A friendly voice offers to sell you an investment that will make you rich, smart and good looking.  It doesn’t matter what it is - an annuity, a mutual fund, a stock, some sort of property. The seller is guaranteed to profit but you only make money if you are lucky. The pitch always works the same and we break down how to identify it, ask the right questions, and get them to never call you back.

Note - you will never get a call from Wealth Meta selling any type of investment. First of all we don’t even collect your phone number so we can’t call you. Second, and more importantly, our mission is to build insightful and secure software tools that help you organize your finances.
 

Typical investment sales pitch elements:

In my experience, when a “broker” interrupts my day by cold calling me to tell me about such and such an investment scheme they start by listing off a number of features designed to trigger our reptile brains into action:

• The fund is exclusive - this makes you special so you can brag about it to your friends.
• It beats the market year after year - this triggers our ego's need for more (greed). Consider the numbers are doctored or it was just luck. Funds that don’t do well get closed down or rebranded into new funds that have a better short term track record.
• This deal is offered for a limited time - triggering the fear of losing out.

They are hoping to find people willing to sign up for an investment just because someone said it is exclusive, and not pay attention to what it actually costs you or how the investment even works.
 

How the house always wins:

If you do turn over your money, you may win or lose, but the house (aka “sharks”) always win. The sharks invest your money and take a cut (either in the form of a commission or an expense ratio). If the investments don't work out they still get their cut, and they are long gone by the time you will know.

If the investment is on the up and up and it happens to beat the market, then you win. However the odds are against you. Their cut reduces your chances compared to those who go with low cost index funds or DIY investing.

The sharks have what is known as 'moral hazard' in this situation. Their risk is zero since they are playing with your money. Hedge funds managers make a living doing this. Jack Bogle, the founder of Vanguard is famous for calling out this modern day rip off.

It comes down to having skin in the game, which is sorely lacking in the finance world. In this case your skin is in the game but not the sales person’s. It is called an information asymmetry, and there is a whole book written on this topic: Skin In the Game by Nassim Taleb.

Consider you may be talking to someone running a ponzi scheme. In a ponzi scheme you put the money in. That money goes to pay off people who got in earlier and are trying to get out. Meanwhile the bulk of the investments have already been stolen. If you’ve never heard of the company, and they are giving you an exclusive offer, stop and think about that for a second...

Ask about the fees:

These sales calls can be a chance to learn something, maybe the investment is interesting in some way. I try to get a word in edgewise and when I do, the first thing I ask is "What does it cost to get into and what is the expense ratio?"

Most salespeople are not used to this question because the average investor doesn’t know what an expense ratio is. The expense ratio is what the investment company will charge you to hold the investment. It is measured as a percentage of your investment. The higher the expense ratio the lower your return, and it eats away at compound returns over the years which is very bad. At Wealth Meta we’ve talked about expense ratios, even more about them, and why keeping expenses low is such a good thing for you.

They fumble for second because they don’t know it off the top of their head. It usually at least a whopping 1%, sometimes as high as 2% which is ludicrous.

What I tell them is, I’m out to minimize fees and I typically shoot for an expense ratio 0.25% or lower. It turns out zero fee funds are becoming popular these days. Fidelity recently released several funds with a zero percent expense ratio!
 

Bottom line:

If someone had a foolproof way of getting higher returns in the market, why would they tell anybody? It doesn’t make sense to sell the idea to others if the idea is so profitable in the first place.

When it comes to shaking off an investment sales person, if the expense ratio question doesn’t deter them, they typically continue with something cute about the product. No matter what it is, I say "you know, this is starting to sound like a sales pitch" and they usually stop bugging me.

For a persistent investment sales person the magic words to get them to go away for good are: “I’m broke, in debt, and don’t have any money to invest.”