don’t Understand www.michigan.gov/ofir

26. Start Your Plan/Avoid Problems • Common Mistakes Investors Make • Not Creating An Investment Plan • An Investment Plan Is The Roadmap To Your Financial Goals • Not Establishing An Appropriate Benchmark To Measure Performance • The Success Of Your Investment Plan Must Be Measured Against A Proper Benchmark. www.michigan.gov/ofir

27. Determine Your Risk Tolerance • Elements that must be considered when determining risk tolerance • What is the appropriate time period? How many years do I have until I need to use the assets I set aside? • Longer time period = greater risk tolerance and the ability to recover losses • Shorter time period = less risk tolerance and a need to preserve your investment www.michigan.gov/ofir

28. Determine Your Risk Tolerance • Elements that must be considered when determining risk tolerance • Does your financial professional’s experience and policy toward risk fit your risk tolerance? www.michigan.gov/ofir

29. Investment Products - Choices • When you make an investment, you are giving your money to a company or an enterprise, hoping that it will be successful and generate a profitable return on that investment www.michigan.gov/ofir

30. Investment Products - Choices • Stocks New York Stock Exchange - UPI photo IBM stock certificate from www.artonpapers.com www.michigan.gov/ofir

31. Investment Products - Choices • Stocks • A stock certificate represents ownership interest in a corporation and a claim on that corporation’s earnings and assets • Risks of owning stock include • Market risk - Is it a ‘bull’ or ‘bear’ market? www.michigan.gov/ofir WWW.STOCKCHARTS.COM

32. Investment Products - Choices • Stocks • Risks of owning stock - Continued • Business risk - Is the company’s business model sound? • Financial risk - Does the company manage its income and expenses conservatively? • Management Risk • Has there been a recent change in management? • Does management have a good reputation? • Does management’s compensation structure match the interests of the shareholders? www.michigan.gov/ofir

33. Investment Products - Choices • Bonds • A debt instrument whereby the investor lends the borrowing entity funds for a defined time period and interest rate • Also referred to as fixed income investments WWW.JUSTICE.GOV www.michigan.gov/ofir

34. Investment Products - Choices • Bond Risks • Interest Rate Risk - If interest rates rise, values of bonds having fixed interest rates will fall • Inflation Risk - Fixed rate bonds will fall in value if inflation rates rise • Market Risk - If the general bond market were to fall, individual bond values would likely be impacted (falling tide scenario) www.michigan.gov/ofir

35. Investment Products - Choices • Bond Risks - Continued • Default Risk - The risk that the bond issue won’t be able to pay off the bond principal and interest • Legislative Risk - Changes in tax codes may impact the value of bonds having tax-advantage features www.michigan.gov/ofir

36. Investment Products - Choices • Mutual Funds • A mutual fund is a pool of investor funds dedicated to investing in stock, bonds, money market instruments and other investments • An advantage of mutual funds is that they allow investors access to professionally-managed, diversified portfolios of equities, bonds and other investments www.michigan.gov/ofir

37. Investment Products - Choices Mutual Funds - Continued • Mutual Fund Risks/Questions • Although more diverse than individual stocks or bonds, mutual funds can suffer losses when the stock or bond markets experience a downturn • Sector mutual funds (technology, energy, healthcare, etc.) may underperform the general markets if the sector underperforms • How does the fund’s performance compare to its peers? • Does the fund invest in highly volatile securities such as derivatives? • What are the costs of fund ownership? www.michigan.gov/ofir

38. Investment Products - Choices Annuities • A contract under which a series of payments are promised to a person in exchange for a single payment or series of payments • Sold in Michigan by insurance agents www.michigan.gov/ofir

39. Investment Products - Choices Questions to ask on Annuities • What is the guaranteed rate of return? • What charges and fees, if any, are deducted from my contract value and when? • What is the commission paid to the seller? • What are the risks that the annuity could decline in value? www.michigan.gov/ofir

40. Investment Products - Choices Questions to ask on Annuities • How many years will surrender charges apply? • What death benefit is provided by the annuity? • What annuity income payment options do I have and when do the options apply? www.michigan.gov/ofir

41. The Journey Begins • Ongoing questions to ask yourself • How frequently do I receive statements? • Do I understand my statements? • Are returns on my investments meeting my objectives? • Is my financial professional’s performance meeting my objectives? • Have my goals changed? If yes, is my investment plan still appropriate? www.michigan.gov/ofir

42. The Journey Begins • Regardless of where you are in your investing plan, please remember the following: • If it sounds too good to be true, it usually is • It’s okay to question your money manager’s strategy. It’s also your right • Nobody will do more to protect your interests than you www.michigan.gov/ofir

43. Get the Facts: A Roadmap to Savings and Investing • Review Of The Steps To Protect And Grow My Investments • Define goals • Pick a financial professional • Make a financial plan • Decide my risk tolerance • Decide which investment products meet my goals and financial plan www.michigan.gov/ofir

44. Get the Facts: A Roadmap to Savings and Investing • WWW.SEC.GOV • WWW.FINRA.ORG • We can be reached at 877-999-6442 Michigan Office of Financial & Insurance Regulation www.michigan.gov/ofir

45. Get the Facts: A Roadmap to Savings and Investing • Thank You! Michigan Office of Financial & Insurance Regulation www.michigan.gov/ofir