Session 2 College Funding SEC/IA Registration FINRA Registration

1. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance Session 2 College Funding SEC/IA Registration FINRA Registration

2. Session Details

3. College Funding (CESAs vs. §529 Plans) Similarities between the two plans: • Neither is tax deductible. • Both can be undertaken simultaneously. • Both allow tax-deferred accumulation and tax-free withdrawals for qualified education expenses. • CESA and §529 plans allow the following expenses: • tuition (paid directly to the institution) • room and board (paid directly) • fees (as required) • books, supplies, and equipment (including computers) • expenses of special-needs beneficiary needed for enrollment at eligible institution

4. Unique Features of the Coverdell (CESA) • Contribution limit of $2,000 per year. • Contribution deadline is tax filing date for the year (extensions not included). • AGI phaseout levels $190,000 to $220,000 (MFJ returns). • Must be used prior to age 30. • Assets deemed distributed 30 days after beneficiary turns 30. May be subject to tax and penalties. • Assets for qualified elementary and secondary education. Includes tuition, public or private schools, grades K-12, computers, and educational software. • More flexibility in investment types of securities and fund contributions (mutual funds, individual stocks, or bonds).

5. Unique Features of §529 Plans • Contribution limits set by state, some up to $360,000 • No income limit for contributors. • Annual contributions up to $14,000 or lump sum of $70,000 in year 1 of 5-year period avoids gift-tax. • Married couples may contribute up to $28,000 per year or $140,000 lump sum for first year. • No age limit on use of §529 assets. • §529 assets for use only on eligible expenses at accredited public or private colleges/universities. • Portfolio administered by investment company for state offering §529 plan. • Assets may only be invested in portfolios offered by the state-sponsored plan. • Portfolios can be changed once every 12 months or after change of primary beneficiary.

6. Question - Coverdell & 529 Plans Which of the following are features that are shared in common between the Coverdell Education Savings Account and the Section 529 plans? • Both have an income phaseout. • Both have an age restriction for use of funds. • Neither one of the plans provides any tax deductibility to contributors. • Both can be undertaken simultaneously. • I and II only. • I and IV only. • II and III only. • III and IV only.

7. Session Details

8. FINRA and/or SEC Registration • SEC registration is required if you advise. • FINRA registration is required if you sell. • The following statements are simplifications but may assist in remembering. • An individual may perform activities requiring registration as an investment adviser that may not require FINRA registration. • An individual may be required to register with FINRA but not with his or her state or the SEC. • An individual may be required to register with both FINRA and the SEC (or his or her state).

9. Who is an “Investment Adviser”? The three-pronged test (or the A-B-C test): • Provides Advice or analyses concerning securities • Is in the “Business” of providing investment advice • Receives Compensation for services Yes to all three… Registered you must be!

10. Form ADV & the Investment Adviser Advisers who must register: • Fill out form ADV • Must be done electronically using IARD • Part I is general information • Part II a more detailed form enumerating: • fee structure • services offered • possible conflicts • information on business associates

11. Investment Adviser Exceptions Exceptions are not considered advisers under the Act (do not have to register with the SEC): • Any bank or bank holding company • Any lawyer, accountant, engineer, or teacher (advice incidental to the practice of the profession) • Broker or dealer (advice incidental to the conduct of business without special compensation) • The publisher of newspapers or journals of general and regular circulation • A person whose advice is limited to U.S. government issued or guaranteed securities • Other persons not within the intent of SEC law

12. Investment Adviser Exemptions Exemptions are Considered to be Advisers (but they do not have to register): • Clients are all residents of the state which is the adviser’s principal place of business; provides advice only on securities not listed on national securities exchanges; no unlisted trading privileges on national securities exchanges • Only clients are insurance companies • Fewer than 15 clients during last 12 months, and neither hold themselves out as investment advisers nor act as advisers to any investment company registered under 1940 Investment Company Act • Charitable organizations or donative instruments • Provides advice to a group plan solely for benefit of church employees or related 501 organizations • Registered Commodity Futures Trader whose primary business is not that of providing advice

13. Federal or State Registration

14. Question - Exemptions Which one of the following is not in the category of being “exempt from registration” as an investment adviser under the Investment Advisers Act of 1940? • an intrastate adviser in unlisted securities • a publisher of a bona fide newspaper or financial publication of general and regular circulation • an adviser whose only clients are insurance companies • a private adviser who (1) during the previous 12 months had fewer than 15 clients; (2) does not hold himself or herself out generally to the public as an adviser; and (3) does not act as such for a registered investment company

15. FINRA Registration If you sell product as follows (and there are many more), you must be registered with FINRA for any of the following: • Series 3: National Commodities Futures • Series 6: Investment Company/Variable Contracts Limited Rep. • Series 7: General Securities Registered Representative • Series 22: Direct Participation Programs Limited Representative • Series 24: General Securities Principal • Series 55: Equity Trader • Series 62: Corporate Securities Limited Representative • Series 63: Uniform Securities Agent State Law Exam • Series 65: Investment Adviser Examination • Series 66: Investment Adviser/Registered Representative Combination Exam

16. FINRA Registration & The IA • FINRA registration does not necessarily comply with the Investment Adviser’s Act. • An individual may perform activities requiring registration as an investment adviser that may not require FINRA registration. • An individual may be required to register with FINRA but not with his or her state or the SEC. • Both forms deal with securities, but they are mutually exclusive in their application.

17. Question – To Register or Not to Register? Karen Manchego has made an excellent living by selling the stock of small local companies. She sells only to investors in her state, and none of the companies whose stock she sells are big enough to be listed on any exchange. She makes specific recommendations about the stock to all of her 250 clients, and the companies pay her a commission when she sells their stock. She sells about $40 million in shares each year. Should Karen register as an investment adviser? • No, Karen does not need to register because the stock she sells is unlisted and all her clients live in her state. • Yes, Karen should register in her state. • Yes, Karen should register with the SEC. • No, Karen does not need to register because she does not hold herself out as a financial planner.

18. CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance Session 2End of Slides