You're invited by a prominent financial firm (or what sounds like one) for an "educational" session on, say, estate planning or improving your retirement income. With free wine and roast beef on offer, you figure, "What can go wrong?" Then there's a humming in your ears. When you wake up, you find that you've invested in something you regret.
Affluent seniors get sucked in because they have time on their hands, money questions in their heads, and no independent planner or adviser to consult. Half of the presentations are shot through with misleading claims, according to a 2007 study by federal and state securities regulators. A quarter of them pitch unsuitable products -- too risky, too costly, illiquid -- to the people who attend.
It's gotten so bad that the AARP and the North American Securities Administrators Association teamed up last month to create a new "free lunch monitor" program to help seniors save themselves and others from the oil poured into their ears.
Anyone can be a monitor. If you get a free-lunch invitation and want to act as a cop, on the beat, download the AARP's four-page guide to listening and take it with you. As the salesperson talks, make notes in the guide. Did he tell you the drawbacks of the investment? Disclose the cost? Ask you for personal financial information? Press you to sign up? Bad answers amount to a woo-ah, woo-ah alarm to warn that financial whirlpools lie ahead.
If you sense a cheat, send your notes to the AARP for review. Potential violations will be passed to a state securities administrator. Among the products apt to be pitched abusively: various types of annuities, oil and gas investments, reverse mortgages, and high-interest promissory notes.
The 2007 study found that 78 percent of seniors had gotten at least one free-lunch invitation over the previous three years, and 60 percent received six or more. The venues are flattering: fancy restaurants, country clubs, and upscale hotels. Who would lie to you, in a room with oak on the walls and a Turkish carpet on the floor?
The sponsoring firm -- a brokerage house, investment adviser, or insurance agency -- might promise that you'll hear only talk. "Nothing will be sold" the invitation says. With that assurance, you might think that you can attend just to pick up some tax or investing tips.
But these carefully scripted lunches are designed to excite, confuse, or scare you, not leave you better informed. Once the hook is in, the firm will offer enlightenment, in the form of a follow-up call and visit. The salespeople earn rich (and hidden) commissions from the products on offer. If asked, the presenter might say that you don't pay the commission, "the company" does (with your money, of course). You usually can't find out all the costs and fees.
The regulators advise you to go to these lunches forearmed with questions and doubts. My advice is to go as an avenging monitor or not at all.