If you’ve ever received an invitation from a financial or investment company attempting to entice you with the lure of a free meal, you were probably skeptical.
Your intuition couldn't be better. Your skepticism is encouraged by the Financial Industry Regulatory Authority, which recently issued an investor alert titled "'Free Lunch' Investment Seminars – Avoiding the Heartburn of a Hard Sell." The reason you're on the free-lunch mailing list is that the company determined that you have the financial resources to buy their products and services. It's all quite enticing: a free meal with all the trimmings at no obligation, they say. Many large financial service companies routinely hold these events at expensive steakhouses.
The main problem with these seminars is that they often masquerade as education when they are nothing more than sales pitches. The hosts call themselves advisers, but they're usually well-trained salesmen trying to sell high-commission products, such as annuities. The bait to draw you in is a nice lunch or dinner. But this meal is anything but free because you must give them your time and attention and, they hope, your money.
The cost of your meal is a mere business expense. If that expense didn't pay off, these invitations wouldn't land in so many mailboxes. For people who have money to invest, chances are that they will receive a free-meal invitation. According to a survey by FINRA's Investor Education Foundation, four out of five investors age 60 or older have received at least one such invitation in the last three years.
There's nothing inherently illegal with sales people trying to sell investment products, including ones available through their company, to potential prospects over a free meal. Many insurance and investment companies do this on a regular basis. The problem is the methods and tactics that some companies use to persuade–or pressure–you into purchasing their products.
According to the FINRA alert, many of these hosts fail to make all of the required disclosures. This starts with the claims made in invitations. Typically, these invitations fail to state that the host of the event will try to sell attendees financial products or services. Another common concern is exaggerated or misleading claims. Regulators who conducted investigations into 100 of these seminars found that the written materials involved in half of these events contained exaggerated or misleading claims. About 12 percent involved outright fraud, including baseless projections of investment returns or the sale of bogus products.
At these events, presentations are made by well-dressed, silver-tongued speakers. It's only natural to be impressed by such individuals, but remember that this showmanship means nothing. They might have earned the money to buy their nice clothes by selling expensive, inappropriate or defective investments to people like you. And, as if that weren't enough, some of these salespeople have disrespectfully referred to attendees as "plate lickers."
There's an assumption that the people doing the talking are the sponsors, but they might not be. Often, insurance companies or other large financial institutions are the true sponsors because, like the advisers doing the talking, they make money from products sold. The best and simplest way for you to avoid these sales events is to never attend. However, if you do plan to attend, check up on the hosts before responding to the invitation. If they are advisers, check to see if they're registered with the Securities and Exchange Commission by accessing the SEC website (www.sec.gov) or by contacting your equivalent state agency. If the people conducting the seminar are brokers, check them out with FINRA at www.finra.org. And if they're insurance people, contact your state insurance commissioner's office to make sure they're properly licensed.
Anyone making claims to sell products should expect a member of the audience to ask probing questions. You can be that person by asking:
- What are all the expenses associated with these products? What are the commissions paid to the salesperson?
- If I buy this investment, will my money be tied up? How soon can I sell without a penalty?
- For whom is this investment appropriate? (People with cash to invest have different needs than widows on a fixed income.)
As always, decide nothing on the spot. Always insist on getting the answers to these questions in writing. Also, be sure to get an unbiased, professional opinion from your accountant or a fee-only financial adviser who sells no products. At the end of the day, the best course of action to take when that "free lunch" invitation appears in your mailbox is to ignore it, take your spouse out to dinner and happily pay for it yourself. Odds are, that's a much better investment.