Nearly every investment professional built their book of business by winning their client accounts away from another advisor or firm. It’s just how the business is done, unfortunately. If you have assets, we in the financial industry will all be in competition to be the manager of those assets. Whether it’s your bank or credit union, your insurance agent, a registered rep in a brokerage firm, or an independent firm like nVest Advisors, we’re all competing to earn and keep your business by offering a unique value proposition based on product, price, and service.

Sometimes the competition for your dollars makes the agent or rep feel the need to use questionable, even unethical, tactics to try to win your business. In the process of earning new clients’ business and hearing how and why they were in the products they were sold, I’ve heard clients relay some real whoppers. I’ve also been in competitive situations where multiple companies are talking to the same pool of prospects, and have heard many of them first-hand.

It’s fine, I suppose, to always put your product or service in the best possible light. Here at nVest Advisors, we have a company creed of Aggressive Honesty as a primary sales strategy. That means, we’re eager to be transparent and we proactively identify our own strengths and weaknesses to the best of our ability. Granted, not all firms believe you should always tell the client what they need to hear (rather than what they want to hear), but there needs to be a clear line where acceptable “spin” ends and deception begins.

The bottom line is, every product, company, and yes, financial professional, has various pros and cons. Accentuating your strengths isn’t unethical. Handling objections isn’t unethical. Lying, whether by direct statement or by omission, most certainly is.

As you talk with financial pros, all of whom want your business, here are a few (sadly) common sales tactics used by sketchy salesperson that should, at least, raise your suspicion. (And at worst, should have the agent or broker run out of the industry, in my opinion.)  

They promise you a specific rate of return.

Yes, there are certain investment products that DO have a guaranteed rate of return, at least for a set period of time. These might include a bank Certificate of Deposit or a fixed annuity. These products, by their nature, will be extremely conservative in nature, and that guaranteed rate will most likely be less than 3% in the current interest rate environment.

The issue here is an agent or rep who says that their investment strategy or product promises (or has ‘always earned”) a high rate of return. That can be anything from a modest 5% to ridiculous claims of 20% or higher. (Even Bernie Madoff only promised 11%, and was able to swindle hundreds of millions of dollars from already wealthy investors.)

This should be obvious, but our human tendency to want to believe in the extraordinary makes us suckers for high return claims more often than any of us would care to admit. We really want to believe that there are shortcuts to riches, just like we want to believe this pill or that shake will make us lose weight with no effort on our part. So when some insurance agent or stockbroker is sitting in front of us promising much-better-than-the-other-guy returns, we instinctively want to believe him.

The truth is, there are no guarantees in the investing world. All products and vehicles will wobble in value, some much more than others. The sober fact is, investment returns will vary. From day to day, month to month, year to year. Yes, we can provide you with a historical return on most investments, but just like the disclaimer says, past performance is never a guarantee of future returns.

They claim there is little or no “risk” in their product.

This is the flip side of the “huge returns” sales pitch: claiming their product or investment carries little or no downside risk. I hear this most often from insurance agents pitching fixed or Equity Indexed annuities and life insurance products (which are also often misrepresented as savings vehicles rather than death protection). The claim made is often that their product can never “lose money”, which means they are describing (and frankly, misleadingly so), that the only “risk” of an investment is day-to-day price fluctuation due to market volatility.

I also see this tactic happen often in the sale of gold and silver as “protection” against whatever ill in the world is spooking seniors that day. Although gold as a commodity is more than 3 times as volatile as the S&P 500, it’s often pitched to fearful retirees who are living on their savings as a “safe” alternative investment. It’s anything but. It’s actually a highly volatile hedge investment against equity and currency markets, but to call it “safe” is preposterously misleading.

The truth is, every investment carries risk. And there are a variety of risks out there.

In stocks, you have several risks to consider: company risk, market and geography risk, economic risk, political risk, etc.

In fixed-interest investments, you have credit (default) risk, interest rate risk, inflation risk, currency risk, and others. Gold and silver carry currency risk, commodity (supply and demand) risk, and political and geography risk, just to name a few.

In the so-called “safe” investments of fixed annuities, you have significant liquidity risk, and that’s just for starters: nearly every annuity carries a back-end surrender charge that can extend for 10 years or more. I’ve seen 20-year surrender schedules on some. Add to that the risk that the guaranteed rate won’t even keep up with the rate of inflation, or that you may be stuck in a product that pays less as interest rates go up, etc. Yes, there is no fluctuation in your day-to-day balance in an annuity, but because of the low interest rates, it may not even keep up with the rate of inflation. The value doesn’t fluctuate every day. It just buys less and less every day.

At nVest, we believe in managing your risk using the key concepts of asset allocation and, occasionally, altering our strategy to reflect current market conditions. There is no “magic pill”, and we cannot guarantee against loss. What we can do, however, is make sure your “risk” matches your goals, and work to get you the needed return over the time frame you’ve given us.

The bottom line is, when someone claims their product has no risk, they’re either lying, are uninformed, or are selectively defining what “risk” means.

They are evasive about commissions, fees, or surrender charges.

It is a sin of our industry how often you, the client, don’t fully understand what you own or how you pay for it. Certainly some of that fault lies with you; if you don’t ask questions of your agent, or find yourself tuning out during those that part of your rep’s presentation, or fail to read your prospectus brochures, then you need to own up to part of that lack of knowledge.

But yes, part of the problem is that fees and commissions are often very difficult to find in the sales literature, are omitted from the agent’s presentation, and are not directly and clearly identified on statements. This is very common in annuity products and retail mutual funds, and in employer-sponsored plans. It’s something the securities regulators are (properly) focused on improving.

Every investment product has costs. We are not running charities. For individual securities, those costs are easier to determine. When you buy a stock or a bond, for example, the commission (or markup) and transaction fees are shown on your trade confirmations.

Mutual funds can have a variety of charges, including a front-load sales charge, a back-end CDSC (surrender) charge, annual trading and management expenses, and 12b-1 (marketing) fees. These are disclosed – at minimum – in the fund’s prospectus, but you should know before signing exactly what it will cost.

Annuities have administrative and mortality & expense (insurance) costs, in addition to a surrender charge in the first several years. If you have a variable annuity, these costs are in addition to the costs of your investment subaccounts, which will often be the same as a mutual fund. Annuities are often the hardest products to determine costs, so take the time, and make your agent take the time, to carefully go over your costs. In many cases, investing outside of an annuity is a far less expensive option.

The reason fees matter is because over a long period of time, those extra costs drag down the return on your investment. Over 20 or 30 years, those costs can mean a substantial loss of return.

They claim to have a trading system or method that consistently beats the broad market.

I see this more often from unregistered (and therefore, largely unaccountable) television personalities or subscription newsletters and websites or software.

Everyone has a market investing theory. That’s not a bad thing. Even passionately believing in your strategy is not a bad thing. Some people look for a low P/E ratio, some seek alpha, some are candlestick chart technical wizards. There are probably as many methods and strategies to investing out there as there are investment managers.

Having a different set of values and philosophies is one of the few ways financial professionals can distinguish themselves from their competition, and we’re all for that. (You can read more about out beliefs and practices, such as fee vs. commission, how to handle market volatility, and more, throughout the pages of this website, and in our Podcast.)

The warning alarm should sound, however, when you hear a claim that their system or strategy somehow outsmarts the market, or consistently outperforms. Often then you are shown performance charts using selective, cherry-picked dates as evidence. Be very leery of performance history examples, especially with strange start-and-stop dates. Ask for a long performance history of 10 or more calendar years. And always remember, what it did in the past is in no way a promise of future returns.

Everything can outperform for a period of time. Everything will also underperform at other times. This is because investing markets are both efficient and irrational – they move, very efficiently, on the basis of emotional reactions to world events. Until we can quantify and qualify and accurately predict human emotion, markets will not be “beatable”.

They misrepresent or are evasive about their credentials, employer or affiliations.

There is an ongoing debate in financial circles regarding the titles registered salespeople and insurance agents use when they talk to the public. Nearly every financial salesperson today uses some form of “advisor” in their title, though that was traditionally reserved for those of us with actual fee-for-advice registrations (as nVest Advisors, LLC has).

While it’s obviously possible for a sales representative or stockbroker to provide good financial advice, they are not compensated to provide advice. They are compensated to sell you a financial product of some sort. Ethically, we believe your title should reflect your actual trade. If you are a broker, call yourself one. If you are an agent of your company, call yourself that. If you are an investment advisor, call yourself that.

More careful scrutiny is actually given to the use of the term “planner” than the term “advisor”. Again, the title should reflect the function (and source of income). If you bill for and are paid for the plan (and not the subsequent sale),  you’re a planner. Certified Financial Planners (CFPs) are able to call themselves such because they have studied for and passed a certification requirement, and maintain ongoing standards and membership.

Look past the title. Find out how they are paid.

They can’t explain their product or strategy in very short, simple terms.

Seeing agents trip all over themselves while trying to explain their product or investment strategy is sometimes the result of dishonesty, but often it’s just because the rep is new to the industry or the product they are offering. Both should make you leery. Although financial instruments are often complicated, you should be able to get a fairly direct answer to a question, and a simple enough explanation of a financial product or concept that high school student can grasp the idea clearly. As Albert Einstein is quoted as saying, “If you can’t explain it simply, you don’t understand it well enough.”

Be cautious about reps who can’t (or won’t) explain product details, especially fees. You are the customer; you deserve and should require a full, clear, and transparent understanding of what you are buying. If you are not, the solution is simple: don’t sign.

They don’t ask you many questions about your financial situation before presenting you with their “solution”.

Whether you are an insurance agent, registered stockbroker, or fee-based wealth manager, we are all ethically and professionally tasked with knowing enough about you to make sure our product or strategy recommendations are suitable to you. (Registered Investment Advisers like nVest Advisors, LLC are held to a stricter fiduciary standard, but knowing our customer well enough to know how best to serve your needs is a crucial bare minimum.)

If the salesperson in front of you seems to have the solution before they even know your needs, something is amiss. Without knowing basic information, such as your net worth, liquidity needs, risk tolerances, time horizon, goals for the investment, and their product’s possible impact on your taxes, something totally harmless for one prospective client can be devastatingly inappropriate for another.

They advise you to cash out other investments, or mess with your taxes, in order to afford their product.

Not long ago, I had a former teacher come to me to roll over his small 403(b) account from his school district, into an IRA. As is our custom at nVest Advisors, we sat with him and spent the time to get a grasp of his current financial situation.

As I looked over his final pay stub, I noticed that his federal income and FUTA tax paid for the first eight months of the year was $0.00. When I asked him why, he said the insurance agent who had sold him the original 403(b) had told him, since he was getting a refund in normal years, that he should reduce his tax withholding, and with the savings, buy a 403(b) annuity. The agent claimed the tax savings from the pre-tax contributions of the 403(b) would “offset” the client’s failure to pay any income tax. So the client, a single man in his 40’s, claimed “Married – 8” on his W-4.

That horrible advice led the client to owing the IRS more than $8,000 in taxes, penalties and interest the following year.

I’ve also had clients come to me very angry about products they were sold that didn’t perform as expected. They wanted out, but as we looked it over, they were going to face significant surrender charges to take their funds out right away. An advisor who encourages you to cash out other investments without seriously weighing the costs to you to do so, should make you very concerned.

I hope I don’t have to belabor this point too much, but you as the client often seek us out not just for investment advice, but often for financial advice, as well. That’s fine, until you are in front of an overzealous (at best) salesperson who gives profoundly bad advice just to get the sale.

Unless they run a dual business doing taxes or practicing law, I nsurance agents, registered broker representatives, and even financial planners are not tax or legal experts. Do not rely on their advice as any kind of authority. ALWAYS seek your own tax or legal professional to make sure you’re doing what’s right for your own situation.

They won’t put it in writing.

This one is a true no-brainier. “Trust me,” is not a legal disclosure. MAKE SURE any claim you are relying on to purchase a product or start an account is put in writing.

They pressure, rush, or bully you do business with them.

Imagine, if you will, instead of seeing this salesperson for a financial transaction, you are out on a blind date. If your date shows up at your door calm, confident, and in control, you would feel much more at ease about the mutual good time you will have while in their company.

But what if your blind date showed up, and was instead pushy, desperate, or overbearing? Of course, you’d be turned off. The reason is probably rooted somewhere deep in our survival instincts. If someone is pushing you uncomfortably hard to do something you aren’t sure of, you have every right to beware. An agent or salesperson who pushes aggressively for the sale always raises your skepticism, and that’s for a very good reason: they’re pushing because they have their own interests at heart, and not yours.

The bottom line is, you are the customer. You are in control. NEVER feel pressured, badgered,  or rushed to make a decision. The investing world will be there tomorrow. Sleep on it, pray on it, discuss it first with people you trust. The right advisor for you will respect your need to be cautious, and will be patiently waiting and ready for you when the time is right.