Three years after FINRA released an investor alert warning of frauds and scams perpetuated by brokers and financial advisers during "Free Lunch" investment seminars, a similar scheme has returned. FINRA's 2012 alert specifically warned that these free lunches are often full of aggressive sales pitches, misleading or downright false claims and persuasive tactics designed to increase firm revenue at the expense of client interests.
After all, the "free lunch" is actually financed by investors who purchase products after hearing sales pitches at said seminars.
According to the Monterey Herald, this hard-sell hook has returned to the investment game in the form of a "Special Invitation" for a gift card or other more "modern" electronic benefit. Though soliciting prospects with "free" gifts is nothing new, one FINRA study discovered just how widespread the deceptive marketing practice really is: 80% of investors over the age of 60 received a "free lunch" invitation within three years of the survey.
A similar SEC report found that 50 percent of free lunch seminars contained "exaggerated or misleading advertising claims."
The FINRA investor alert told investors to remain cautious about choosing how to invest, especially at the "invitation-only" dinners/sales meetings. Specifically, FINRA recommends that before choosing to invest in a particular security or with a particular firm or broker, investors should do their own due diligence in the form of research: For a specific vehicle, perhaps a private placement memorandum or similar documents would be helpful while for a broker, FINRA BrokerCheck is the tool of choice.
Namely, the Monterey Herald article mentioned that no salesperson listed on one such invitation appeared to have an industry title or certification, such as being a registered or associated broker or adviser. The best way to avoid doing business with an unregistered individual or one whose track record is full of sanctions and disclosures is to do research, specifically with BrokerCheck.
Second, good investment strategies and portfolios are built over time: investors shouldn't be rushed into making important decisions such as how to invest funds, especially not over the course of one evening. Similarly, investors shouldn't be pressured into a "limited time opportunity" or "sure thing" that likely will be much more advantageous for the broker/seller than for the investor/buyer. Often times, taking the time to research such a hard-sell will show that commissions and fees do, in fact, benefit the broker while hurting the client's overall profitability. Rushing into things may also prevent adequate time to discover conflicts of interest and other relevant red flags.
After all, in the grand scheme of investing, one "free lunch," dinner, or gift card/certificate isn't exactly a high-priced gift from the broker or firm's perspective.
If you have invested with any broker, financial adviser or FINRA-member firm whose use of a "free" gift card, lunch or other enticement seminar contained misleading information, such as exaggerated or false advertising claims, and this deception has led to transactions that have proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for investigation and consultation.