FINRA has distributed an investor alert under their frauds and scams banner, warning investors of so-called "Free Lunch" investment seminars in which potential investment clients are invited to a meal- or other activity-based financial seminar in which attendees receive a free meal in exchange for listening to an aggressive sales pitch that is often represented as an educational seminar.
Economists and philosophers alike have often referenced the phrase, "there's no such thing as a free lunch," with macroeconomist and former Chairman of the Council of Economic Advisers Nicholas Gregory Mankiw explaining in his Principles of Economics, "To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another."
FINRA warns that such "free lunch" investment seminars are designed to sell—the seminar's host must have some motive for offering an expensive meal to multiple attendees, it must make financial sense for the host: at the very least, the cost of the event must be offset in some form for the host to have a rationale to put on the show.
Accordingly, such seminars can come with hidden—yet very real—dangers.
Hosts or sponsors often have gone to great lengths to tune up their persuasion skills so as to sell more products—after all, increased sales equals increased revenue which supplies the budget with which the host is able to offer the "free lunch" seminar.
Yet the motivation to sell may be so great, the speaker may go to extreme lengths to employ persuasive tactics; for instance…
- Promises may sound too good to be true and unfortunately, this is because oftentimes, they are. Be extremely wary of a speaker that advertises an unbelievable rate of return or significant amount of income without citing substantial and verifiable facts. Be even more concerned if a speaker asks for a decision based on blind faith alone: "You can trust me, I'm the executive vice president of the number one profitable company in the region!"
- In the same vein, always remain skeptical until you can do your own research. Speakers may attempt to win favor with their audiences by embellished or patently false storytelling: "Person A invested X dollars in this property and tripled this investment in just two weeks."
- Savvy speakers may feign urgency so as to force attendees to act first and ask questions later—often times, when it is already too late. Think, "Limited time only!" or "This is the last unit left!"
The most important lessons when considering whether to invest in a certain product include research, time and pressure.
Research: FINRA requires all of its associated firms and their brokers to perform adequate and appropriate due diligence before recommending products to investors. Similarly, all investors should do extensive research on any potential investment option before choosing to deposit funds with a certain property. Always ask questions, both prior to, during and, if you do decide to buy, after the event—what are the risks? How much does it cost and what is the liquidity? What is our timeframe and are there any penalties, charges or fees for altering my strategy mid-investment? Is the investment registered, is there a measure of protection involved? What is the instrument's performance history, or is this a completely new opportunity with no track record? It's your money—invest wisely and armed with a wealth of knowledge.
Time: Good investment strategies and portfolios are not generally crafted in one meal period. Quality research takes time—to invest and generate money wisely is akin to a brick & mortar job in the sense that time and effort matter and often result in a greater probability of success.
Pressure: If a speaker, host, advisor or broker pressures a potential client into an investment, chances are this investment will prove much more beneficial for the former than the latter. If you feel rushed, take a step back. If this investment is worthwhile, it will still be there in a day, week or even month.
Always remember that when it comes to investing your money, it is ultimately your responsibility to ensure that it is being spent wisely, which includes incorporating the above strategies in an attempt to best prepare your potential investment for success.
However, sometimes no matter how diligent you may be, a rogue broker or advisor may be the perpetrator of fraudulent or other unfair activity in relation to your investment. If such misconduct has occurred and has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.
News: "Free Lunch" Investment Seminars—Avoiding the Heartburn of a Hard Sell