What the examinations found, with the sample size attached to each figure. Across the 110 examinations, the staff reported that 63, or 57 percent, involved advertising or sales materials that "may have been misleading or exaggerated or included seemingly unwarranted claims." Weak supervisory practices appeared in 65 examinations, or 59 percent. Indications of unsuitable recommendations appeared in 25, or 23 percent, where a risky investment had been recommended to someone with a conservative objective or an illiquid one to someone with a short-term need for cash. Indications of possible fraudulent practices appeared in 14, or 13 percent, involving what the report describes as "potentially serious misrepresentations of risk and return, liquidation of accounts without the customer's knowledge or consent, and sales of fictitious investments." Five examinations, 4 percent, found no problems or deficiencies at all. Deficiency letters or letters of caution went to 86 firms, 78 percent of those examined, and 25 examinations, 23 percent, were referred for possible further investigation or action.
The gap between how the event is advertised and what it is for. The report is unusually blunt on this. Many seminars "were advertised as 'educational,' 'workshops,' and 'nothing will be sold at this workshop,' and many advertisements did not mention any investment products." The staff's finding was that they were nonetheless "intended to result in the attendees' opening new accounts with the sponsoring firm and, ultimately, in the sales of investment products, if not at the seminar itself, then in follow-up contacts with the attendees." An attendee reading the invitation as a promise about the day is reading it correctly and still missing the point, because the sale is designed to happen afterwards.
The undisclosed sponsor, which is the structural problem rather than a tactical one. The report found that invitations often centered on the individual presenting, complete with a photograph and a local biography, while attendees "are not always provided with the name of the firm sponsoring the seminar, and may not be aware that product sponsors (e.g., mutual fund companies and insurance companies) may provide funding for the seminars with the expectation that investment professionals will sell their products." The staff drew the conclusion out loud: in those situations "seminar attendees may not have known that the financial adviser speaking at the seminar was not unbiased in making product recommendations." This is the sentence to carry away. The problem is not that someone is selling; it is that the audience may not know who is paying for the room.
What was being sold. The staff recorded that the most commonly discussed products were "variable annuities, real estate investment trusts, equity indexed annuities, mutual funds, private placements of speculative securities (such as oil and gas interests) and reverse mortgages." Those six have something in common that is worth noticing without needing any figures: each carries costs, surrender terms or liquidity constraints that a person cannot reasonably evaluate in a room with a slideshow and a plate. Our pages on the variable annuity, the non-traded REIT, the fixed indexed annuity and the reverse mortgage set out what each actually costs.
The language on the invitations. The report quotes seminar names such as "Seniors Financial Survival Seminar" and "Senior Financial Safety Workshop," and notes that the advertisements "often imply that there is an urgency to attend," giving as examples "limited seating available" and "call now to reserve a seat." Among the claims the staff classified as potentially misleading were "Immediately add $100,000 to your net worth," "How to receive a 13.3% return," "How $100K can pay 1 Million Dollars to Your Heirs," and "Your deposit plus all gains are insured 100% without limit."
What this means for someone holding an invitation. Attending a sales presentation is not dangerous in itself, and a free meal is a free meal. The useful posture is to treat the event as what the examination staff found it to be: a marketing channel, whose value to the attendee is information and whose value to the sponsor is a follow-up appointment. Two questions carry most of the weight, and both have short answers: which firm is sponsoring the event, and what is the presenter's registration record. Both are answerable before anything is signed, and neither has to be answered in the room.
