"There is no shortage of creative salespeople willing to take your money," says Louis Straney, author of "Investor's Guide to Loss Recovery" and a securities consultant based in New Mexico. "It's a complicated industry with a long history of deceitful practices that continue to be used extensively and very successfully."
Watch out for these three tactics employed by dodgy financial advisers who may not have your best interests at heart.
Investors are often warned not to make emotional decisions based on fear or greed, yet many advisers exploit these emotions to craft a sale. The use of guilt and a sense of urgency to make you buy are chief among their sales tricks, says Brian Solik, president of Wealth Preservation Strategies of New Jersey. "A no-obligation meeting should be no-obligation … no matter how much time and energy an adviser spends with them," he adds.
Be on guard for manipulative statements such as, "I spent all this time with you and now you are saying 'no'?" Or, "This rate is going to change, so we need to move on this right now."
Pat Huddleston, former Securities and Exchange Commission enforcement branch chief, says advisers tend to use such personal pronouns as "we" and "us" to align themselves with consumers and move people toward a sale. "Advisers are trained extensively on handling consumer objection and often overcome them by wearing down unknowing consumers with three bullets and a close." For example, he says, an adviser will point to three benefits (bullet points) of the product or service and then attempt to close by suggesting "we" should move on this. If the prospect objects, the sales agent pulls out another three bullet points, suggesting this is the right time for "us" to get started.
Sometimes emotional sales tactics turn downright callous, says Huddleston. Take for example, a prospect who wants to "talk it over with my wife." A dishonest agent might counter with: "Who wears the pants in your family?" Or "I hope she cares about your future as much as you do." Or a more conniving approach: "Is she going to be upset if she finds out you missed this opportunity?"
These are all signs of emotional manipulation that could result in an inappropriate product placement or downright fraud.
A second and relatively new sales tactic advisers are using to get people to buy from them involves office staging. Whether it's rich mahogany furniture, office columns or a marble credenza full of industry books, things aren't always what they seem. "Yes, this one's right out of a Hollywood set," says Straney.
By using a local bank's conference room or an attorney's office, for example, advisers are staging a presence within communities and networks of people, implying they are somehow affiliated and equally trustworthy.
Like home stagers who create a temporary environment to entice new buyers, office stagers can use visual associations and common office behaviors to misrepresent their relationship with a person or organization.
"If you meet a financial adviser in a high-end office setting and witness them using the phone, making copies or sending faxes, people are prone to assume the adviser and the business are one and the same," says Straney, who has worked as an expert witness on cases of this nature. In situations like this, consumers need to ask an adviser about his or her affiliation instead of assuming they have received a stamp of approval from the proprietor.
A third deceptive sales practice entails peddling a complicated strategy or product. Whether it's a new theory developed by a university mathematician or a groundbreaking technology not easily explained, the more complex it is, the more difficult it becomes for consumers to do their due diligence.
Huddleston, who runs InvestorsWatchdog.com, suggests investors who are considering complex strategies should engage an experienced third party who can more easily review the documents and pinpoint inaccuracies, potential fraud or downright incompetence.
Straney suggests consumers remain wary of close and exclusive relationships with some "amazing" new theory or technology grown in a petri dish. "Don't be surprised to hear that the mathematician is a former mentor of the adviser and giving the agent exclusive access."
Deceptive sales tactics and outright fraud seem to be a recurring theme within the financial services industry. In order to protect themselves against these practices, investors need to:
- Avoid guilt trips and ignore pleas of urgency.
- Ask instead of assume when it comes to professional associations.
- Stick with the tried and true instead of the complex and unproven.
As the retirement and investment landscape continues to change -- and individuals assume more responsibility for their own retirement savings -- it's more crucial than ever for investors to be aware of the sales tricks some financial advisers use to spur a sale.