Flipping through the local paper, I noticed a standard advertisement from a “financial planning” firm. We’re seeing more and more of these advertisements that are designed and written to appear as an actual article of the publication.
The ad titled “How to Get up to a 10% Return on Your Money Without the Risk!” tells us the story of Denny Dolan, who drives a car dealer courtesy van twice a week because he got bored after a year of fishing, golfing, and skiing. Denny says “I haven’t lost $0.01. In fact over the past five years I have made almost 6% (per year).
The rest of the article/ad continues to talk about achieved returns and a horror story about Denny’s neighbor, who used a traditional financial planner and had their nest egg cut in half. Suddenly, the ad ends. Notice anything missing? The large 4” x 11” ad failed to tell us how the advertiser produced such impressive returns without the risk.
Almost certainly, the advertiser was selling equity-indexed annuities. First, as anyone who has read my blog before knows, I am of the opinion that these people need to stop referring to themselves as “financial advisors” and call themselves what they really are: salesmen. After all, are these people ever paid for providing advice? No. They are only paid when they sell a product. Second, I’m not particularly a fan of equity-indexed annuities because they pay salesmen such a hefty commission and they put a debilitating cap on annual earnings. However, that’s not the point. The real question is why these “financial planners” are so secretive about the products they recommend.
To make my point, I called the 800 number at the end of the ad and had them send me their free report. Not surprisingly, the report was nearly as secretive as the newspaper ad. The 15 page report didn’t bring up the product they were recommending (equity-indexed annuities) until page 11. More alarming, the report never discussed what an equity index annuity actually is! It only reproduced quotes that had been posted on a general discussion forum online about how great these products are, but not WHY they were attractive. None of the people quoted were even credentialed. (It’s a sad fact that the annuity industry hires people to do nothing but surf the web all day and write quotes that look like they are from a satisfied annuity customer explaining how happy they are with their purchase.)
My point is that a lack of disclosure and transparency in an ad should be a red flag when it comes to financial products and advisors consumers should consider. If the product being recommended isn’t of high enough quality to mention in the ad, is it worth purchasing?
Beware of advertisements that don’t clearly identify the investment product or strategy being pushed, and educate yourself about the difference between a financial advisor who is paid to provide objective advice and “financial advisors” who are nothing more than salesmen. A good place to start is by speaking with a fee-only financial planner who accepts a fiduciary obligation to always do what is in the best interest of their client.