When people make a living selling products, they sometimes stretch the truth to make a sale. It certainly happens in the financial industry, where people spout all kinds of nonsense to get investors to buy what they're selling. Here are 12 examples of untruths told by investment advisers who put making the sale above what's best for clients:
"Government programs can't be counted on in your retirement planning."
The classic sales hack's line, designed to get you to invest more money. Fact: The Canada Pension Plan has been actuarially certified as sound. You're paying a good buck in CPP premiums – that's why the plan is safe.
As for Old Age Security, the federal government has announced its intention to make changes that will keep this benefit sustainable over the long term. It's worth noting that some experts believe the OAS would be affordable even if nothing were done.
"Everyone's losing money."
Current market conditions are a real test of an adviser's ability to construct a portfolio. With a strong emphasis on quality and a willingness to use bonds and guaranteed investment certificates despite low yields, investors can make money even while the markets lurch this way and that. This is a bad time to be an adviser who doesn't understand how to control risk.
"Brains are more important than fees."
Low fees are the one variable that you can control as an investor. Fund manager brilliance? In most cases, it's a marketing construct designed to justify high fees. Low-fee products are not an automatic buy, and neither is the lowest-cost option in any category. But anyone who suggests you ignore fees and concentrate on expertise is ignoring the basic rule that lower fees leave more for investors. In investing, you get what you don't pay for.
"This diversified wrap product I'm selling you is better than your individual stocks."
You know those blue-chip dividend stocks you own? The ones that increase their payouts every year and have brought some welcome stability to your portfolio in the past year or so? Well, they are NOT generating any income for your adviser.
This problem can be easily fixed by replacing your stocks with wrap products, which ramp up diversification by combining various types of assets. Too bad the fees are so high, and the products themselves so inconsistent.
"I will pick the best possible investments for you."
Many advisers are licensed only to sell mutual funds, so they won't suggest you invest in cheaper exchange-traded funds or directly in blue-chip, dividend-paying stocks. But that's not the only way advisers shrink the world of possible investments for their clients.
Some also knuckle under to their firm's directive to foist certain investments on clients. Would these investments be on the firm's hot list because they're ideal for investors? No, it's because they're highly profitable and easily marketable.
"I'm okay with your small account."
Advisers may say this because they're too nice to tell you to hit the road, or because they see you as someone who will grow richer over time. Either way, you should expect to be treated like a deadbeat relative – "Here's your mutual fund portfolio, have a nice life."
In fairness, the economics of being an adviser just don't work for small accounts. In one way or another, advisers are typically paid for the work they do through fees set as a percentage of a client's assets. Small accounts mean small paydays.
"I have a great investing opportunity but you'll have to write a cheque to me personally."
At best, advisers who says this are trying to get you to buy in to some wacky off-the-grid investment that they are not allowed to sell through the usual channels. At worst, they're trying to steal your money. Flee from an adviser who pulls this, and be sure to report him or her to the boss on your way out the door.
"The best investing solution for you involves insurance products."
Maybe so, but probably not. Some advisers work exclusively with insurance products, so their recommendations to clients may include segregated funds and life insurance. These insurance solutions can make sense in certain situations, but they typically add two things investors should shy away from – cost and complexity. If you're pitched an investing plan that uses insurance products, ask for a non-insurance alternative and compare costs and benefits.
"Leveraging is a great wealth builder."
For advisers, this is 100-per-cent true. Leveraging, also known as taking out a loan to buy mutual funds, is a way to turn a client who has nothing to invest into a six-figure stud who generates all kinds of fees and commissions.
There are situations where leveraging can generate a better return than you'd get using your own money, but you can also lose more. Plus, there's the stress of borrowing to buy investment products that could plunge madly in value at any time.
"It's a stock-picker's market."
It's never a stock-picker's market. In fact, all markets are the same in that a large portion of money managers will not beat the returns you can get by owning an exchange-traded fund that delivers the return of a major stock or bond index. Stock pickers do get it right sometimes, but they never have the upper hand at a particular point in time.
"This new product is ideal for you."
A good adviser would not let you be a new-product test pilot. In these uncertain times, it's negligence to buy anything that hasn't been tested by the likes of a 2008-style plunge. New products are the inventions of marketers, not financial engineers. They see a hole in their company's product lineup and they fill it.
"I'm a financial planner."
It must really bug the true financial planners out there how many mutual fund sales people have appropriated this title to project an aura of professionalism. You'll know you're dealing with an actual planner if investment decisions aren't addressed until after a thorough look at your current financial position and your goals and needs. Also, the plan isn't something you just talk about. It has to exist on paper.
For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).