Consumers beware. The financial advice industries still have a problem.

“Don’t Sell the Steak — Sell the Sizzle!”. The Yale Book of Quotations has this quote listed under the name of marketing expert Elmer Wheeler from Tested Sentences That Sell (1937).

Surely this doesn’t apply to the financial advice industries where impartial reason & research trump glitz for investors? Or where business ethics trump sales volumes for ‘advisers’? Well, apparently ‘no’, not according to news the team at Naritas have seen recently. Two articles have spurred us to do this article as a follow-up to our earlier piece “Top signs you are being conned by an investment spruiker“.

So what’s got us worried?

All sizzle, no sausage businesses still making millions

People are still getting duped by glitzy seminars, high pressure sales gatherings and people who look like they belong on the television show Suits selling them ‘once in a lifetime’ opportunities. You’d think that Joe Average had learnt in the 1980s and 90s that such tactics were nearly exclusively the domain of bad ‘advice’ and poor investment opportunities. However, in a recent public announcement, ASIC said the Supreme Court observed Park Trent (a notorious property spruiker) was found to have been unlawfully carrying on a financial services business for over five years. They went on to say Park Trent’s business model depended on “persuading relatively unsophisticated investors of the virtues of using their superannuation accounts to purchase investment properties and to establish SMSFs”. How are investors so easily persuaded!? The short answer: Fear Of Missing Out (FOMO).

Misleading advertising is working because of FOMO

Just this past week ASIC fined a mortgage broker for claiming they had a 100% success rate in gaining approvals for their clients. You’d think that such ridiculous claims would be a reason *not* to use a company or trust their advice. Apparently, however, the opposite rang true. This indicates a couple of interesting things are at play here:

  1. Evidently some people are willing to go to any length to get approved despite being rejected elsewhere.
  2. People are prioritising their FOMO ahead of with dealing credible organisations to get advice.  

How do you figure out if you’re getting the right advice:

  1. Know the hallmarks of a bad adviser. In short, pressure sales, flashy suits, gimmicks and ‘you can do it too’ bravado = massive red flags.
  2. Don’t fear missing out. An opportunity is only good if the timing fits with your circumstances. Rest assured other opportunities will come.
  3. Do the due diligence and avoid vertical integration. Sensible due diligence is definitely not using the financial adviser the property spruiker recommended to set up your SMSF. Similarly, it’s definitely not using the mortgage broker aligned with your real estate agent or that of the vendor. Furthermore, due diligence is literally never using the solicitor the developer recommends to review the off the plan purchase agreement you’re being induced to sign.

Skill test: See if you can spot a trend:

This is a picture of an actor pretending to be an expert. Credit: Suits, USA Channel, Harvey Specter
This is a picture of an actor, wearing a suit, pretending to be an expert. Credit: Suits, Harvey Specter.

This a picture of Steve Wozniak, inventor of the Apple PC wearing a suit.
This a picture of Steve Wozniak, inventor of the Apple PC wearing a suit, being an actual expert.

 

henry_kaye,0

This is a picture of a convicted financial con man and property spruiker, Henry Kaye. His preferred way of targeting his victims was through ‘financial education’ and vertically integrated seminars.

Milton-Friedman

This is a picture of Milton Friedman. His economic theories formed the basis of modern economic policy & is widely considered one of the greatest economists of all time.

Robert-Kiyosaki-Quotes-Wealth

This is a picture of Robert Kiyosaki, who did not actually have a Rich Dad despite telling people he did. He similarly was not actually rich until he sold books and courses to naive people about his fake rich dad.

 

Billionaire investor Warren Buffett, right, and Microsoft Chairman and co-founder Bill Gates, left, at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)

This is a picture of self-made billionaire investor Warren Buffett, right, and self-made billionaire, Microsoft Chairman and co-founder Bill Gates, left, at the Allen & Company Sun Valley Conference in Sun Valley, Idaho, Thursday, July 12, 2012. (AP Photo/Paul Sakuma)