1. "Come to a Free lunch"...just give me an hour of your time. Never feel obligated, free is free, be prepared for high pressure, tell them you always consult your son in the FBI before making any decisions.
2. "I'm the expert and want to make money for you" (translation: I am a salesman and want to make a big commission). Ask questions: are you licensed; how much commission do you make?
3. "This investment is better than the stock market." (translation: What I'm selling you has not been approved by the Security and Exchange Commission (SEC) because the SEC requires audited financial statements). Your advisor should create a comprehensive plan with an overall diversified strategy. Ask for it in writing.
4. "Let's get together at your house to discuss your needs". (translation: I want to get you alone so I can pressure you into buying my product - i.e. life insurance, variable annuity, "guaranteed" investment in a start up company or oil and gas). Find a certified financial planner or registered Financial Advisory and go to their office so you can get up and leave at any time.
5. "This investment is suitable for you". How does he know? You may have credit card debt, medical bills, or need for liquid cash. Even a licensed broker at a big brokerage firm may not understand your objectives or comfort level of risk.
6. "You must jump into this now". (translation: Don't think about it, don't ask your accountant, lawyer or children). Studies show when time pressure increases, people tend to become less analytical and more impulsive. This is a Red Flag...say NO!
"If it sounds too good to be true"
Investment scam artists make their living by making sure the deals appear to be both good and appealling. They're masters of persuasion, tailoring their pitches to match the psychological profiles of their targets. They look for your Achilles' heel by asking seemingly benign questions...about your health, children, grandchildren, hobbies, marital status, whether you have a financial advisor or talk with your spouse about investment decisions. Once they know which buttons to push, they'll bombard you with a flurry of influence tactics.
Common tactics include:
The "Scarcity" Tactic - creating a false sense of urgency by claiming limited supply. "I only have two coins left in inventory and you better get one today!"
The "Phantom Riches" Tactic - dangling the prospect of wealth, enticing you with something you want but can't have. "From this investment, you'll make enough money to buy that new house on the golf course!"
The "Source Credibility" Tactic - trying to build crdibility by claiming to be with a reputable firm, or to have a special credential or experience. "Believe me, as senior vice president of XYZ company, I would never sell an investment that doesn't produce."
The "Social Consensus" Tactic - leading you to believe that other savvy investors have already invested. "This is how ______ got his start. I know it's a lot of money, but I'm in and so is my mom and half her church, and it's worth every dime."
The "Reciprocity" Tactic - offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now...half off."