Many people who are near or at retirement age are desperate right now. They’ve seen a dramatic decline in the value of their retirement accounts and they are looking for a way out. Unethical salespeople are eager to take advantage of this.
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Surveys show most Americans in their 60s have received at least one invitation to a free lunch financial planning “seminar” or estate preservation “workshop.”
The invitations promise tips on how to earn excellent returns with no market risk, plus ways to eliminate taxes and avoid probate. They claim to be informational with nothing sold. Some even say “Bring your spouse, but leave your checkbook at home.” Don’t believe it.
“There is no such thing as a free lunch,” warns Martin Cordell with Washington State’s Department of Financial Institutions. He estimates 99.9 percent of these seminars are just “a sales pitch in disguise.”
“Their ultimate goal is to recruit a new client, open a new account or sell a product,” says Gerri Walsh, vice president of investor education at the Financial Industry Regulatory Authority. “Some of the pitches you hear at a free meal seminar might sound attractive and they might be easy to swallow, but they might give you heartburn afterwards.”
The free lunch is designed to get you in the door, where a salesperson can scare you about your financial future and promise you financial security. The hope is you will agree to a one-on-one visit in your home.
“In your home, they can say anything they want, truthful or not, threatening or more threatening,” says Katharine Bauer, an estate planning attorney in Olympia, Wash. “That’s where they convince people to invest in things that are not appropriate for them so the salesperson can make a huge commission.”
Bauer says it is not uncommon for an 80-year-old to have his or her entire nest egg put into an annuity that locks up that money for 10 years or more. “It’s totally inappropriate for them,” she says. That’s because annuities pay a fixed amount each month, making it difficult or impossible to withdraw more money if you need it.
Seniors go undercover
Frustrated with investment scams that target seniors, AARP is fighting back. The organization is putting together an army of volunteers to go undercover to monitor free lunch seminars.
Jean Setzfand, director of Financial Security at AARP says they’re not trying to shut down these seminars. “We just want to learn more about them in order to report back to the public.” But she admits AARP wouldn’t mind if the information it gathers stops this deceptive marketing tactic.
On its website, AARP provides members with a checklist to use when they attend a seminar. Some of the information is basic, such as where and when the session took place. But these secret shoppers are also asked to note if they felt pressured to make an immediate decision to buy something at the seminar and if they were asked to commit to a follow-up home visit.
Two senior sleuths break their cover
For several years now, Mary and Len Bach have attended free lunch seminars near their home in Murrysville, Pa. The Bachs, both AARP members in their mid-60s, went undercover as part of Pennsylvania’s “Senior Sleuth Program.” Mary played the coy housewife while Len asked lots of questions.
They found the same potential trap at every seminar – suitability. Not every investment is right for every investor. But that doesn’t seem to matter.
“Many of these products are pitched in a one-size-fits-all mode that is simply not appropriate,” Mary said.
As Len puts it, “The people selling the investments are really interested in the commission and not too interested in whether it fits your needs or is really the right product for you.”
The Bachs say it’s OK to take the free meal – it’s always good food – just don’t sign up for that follow-up appointment unless you are truly interested in what you heard and take the time to check out the firm, the salesperson and the investments being sold.
“If you do the wrong thing,” Len says, “that free lunch could be the most expensive meal you’ve ever had.”
The Bachs recently broke their cover to appear in a video for AARP about free lunch seminars.
The bottom line
The smart way to manage your money is to talk to a qualified estate planner, financial planner or accountant. “Take a family member or a friend,” advises Bill Reilly with Florida’s Office of Financial Regulations. “Shop around for the person who actually meets your needs.”
Before you deal with anyone selling investments, check them out. Be sure they are a legitimate salesperson with a good track record who is selling a registered investment product.
Take the time to check out a broker.
If they’re selling an insurance product, check with your state insurance commissioner’s office. Find contact information at the National Association of Insurance Commissioners.
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