While news reports are focused on the pandemic, the economy and important social issues, a silent evolution in the financial services industry is underway. By the end of this month, investors will have available an easy way to distinguish between financial professionals, thanks to the U.S. Securities and Exchange Commission. The SEC regulates the financial services industry.

What is this new tool?

It’s called the CRS, which stands for “customer relationship summary”; you will be receiving a copy from your “broker” or “adviser” (there is a difference) very soon. If you are in the market for a new broker or adviser, the CRS will help you shop. That’s what it was designed to do.

Every broker or adviser with whom you do business must provide you with a CRS that follows a recipe: a mandated question-and-answer format presented in a prescribed order.

What’s behind this mandate? The SEC’s goal is to “promote consistency and comparability among different relationship summaries.”

What’s in the document? A summary of fees and costs; a description of ways the firm makes money; conflicts of interest and standards of conduct; financial professionals’ compensation; and whether financial professionals have reportable disciplinary history.

The CRS must also contain mandated “conversation starters,” which are intended to help investors “dialogue with their financial professionals about their individual circumstances.”

Take this example: “Given my financial situation, should I choose a brokerage service (or an investment advisory service)? Why or why not?”

And these examples:

-- “How will you choose investments to recommend to me?”

-- “What is your relevant experience, including your licenses, education and other qualifications? What do these qualifications mean?”

-- “Help me understand how ... fees and costs might affect my investments. If I give you $10,000 to invest, how much will go to fees and costs, and how much will be invested for me?”

-- “How might your conflicts of interest affect me, and how will you address them?”

This last question is probably the most difficult for individuals to understand -- after all, what is a conflict? The reason to ask the question, and to listen to the answer carefully, is this: The question “underscores for retail investors that investment advisers and broker-dealers have conflicts that may create incentives to put their interests ahead of the interests of their retail clients and customers,” quoting the SEC.

Potential conflicts can be proprietary products, third-party payments, revenue sharing, principal trading and the payment of fees to someone to refer clients, to name a few.

There are two more conversation starters:

-- “As a financial professional, do you have any disciplinary history? For what type of conduct?”

-- “Who is my primary contact person? Is he or she a representative of an investment adviser or a broker-dealer? Who can I talk to if I have concerns about how this person is treating me?”

These new disclosure documents will be very important for you to read and discuss with your financial professional. They will likely open up new avenues to explore when considering your needs. And they will help you when you are shopping for a new financial professional, especially in times of transition, such as a divorce, change of a job or approaching retirement.

Finally, getting back to the point that there are differences between investment advisers and brokers, I recommend watching a video posted on SEC.gov by SEC Chairman Jay Clayton on that topic, which you will find here: youtube.com/watch?v=FZNCce1spHQ.

You’ll also find details on the CRS at Investor.gov/CRS, a page on the SEC’s investor education website that will offer educational information about investment advisers, broker-dealers and individual financial professionals.

For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/428599231/f41fd5c1ae.

When you receive your CRS from the brokerage firms and advisers you work with, let me know what you think. Are they helpful? Do they raise questions? Write to me at readers@juliejason.com.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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The North American Securities Administrators Association (NASAA) wants investors to be aware that fraudulent investment schemes are surging during the COVID-19 crisis.

“In these extraordinary times the health and welfare of all must be our foremost concern, and that includes our financial health. Our primary focus remains on the protection of retail investors,” said Christopher W. Gerold, president of NASAA and chief of the New Jersey Bureau of Securities, in a recent news release.

The global pandemic has increased threats to investors related to COVID-19, including “fraudulent offerings, investment frauds and unregistered regulated activities,” explained Gerold.

“Just as state and provincial securities led the way in protecting investors from fraudulent cryptocurrency-based schemes in 2018, we stand ready to protect investors from COVID-19-related schemes,” said Gerold.

How do you know if you might be susceptible to being taken advantage of by a fraudster?

Over my many years in the financial services industry, first as a lawyer, then as a money manager, I can tell you that being a skeptic is the key characteristic that lowers the possibility of being defrauded.

If you would like to get a sense of your own susceptibility to being scammed, let me tell you about something that can guide you. Developed by NASAA and the Canadian Securities Administrators, there is a 12-question quiz to help individuals avoid becoming victims. The quiz, which was developed a while ago, is still relevant today. You can find it here: surveymonkey.com/r/2020FraudQuiz.

The quiz was designed to test investors’ knowledge of scams and frauds, and also to increase financial literacy.

Some of the questions relate to the person who is making the recommendation.

How would you answer this question? “A fellow book club member tells you about an investment opportunity that has earned returns of 20% during the past year. Your investments have been performing poorly and you’re interested in earning higher returns. This person is your friend and you trust them. What should you do?”

Many people would go along with the friend’s recommendation. Would you?

Here is NASAA’s answer: “You should never make an investment based simply on word-of-mouth, even if the recommendation comes from a family member, friend or acquaintance. Fraudulent schemes are frequently perpetuated this way. The promise of quick, high returns should also alert you to a possible scam. As a general rule, risk and return are proportional; the higher the return, the higher the risk. Even if a company looks and sounds legitimate, you should always check it out. Therefore, ask for more information about the investment and call your securities regulator to see if the investment has been registered or exempted for sale.”

To read more about avoiding fraud, visit NASAA’s Fraud Center at www.nasaa.org/investor-education/fraud-center/.

We’ll discuss ways to identify potential scams and how to protect yourself and your family members from fraud in a future column.

In the meantime, do write to me (readers@juliejason.com) to share any experiences you have had that can help other readers of this column protect themselves.

For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/426345452/425463bfa6.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Today, May 29, is National 529 College Savings Plan Day. 529s are named after an Internal Revenue Code section (yes, it’s Section 529), which was adopted in 1996. 529s are intended to help families save for college with the help of tax advantages.

I suggest thinking of 529s as having two phases: the saving phase and the spending phase.

The saving part is relatively easy. There are limits on how much money can be put into a 529 plan, which you can read about here: tinyurl.com/y9jhrsp3.

Most 529 plans are organized by states. You can look up your state’s plan here: tinyurl.com/yb4lsr7u. This list is provided by the College Savings Plan Network (CSPN), which was formed in 1991 as an affiliate to the National Association of State Treasurers.

For example, South Carolina’s plan is called FutureScholar.com. South Carolina residents can claim a tax deduction on their state tax returns for contributions to a South Carolina 529. In fact, the majority of states have similar provisions (for a list, go to tinyurl.com/y8wwrdxg).

However, there are limits on who can claim the tax deduction. Check your state: Is it the owner of the 529 account who can claim the deduction or the person who funded the account?

Earnings are income-tax-free on the state and federal level, but only as long as withdrawals are used for qualified education expenses (QEE).

That brings me to the more difficult aspect of 529 plans: What happens when the student you have been saving for needs the money to pay bills? That’s the QEE part of the equation.

If you use the money for purposes other than QEE expenses, you not only lose tax advantages, but also may need to pay a 10% penalty. There are gift- and estate-tax issues to be considered as well. The bottom line? Study QEEs.

Since Jan. 1, 2018, 529s are not limited to post-secondary costs. QEEs now include up to $10,000 of K-12 tuition.

When it comes to spending 529 funds, there are specific rules and regulations related to it. You can find information here: tinyurl.com/y9rgtcfk.

The upshot is that 529s can be very valuable in the right circumstances, but they take some effort to understand before leaping forward. My recommendation: Set aside some time to do your research.

Here is a list of resources: An independent firm called savingforcollege.com has an easy-to-use website. Begin with “What is a 529 plan?” which you will find under “College Savings 101.”

You’ll want to visit the regulators’ websites as well:

Financial Industry Regulatory Authority (FINRA) website (tinyurl.com/ydye9wm5)

Internal Revenue Service’s Publication 970 (Tax Benefits for Higher Education) (tinyurl.com/lnmb4q4)

The Municipal Securities Rulemaking Board’s education center website (tinyurl.com/ydxugjvj)

The Securities and Exchange Commission (tinyurl.com/yd8zqejy)

It helps to have a “529 Day” place an emphasis on saving for education. A related topic is student loans; send me an email (readers@juliejason.com) if you have any interest in that topic.

Finally, there should be a “How to Go to College for Free” Day. This happens to be the title of another resource that is worth reading at: https://www.savingforcollege.com/article/how-to-go-to-college-for-free.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION