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There's No Free Lunch

By:   Gary Silverman
  • 05-06-2009
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As part of a focused effort to protect senior investors, FINRA, NASAA, and the SEC all got together. What brought these three top financial regulatory agencies to team up? Free lunches.


You’ve no doubt seen these advertised. Come to the seminar, workshop, or training session, and you’ll get a free lunch (or dinner, or breakfast) for your trouble. There’s really nothing wrong with the idea. After all, many businesses have some sort of enticement for you to check out their wares. It might be grilled hot dogs (one of my favorites), a free radio, or a celebrity to sign autographs. It’s called marketing.


What FINRA, NASAA, and the SEC were looking at was whether any funny business was going on at these lunches. They found plenty. What follows was contained in the July 2008 Compliance Alert from the SEC.


Half of the examinations found that firms used advertising and sales materials that may have been misleading or exaggerated. Some included what seemed to be unwarranted claims including statements about the safety, liquidity or anticipated rates of return. Examples included: “Immediately add $100,000 to your net worth,” “How to receive a 13.3% return,” and “How $100K can pay 1 Million Dollars to Your Heirs.


The regulators felt that individuals attending a sales seminar might not understand that it is likely sponsored by an undisclosed company. For instance, mutual fund and insurance companies may provide funding for the seminars with the expectation that investment professionals will sell their products. For the financial advisor giving the presentation, this naturally creates a potential bias to recommend the sponsor’s product.


Perhaps that’s why in 23% of the cases, examiners found indications that unsuitable recommendations to purchase investments were made at the seminar or later when the attendee opened an account. Further, in 13% of the examinations conducted, they found possible practices that reached the level of fraud.


Think that a big company makes sure its employees don’t tread on dangerous ground? Think again. In 65 of 110 examinations the regulators found that firms appeared to have inadequate supervisory procedures. Either that or their procedures with respect to sales seminars held by their employees were not implemented.


What makes some of this more shocking is that most of these events targeted our seniors. Some might think that they’ve been around long enough to know that there’s no such thing as a free lunch. Nevertheless they become the victim time and time again. Many seniors fear running out of money. So the shysters prey on that fear.


Seminars, workshops, and training sessions can provide a valuable education to current and potential investors. Being fed a meal while watching the presentation is a nice bonus. Most of the presenters want the encounter to be a win-win situation for the financial firm and the potential client.


Just be careful, as some of these lunches are tainted by a poisoned tongue.


Content Provided by:
Personal Money Planning
Gary Silverman is the founder of Personal Money Planning, the retirement planning and investment management firm he founded over 16 years ago in Wichita Falls, Texas. He holds the Certified Financial Planner® designation and earned his Financial Services MBA at the University of Dallas’ ...


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