Dangerous Sales Pitches

"Pay your mortgage off in ½ the time without spending an extra cent monthly! "

"Invest your money, gain stock market like returns and never lose a dime!"

Good Strategies? NO, DANGEROUS SALES PITCHES!

I received a mailer yesterday inviting me to a seminar where they were going to give me a free meal and tell me how to pay off my mortgage in ½ the time without spending one extra cent monthly. The letter starts off by saying “Paying off your mortgage is a mistake.”

There is a dangerous strategy that encourages consumers to take their mortgage, refinance it to an interest-only note, and then invest that money you would have been paying on the principle of the house into an equity-indexed annuity. The only thing about that strategy that is successful is paying out big fees and commissions. In fact, on many financial talk shows in the DFW area, these product and strategy pitches are being made and made very aggressively.

So what is wrong with the approach? It comes down to two things. First, these aggressive strategies are based on a perfect set of assumptions coming true. The likelihood of those assumptions occurring would require the stars align. Second, any strategy that is pitched that involves an equity-indexed annuity is simply dangerous.

Equity-indexed annuities are designed and aggressively marketed by life insurance companies. They are marketed as investments that never lose money. However, when the stock market goes up, they go up as well. They are supposedly the perfect investment. The agents who sell them make huge commissions. They are not regulated by a governmental investment regulatory agency. In fact, over the years the government has started cracking down on these products and many lawsuits have turned up claiming misrepresentation and fraud.

What is so dangerous about these strategies?

The idea on paper is easy to understand and makes total sense. In reality, it doesn’t quite work as advertised. It is human nature to want to believe the sensational claims. The dangerous part of the whole sales process is that it is easy for you to get suckered into it. Always live by one principle. A sales pitch with a sensational claim should be met with a heavy dose of skepticism. If it is too good to be true, it is too good to be true. That alone will work to keep you out of trouble.

Remember there are no slam dunk solutions. If this were so, everyone would be doing it.

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