There’s No Such Thing as a Free Lunch

by | Nov 13, 2014 | Asset Management, News

You’ve likely heard this saying before as it applies to many different situations in life. Today I want to focus on a quite literal application of the phrase.

FINRA publishes a section on their site devoted to investor safety called Protect Yourself. In September they shared an update on “Free Lunch” Investment Seminars. They provide tips on “avoiding the heartburn of a hard sell”. Corny jokes aside, the column had some good advice.

Free investment seminars are very popular, and they have been for a while now. If you haven’t been invited to one yet, just wait, it’ll only be a matter of time before an offer to attend an “educational” investment event and “free lunch” shows up in the mail.

FINRA answers the question, “What’s wrong with a free meal?”, stating:

“Potentially nothing. But problems can sometimes arise when the sponsor of the event or one of the lead speakers has something to sell, even though the invitation might state otherwise. Other times, problems can arise after the seminar—during follow-up contacts from the speaker or sponsor.

In a 2007 report, securities regulators, including FINRA, the U.S. Securities and Exchange Commission, and state regulators, conducted more than 100 examinations involving free-meal seminars. In half the cases, the sales materials—including the invitations and advertisements for the events—contained claims that appeared to be exaggerated, misleading or otherwise unwarranted. And 13 percent of the seminars appeared to involve fraud, ranging from unfounded projections of returns to sales of fictitious products.”

As we all know, almost nothing in life comes for free. When you attend one of these “free lunch” seminars, the food will probably be free as stated. Be skeptical of everything else. Expect a persuasive sales pitch. If you’re the kind of person who isn’t phased by high pressure sales techniques, by all means take advantage of the free food. Many people get really uncomfortable when put in that type of situation though. If you don’t want the pitch, don’t take the “free lunch” because they almost always go hand in hand.

I’m not discouraging you from attending an educational seminar to learn more about an investment. The point is that you’re being sold to at these types of events. Whether at the actual event or in a follow-up from the host, there’s always a catch. Be aware of this and you’ll be alright. Do your homework before and after the event. Ask as many questions as you need to during the event. And please, do not make a decision on the spot at the event. If the host tells you that the offer is a for a limited time only, run away. A sound investment will be available today, tomorrow, next week, next year. Don’t fall for this high pressure sales tactic.

Make sure to do your due diligence. Find out if the host is a broker, insurance salesperson, or a fiduciary investment advisor. Look into the investment to see if it’s a registered security (hint: it should be!). Ask questions regarding the investment’s cost, liquidity, commissions, fees, surrender periods, etc. FINRA’s article provides a list of good questions to ask.

It’s a shame, but investors must be aware of who is giving them advice. When you go to a doctor or lawyer, you expect their advice to be in your best interests. When you go car shopping, you expect to be sold to. Financial advice has an unfortunate blurred line. Registered investment advisors are fiduciaries who must put their clients’ interests first. Brokers and insurance agents are salesmen who may refer to themselves as financial advisors. Be aware of the difference, ask questions, and do your homework!

There’s no such thing as a free lunch in life. FINRA thought it was necessary to warn investors that this also applies to investment seminars, and I couldn’t agree more. Be careful when something is “free” and “educational”. The lunch might be free, but the investments certainly will not be.


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