"Free Lunch" Seminars May Cost You Dearly

If you’re a doctor with a six-figure income, chances are you’ve been on the receiving end of an invitation to an “educational” seminar that may include free lunch or dinner at an upscale hotel or restaurant. Upper-income individuals, especially those over age 55, are a prime target audience for these seminars.

If you’re not careful, responding to that invitation could cost you dearly, according to an investigation by the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

The seminars are usually promoted as workshops where no financial products are to be sold. Most of them are nothing more than sales presentations. Attendees are often pressured to make investments or open new accounts, either on the spot or in follow-up meetings. SEC and FINRA investigators uncovered several cases of high-pressure sales efforts, misleading claims, and outright fraud at these events. The problem is most often caused by lax supervision by brokerage firms which fail to monitor the staff members who run the seminars. In many cases, the parent firms claim they’ve never reviewed the materials used in the seminars.

Regulators found evidence of misleading claims in about half the seminars that they looked at, and another 23 percent pushed investments that weren’t suitable for the audience. The eye-opener, however, was that the study uncovered evidence of apparent fraud in nearly one of every seven seminars. Fraudulent tactics included getting attendees to sign forms that allowed the scammers to liquidate existing accounts without the customer’s consent and selling bogus investments.

Nearly six million Americans age 55 and older have attended a free-lunch or free-dinner seminar in the past three years, according to "Protecting Older Investors: 2009 Free Lunch Seminar Report," produced by the AARP and the North American Securities Administrators Association.

The report surveyed 180 volunteers who attended these seminars and submitted checklists to report their experiences. Among their findings:

• Two out of five volunteers, or 39 percent, reported they were encouraged to purchase an annuity;
• almost half, or 48 percent, said the presenter didn’t discuss the risks of investing in an annuity; and
• about two-thirds, or 67 percent, of the volunteers said the speaker didn’t disclose surrender charges or tax penalties if the annuities were cancelled early.

Shockingly, more than half the volunteers were promised rates of return of 7 percent or more.

If you decide to accept a “free lunch” invitation, the AARP encourages you to become a “Free Lunch Monitor,” to help make sure that consumers aren’t being pushed into fraudulent or inappropriate investments. Start by printing out the AARP’s “What to Listen For” checklist, which can help you pinpoint possible misrepresentations.