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NFA Investor Newsletter

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July 15, 2015
In this Issue:
Understand automated investment tools to avoid risk Spot a scam Invest in cybersecurity First line of defense Recent enforcement actions


Understand automated investment tools to avoid risk

As the largest generational group in the workplace according to Pew Research Center, millennials are increasingly earning greater investable assets and facing complex financial decisions. These 18- to 34-year-olds are turning to advisors who offer platforms that appeal to their hyper-connected lifestyles. Young investors want their investments to be at their fingertips. They want 24/7 access to their portfolios, whether it's in line at the store or on their commute into the office.

More and more investment tools are being developed to accommodate this advice-on-demand culture, but with digital tools come risk. The Securities and Exchange Commission provides guidance you should consider to avoid the risks associated with automated investment tools.

Understand any terms and conditions. Review all relevant disclosures for an automated investment tool, such as the fees and expenses associated with using the tool or with selling or purchasing investments. Find out how you can terminate any agreement or relationship, and how long it may take to cash out any investments if you decide to stop using the tool. If anything is unclear or you need additional information, directly contact the automated tool sponsor.

Consider the tool’s limitations, including any key assumptions. Be aware that an automated tool may rely on assumptions that could be incorrect or do not apply to your individual situation. For example, an automated investment tool may be programmed to use economic assumptions that will not react to shifts in the market. If the automated tool assumes that interest rates will remain low but, instead, interest rates rise, the tool’s output will be flawed.

Recognize that the automated tool’s output directly depends on what information it seeks from you and what information you provide. Which questions the tool asks and how they are framed may limit or influence the information you provide, which in turn directly impacts the output that an automated investment tool generates. If any of the questions are unclear or you do not understand why the information is being sought, ask the tool sponsor. Be aware that a tool may ask questions that are over-generalized, ambiguous, misleading, or designed to fit you into the tool’s predetermined options.

Be aware that an automated tool’s output may not be right for your financial needs or goals. An automated investment tool may not assess all of your particular circumstances, such as your age, financial situation and needs, investment experience, etc. Consequently, some tools may suggest investments (including asset-allocation models) that may not be right for you. For example, an automated investment tool may estimate a time horizon for your investments based only on your age, but not take into account that you need some of your investment money back in a few years to buy a new home. In addition, automated tools typically do not take into account that your financial goals may change.

Safeguard your personal information. Be aware that an automated tool sponsor may be collecting your personal information for purposes unrelated to the tool. Understand when and with whom your personal information may be shared. If you have questions that are not answered in the tool’s privacy policy, contact the tool’s sponsor for more information. In addition, look out for phishing and other scams designed to trick you into revealing personal financial information. Unless you are accessing an account that you established, do not provide bank or brokerage account numbers, passwords, PINs, credit card information, Social Security numbers, or other personally identifiable information.

Spot a scam

Anyone can be a victim of investment fraud. Investment pitches come at us from a variety of sources—phone, email, newspaper or magazine ads, and more. No matter how you learn about an investment opportunity, be very careful. Although some may be legitimate offers, many investment opportunities are scams designed with the sole purpose of separating you from your money.

To protect investors, the Securities and Exchange Commission (SEC) outlines these red flags to look for when making an investment decision. While the SEC's investor alert focuses on senior citizens, who are often targets of investment fraud, these red flags are important for all investors to note.

Promises of high returns with minimal risk. The promise of a high rate of return with little or no risk is a classic warning sign of investment fraud. Every investment carries some degree of risk. Avoid putting money into investment opportunities promising guaranteed returns.

Unregistered persons. Always check whether the person offering to sell you an investment is registered and licensed. Use NFA’s free online tool, Background Affiliation Status Information Center (BASIC), to research the registration status and disciplinary history of firms and individuals in the derivatives market. You can also find an individual’s registration and license status by using Financial Industry Regulatory Authority's (FINRA)'s BrokerCheck online database.

Potential problems in the financial professional’s background. Even if an investment professional is in good standing with regulators, be aware of potential red flags in the professional’s background. Use SEC, FINRA, and state securities regulator records, to identify potential problems such as employment at firms that have been expelled, personal bankruptcy, termination, being subject to internal review by an employer, a high number of customer complaints, failed industry qualification examinations, federal tax liens, or repeatedly moving firms.

Pressure to buy quickly. No reputable investment professional should push you to make an immediate decision about an investment. If someone pressures you to decide on an investment without giving you ample time to do your research, walk away.

Free meals. Be wary of free lunch seminars. The goal of free meal investment seminars is typically to lure new clients and to sell investment products, not to educate the public. If you decide to attend one, commit to not purchasing anything or opening an account while at the seminar. Even if the free meal does not come with a high-pressured sales pitch, expect the hard sell in subsequent contacts from the person selling the investment.

Learn more. As an additional resource, NFA offers the brochure Scams and Swindles: An Educational Guide to Avoiding Investment Fraud.

Invest in cybersecurity

With the Internet, you can access your investment information and communicate with your investment firm on demand. But, the Internet also opens the door for security breaches. Through phishing, fraudsters attempt to obtain financial or confidential information from Internet users. Using these tips, you can protect yourself from becoming a victim of this type of fraud. But, what is your brokerage firm doing to protect its electronic information from cyber threats? Before investing, get to know the firm’s cybersecurity policies by asking these questions provided by Financial Industry Regulatory Authority (FINRA).

  • What safeguards do you have in place to protect my personal information and assets?
  • Do you monitor my personal information to determine whether it has been stolen or misused?
  • How do you handle an account intrusion or other malicious cyber event? Would I be notified if personal information or assets were compromised? How would I receive this notification?
  • Will you reimburse me if my assets are compromised by a cyber-attack?
  • Are there any measures that you recommend I take to personally protect the information on my computer, including protection of passwords or other sensitive information?

First line of defense

NFA is proud to once again participate as a steering committee partner of Military and Consumer Protection Day (MCPD). MCPD, a joint initiative to empower active duty and retired servicemembers, military families, veterans, and civilians in the military community, will take place today, July 15, 2015. Get involved! Participate in the Military Consumer Twitter Town Hall today, July 15, 2015, at 2 p.m. Eastern, hosted by @MilConsumer, the Federal Trade Commission's consumer education team. Join the conversation by using #MilConsumer on Twitter.

In addition, Military Consumer supports the military community and veterans year-round by offering helpful information from partner organizations, including NFA. These resources range from banking and investment advice to tips on how to manage identity theft practices. NFA is pleased to offer resources on Military Consumer’s website to protect those who safeguard our security.

Recent enforcement actions

In the second quarter of 2015, NFA issued Decisions, Member Responsibility Actions, Complaints, and Final Orders in Registration Cases against the following NFA Member firms and individuals. Click on the name for more detailed information.

Decisions in Disciplinary Cases
Andrew James Aronson
Ronald T. Barba
The Barbashop LLC
BLS AG Futures LLC
CDM Investment LLC
Dow McVean Capital Management LLC
The Four L's Agricultural Trading Company LLC
FX Evolve LLC
Llewellyn Hall
Alan J. Harry
Jason B. Hoerr
K&M Trading, LLC
William Kaelin
David G. Lannin
MB Duffy Capital Management LLC
Michael B. Duffy
McVean Trading & Investments LLC
Charles Dow McVean, Jr.
Charles Dow McVean, Sr.
Charles Dow McVean, Sr.
John S. Morrissey
Michael A. Plaia, d/b/a Comtrade Financial Company
Michael Angelo Plaia
Spartan Commodity Fund Management LLC
Chad Streifel

Decisions in Disciplinary Cases Continued
Brian L. Swords
Nikolas Robert Weber
Wharton Asset Management LLC
Michael J. Wharton

Member Responsibility Actions
Raja M. Mawad
RNS Holdings LP

Christopher T. Bondy
Grace Financial Group LLC
Harmik Iranossian
McElhannon Group Inc.
RNS Holdings LP
Raja M. Mawad
Philip M. Worley

Final Orders in Registration Cases
Ricky James Haskell
Scott Elliott Thompson

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