Financially Speaking Podcast

Separation of Church and Investment Advice

Published on December 23, 2011

Recently my nephew asked me to review his rollover IRA statement and immediately I recognized the investment company.  A few months ago, an attorney had me review a file for possible litigation.  After over 50 cases of litigation or arbitration, I thought I had seen the worst.    The attorney’s client and my nephew did business with the same company – presumably as did hundreds of other Arkansas citizens.

At its core, a commercial transaction involves a buyer and seller.  A seller, motivated by the profit in the transaction, will communicate information to entice the buyer to buy.  Advertisement is a form of that communication, whether it is in the form of a TV ad with clarified butter drizzled over a lobster tail or magazine ad showing the newest smart phone.   Sellers market to buyer in various forms–advertisements, articles, meetings and seminars–to find buyers.

In most commercial transactions, we presume the buyer has enough knowledge and experience to make an informed decision regarding the transaction.  For example, if am buying a new shirt, it doesn’t take much of a sales pitch for me to make a transaction.  However if I am buying a new refrigerator, I need more information-partly because refrigerators are more complex than shirts and there are varying models, with varying prices from which to choose.

In the investment business, the presumption is that the seller has far more information and experience than the buyer.  Hence, the industry is regulated and those regulations require sellers of investments to evaluate the circumstances of the buyer; and then to offer only suitable investments.  Sellers of investments must be certain that the buyer understands what they are buying.  It is different from buying a refrigerator or a shirt.

Seminar selling in the investment world is a big business.  There are companies who develop seminars only for the sellers of investments and they are designed to get the buyer to place his trust in the seller.  The seminar may have nothing to do with investments at all.  But the seminar is designed to motivate the buyer to establish a trusting relationship with the seller.  Often there is a free meal offered during the seminar.  Who doesn’t want a free meal?

In the cases I reviewed, the sellers got new clients through seminar selling.  That’s okay.   But they also made the point that they were pastors and members of a church.  Being associated with the church implied that they held themselves to a higher authority – higher than investment regulators.  The combination of the seminar selling and standing in church was compelling to buyers.  Yet these fellows knew the laws and regulations very well; well enough to have the buyers sign forms which prevented effective legal recourse.

To invest entire retirement accounts of retired folks in wholly inappropriate and unsuitable investments is reprehensible.  To place entire retirement nest eggs in high risk, complex investments which incurred total loss is unimaginable.  To place the buyer in a position to act against his religious beliefs to recover his lost retirement is unforgiveable.

Buyers of investments simply must learn to recognize the difference in a sales pitch-regardless of its form and format-or a commercial transaction by sellers of investments.  Most importantly they must learn that the church affiliation of investment sellers has no place or role in the transaction, any more than it does in buying a refrigerator or shirt.

Tags: investment litigation; investment arbitration; investment advice

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