Investment Sales Tactic Defense
Defense against Aggressive Selling with Numerical Verification
© D. Chen
Mar 20, 2008
Faced with unfamiliar investment opportunities, verification of risk and reward figures remains the only straightforward method of retaining confidence in available options. Regardless of any daunting complexities or promising forecasts, the numbers do not lie.
Sales Tactic toward “The Intelligent Client”
Financial product and service providers aim at a demographic consisting largely of individuals with higher education. Throughout the years, these businesses have adapted specific strategies to better sales rates.
While in the presence of “smart” clients, pretense of authority tends to work with big words. Mystification with industry-specific lingo is a common practice. Spewing forth highly technical (or boldly nonsensical) terms presents a chance for the salesperson to impose power of influence upon the more-often-than-not cultured client.
Industry expressions like “derivative spreads”, “volatility optimization”, “relative value arbitrage” could make any speaker sound like an expert in the eyes of a shy, uninformed newbie. It exploits the ego, forcing people to make assumptions and stay silent in fear of displaying signs of dimness. The illusion of adeptness then produces credibility for the speaker, and another sale is made.
When it comes down to it, the interests of the investment vehicle providers lie on the other side of the street. Most of their income comprises commissions and fees from onboard investors. Impartiality from a salesperson is impractical.
Defense with Questions
The ego does little good when it comes to wealth management. Questions are necessary. Not to appear dense, but to ensure that the speaker does indeed understand the said topics. Higher intelligence allows people to explain complex matters in simple terms, not the other way around.
Numbers of Importance
A double check of expressed, implied figures is essential. To make out realities from a potential sea of sales gimmicks, a meticulous verification of the numbers does the job. Cold, objective logic does not deceive or tantalize.
Frequently, the rationally computed numbers of risk, reward and probability of success could either confirm or utterly contradict the claims from the investment advertiser. Many opportunities only seem attractive due to high “potential” returns, yet the low probability of success reveals the true treacherous nature of future performance.
Of course even in the case of a mathematically expected positive return, it still means a lousy deal if the post-fees profit barely compares to the average bank bond return. The now obsolete mutual funds mostly generated revenue off the steep fees; with the “buy and hold” (then hope) investment model, many investors could have made higher returns or smaller losses via simple positions in the index-based stocks and forego the large fees.
Stick to Basics
The industry changes, yet the concept of risk and reward does not. No sales trick outside of blatant deceit could make a bad investment look respectable with the mentioned figures. It looks like those hated math classes have finally paid off.
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