Too Good To Be True

MarketWatch featured an interesting article called “Too Good To Be True.” Let’s look at some highlights:

When consumers get defensive about their money, the financial services industry goes on the offensive.

And there may never be a time where the business seems more offensive than it does now.

Coming off monster losses where seemingly every investment strategy either failed or was lucky to break even, financial firms know that investors are jaded.

So they’ve stepped up their training on how to get consumers past “No” and convince otherwise cautious folks to consider making an investment. Everyone is concerned about their next move, but some people dance to their own drummer while others take dancing lessons in the hopes of improving footwork.

For years, sales-training firms in the financial business have sent me promotional materials for their seminars, but the traffic has surged in hard times. Just last week, there was a Webinar promising to tell sales staff “how to get beyond the excuses people make to stop investing.” This week, the seminar being pitched is all about overcoming the three big objections consumers have to certain investment products.

Interestingly, the consumers’ top reason for not investing, apparently, was not “the financial services business has shown an alarming inability to make money for me over the last couple of years.”

In fact, in talking to one trainer — who asked not to be named or to have his company identified — it’s clear that recent disappointments are no obstacle to the new salesman, because your bad experience was “working with other guys, and we have new and better ideas.”

Consumers should hold onto their worries. There are plenty of good reasons not to fall victim to the next sales pitch, or to at least make sure you’re not a victim of sales-seminar thinking.

If you believe the seminar hype, the three big objections to investing in today’s uncertain economy are:

1. I don’t want to tie up my money.

2. What if I have an emergency (or lose my job, or get sick, or die)?

3. I think I’m going to wait until … (the market is better, my job appears safer, the economy is more solid, I get my kid through college, I pay down debts, I have more confidence).

The financial services industry is coming at you with all types of financial products in an attempt to get past your objections. They’ll sell you investments with limited or no surrender charges — to get beyond the fear that your money is tied up or unavailable in emergencies. They’ll show you charts and statistics about the cost of investing. Name a concern, they can beat it back, although your freedom and peace of mind may come with additional costs.

That’s why you may not want to eat what’s being cooked up for you, no matter how tempting it smells.

[Emphasis added]

This story could have been written back in 2002 when investors got hit with heavy markets losses for the first time this century. Now that the bear struck again in 2008, the stories and sales pitches are the same. Remember, Wall Street’s armies of commissioned salesmen are like pigs at a trough. The pigs may change, but the food is always the same.

My reply to this issue still is what it was back in 2002. Stay away from commissioned salesmen whose only objective is to fill their pockets and not yours. And before doing business with anybody, ask the all important question, which I have pounded on for years: What is your exit strategy?

If they don’t have one, take that as confirmation that the food about to be served to you is indeed the same.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
This entry was posted in Uncategorized. Bookmark the permalink.