Ever get those invitations for a free financial seminar at a restaurant? “Nothing will be sold — we only want to educate you on your financial future,” is the typical pitch. Most specify that “financial professionals may not attend.” However, I recently received one that didn’t exclude me, and decided to see what I might learn about my financial future. Here’s my experience and what you need to know.
First, this wasn’t just some seminar at a local restaurant; this was held at a beautiful, top-notch private club overlooking the city. Whether from the view of the setting sun and city lights, or the delicious food, or the hosted bar, the mood was magical.
Then came time for the main event. The audience of about 35 was in for a treat, as the host and speaker was engaging and inspirational. “This isn’t a seminar for the rich,” he said. “What I’m going to tell you is how to be truly wealthy so you never have to work again.”
But before the speaker was ready to reveal what works in building wealth, he said what didn’t work: traditional investing. He reminded us all of the excruciatingly painful times during the stock market crash, and the empty promises advisers made about diversification and risk in our portfolios. The speaker said stocks plunge on a regular basis and warned that another terrifying plunge is surely near. He said only the funds’ managers make money, quoting Vanguard founder John Bogle often on what’s wrong with the mutual fund industry. Our host claimed the average mutual fund charged investors 3.53 percent annually! There was a collective gasp of outrage.
Then, after an hour of reminding us of just how worrisome investing can be and what fools we would be to continue, out came the following promises:
- High returns
- Low risk
- Tax-free income
- Complete liquidity
The solution was even more magical than the sparkling city lights below. And the speaker believed it was such an overwhelmingly perfect solution that we should pay penalties and taxes on our IRAs to raise money to buy his product. After all, this was wealth without risk.
He then paused, looked solemnly at the audience, and said that not all of us will get this. Our host said only 1 in every 4 in the room would get the brilliance of his wealth-without-risk path to enlightenment. It was very effective. Miss out on the perfect solution? The anxiety was palpable. I found myself thinking that I wanted to be part of this.
Finally it was time for the close. He asked who was ready to be wealthy, and promised to meet with each one of us personally to show the new way. The speaker offered a copy of his book to anyone who filled out the card to learn more.
My analysis of the event
I teach a subject called behavioral finance, which is the study of behavior that drives us to make poor economic decisions. For example, fear explains why many people sold stocks after the 2008 plunge, and greed fueled why so many bought stocks after the market reached an all-time high.
Hosts for these free dinner seminars may not have heard of behavioral finance, but they are masters at using our emotions against us. Who doesn’t want high returns without risk and without the regret of losing money in the market? And while much of the criticism of Wall Street may be correct, it’s only part of the story. This host mentioned Jack Bogle’s criticism often, yet never cited the low-cost index funds he brought to the individual investor, or the fact that over the past seven years, investors pulled over a half-trillion dollars from active funds to low-cost index funds.
It turns out that the particular life insurance product being pitched is something I had already investigated, interviewing the president of the very same multibillion-dollar insurance company whose product was on offer. It was much better for the agent selling it than it would have been for me. Not exactly a shocker.
More often than not, a product known as an equity-indexed annuity, promising stock market returns without risk, is being pitched at these free meal seminars. It often doesn’t work as promised, and the product got so much publicity that the insurance industry rebranded it. It’s now called a fixed indexed annuity.
We all want to be financially wealthy, and it sure would be nice to get there without risk. To be frank, the part of me capable of suspending reality wanted to believe everything being said in the presentation. However, common sense dictates that if getting wealthy were so easy, these people wouldn’t need to put on lunch or dinner seminars. In fact, the regulatory agency for the brokerage industry, known as FINRA, has issued a consumer alert about them.
My advice is that if you want a free meal, go to one of these. Observe the psychology being used and the promises being made. But don’t suspend common sense and never buy any financial product you don’t fully understand. For that matter, I’ve never met an agent who actually understood these complex products. If you set this as a hurdle, I doubt you’ll buy.
Also of Interest
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- Join AARP: Savings, resources and news for your well-being
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