Opinion: Financial industry uses psychology to tempt potential investors

At least one call every week has been coming in, although that pales by comparison with the number I was receiving last year when I wrote my cautionary note about such activity in this column. Crude oil was hitting new highs almost daily then, as were the solicitation calls I was receiving.

I will repeat my advice from that column. When any investment has been a hot performer, an indication that the bloom will soon be leaving the rose occurs when the man on the street is being offered opportunities based on that particular investment’s recent history. It is a technique that has been around forever, has relied on the “fear and greed” behavior of the usually – but not always – uninformed investor, and has almost without fail resulted in keen disappointment and significant losses. Caveat emptor!

Running a close second to the energy solicitations are the dinner invitations to a local, very well-regarded steakhouse where I would learn how to pay less in taxes, get guaranteed investments, learn the secrets of successful investors and probably live happily ever after. And the best part? No obligation – although the invitation frequently required that my wife attended with me and sometimes stated in small print that investment brokers and insurance agents had to buy a $500 ticket to the evening.

Well, I am neither of the latter, but I do have a wife. In spite of the numerous invitations, I chose to decline each and every one. Now, don’t get me wrong; I am not saying that all such dinners and “educational seminars” are bad, just that one should be cognizant of a couple of things.

The “no obligation” free dinner is one effective technique to attract prospective clients for whatever is being sold. Seniors especially love free food. But it’s like a family friend taking you and your significant other to dinner; I’ll bet you feel obligated to reciprocate. It’s a psychological technique that the financial industry uses often – and well.

Check the small print that identifies the speaker and the speaker’s business. Many times the name of the company and what they sell will be stated, giving you at least an indication of what the advice of the evening will be directed toward.

Occasionally an “educational seminar” or “retirement planning workshop” will be conducted as an actual public service by a professional who does not have a product or service that is being sold. If you do go to one of those dinner meetings and determine that the presenter is a salesman of products that are limited, akin to the “one-size-fits-all” approach, remember the saying, “When your only tool is a hammer, every problem looks like a nail.”

Caveat emptor!

Clark Davis is a 37-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company. He can be reached at cdavis@slia.com.