Securities Bulletin

              SECURITIES bulletin
Investment advisers have a fiduciary duty to provide
advice that is in the best interest of a client and to
disclose all conflicts and fees. This is not necessarily
true for a salesperson at a brokerage firm. Brokerage
salespeople must sell suitable investments, but do not
have the same disclosure and fiduciary obligations.
The distinction between advisers and brokers is not
clear to many investors. Brokers often refer to
themselves as “financial advisers,” “investment
representatives,” “relationship managers” or other
names to lull investors into believing they are dealing
with investment advisers and not just salespeople.
The Securities & Exchange Commission recently
proposed a rule that would exempt certain broker-dealers
from registering under the Investment Advisers
Act. The new rule would allow brokers to provide
incidental investment advice without meeting all the
requirements that investment advisers must adhere to.
Individual investors, consumer advocates, the North
American Securities Administrators Association and
others submitted compelling comments to the SEC
opposing this rule. Certain brokerage industry groups
supported the exemption contending that it would
be burdensome for brokers to comply with
investment adviser requirements.
Regardless of the SEC's final decision, I encourage all
investors to question their financial professional
before investing. To verify whether
your investment professional is
registered as an investment adviser,
salesperson or both, please call the
Securities Department at
800-628-7937.
Jesse White
Secretary of State
Winter 2005
Many investors looking for alternatives to the stock market
are investing in promissory notes. Promissory notes are a
legitimate investment for many sophisticated or corporate
investors; however, the promise of guaranteed returns is
often the lure used by financial criminals to steal money
from investors.
There are some red flags that investors should be aware of
when considering investing in promissory notes:
• "Insured" or "guaranteed" returns: These terms are used
to create a sense of safety; however, the alleged
insurance often is nonexistent or backed by off-shore
insurers who are not registered to sell insurance in the
United States.
• Promise of above-market returns: Claims of returns that
are higher than those of similar investments should
always raise questions.
• "Risk-free" notes: The risk with promissory notes is that
the issuing company will not be able to make the
principal and interest payments. Because high returns
always entail high risks, it pays to remember that there is
no such thing as a “high return-low risk” investment.
• "Prime quality" notes on a start-up company: Prime
quality investments require that a company have an
established history of operations and earnings. If the
company issuing the so-called "prime" notes is a start-up
or new company, walk away.
• Notes from a stranger: A cold call — one that is
unsolicited and whose seller is unknown — is usually a
good sign that the investment is fraudulent. But
remember, word of mouth carries many scams through a
community. Look at all investments carefully, and don't
take the word of a close friend. Check it out for yourself
by calling the Securities Department.
Investor Alert
Be aware of promissory notes
IN
THIS
ISSUE
• INVESTOR ALERT — PROMISSORY NOTES • 2005 FILING DATES •
• BUSINESS ACTS, LAWS AVAILABLE ONLINE • ENFORCEMENT ADMINISTRATIVE ORDERS •
• FAQs — ANNUITIES • INVESTOR EDUCATION PROGRAM FOR SENIORS • FINANCIAL LITERACY 2010 •
A NEWSLETTER OF THE ILLINOIS SECURITIES DEPARTMENT • SECRETARY OF STATE JESSE WHITE