Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Wednesday, December 16, 2009

Further Proof - No Free Lunch!

In an article recently posted on our blog “That Free Lunch May Cost You Plenty” (August 24, 2009), we discussed that many investment seminars offer supposedly free lunches and free dinners, yet often pitch risky investments that can end up costing you dearly. That is not to say that that all seminars offering free food are unworthy of your time. Nevertheless, a recent article in the Sarasota, Florida Herald-Tribune written by financial columnist Humberto Cruz, titled “’Free Lunch’ Investment Seminars Often Cost You” (December 6, 2009), Mr. Cruz offers personal data to confirm what many suspect to be the case.

Mr. Cruz attended every investment seminar to which he was invited plus others advertised in the newspaper over a period of six months to see what was typical. He states in his article: “I soon realized I would learn little about investing but a lot about high-pressure sales tactics and high-commission products.” He went on to say: “After a while, the seminars became so predictably unpleasant that I stopped going this year.” He then discussed a new study by AARP and the North American Securities Association (NASAA) that he said confirmed that “little if anything has changed.”

The study found that while 78% of people who attended free-lunch seminars did go thinking it was an educational opportunity; nearly 40% were offered investment products. In another joint study by the Securities and Exchange Commission, NASAA and the Financial Industry Regulatory Authority (FINRA), it was found that 59% of the seminars surveyed reflected weak supervisory practices by the firms and 23% of the advisors holding the seminars recommended investments that did not appear to be suitable for the client. In this same study, 13% of the seminars involved indications of possible fraudulent activities.

In Mr. Cruz’ article, he stated that seminars often discuss products with high returns and low risk. We tell our clients that a good rule of thumb is that higher returns means higher risk. If someone offers you an exceptionally high return, this should be a red flag. If it sounds too good, it probably is, reminding us once again of the old adage that “there is no such thing as a “free lunch”.


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