If it sounds too good to be true, it probably is!
I received an enquiry from a concerned client this morning who had someone visit her home (under the guise of providing market research) making some big financial promises that sounded great, a little too great. I was familiar with company in question and very aware of what they offered for their clients; a one-size-fits-all strategy that is a sales technique masquerading as financial advice.
These companies are becoming more prevalent, and are having success. I have an issue with the outbound call centres being deceptive in order to get in front of potential clients. But my bigger issue is that we have property and lending sales guys flogging their product under the guise of advice, using unrealistically optimistic assumptions and not disclosing that they actually work for a lender or property developer.
This sort of behaviour gives the industry a bad name. Back in the ‘80s and 90’s we saw door-to-door agents from AMP and National Mutual selling investment products based on returns in the mid to high teens and telling people, if they put $50 per week into these investments, they will have a million dollars at retirement. These guys weren’t pretending to be experts, they were unashamedly sales guys and they were upfront about who they worked for. Those practices are now heavily criticised. What we are seeing from new companies is worse, they are covert in who they represent, and they are making huge dollars and using dishonest tactics to meet with people in the first place.
Most of the sales pitches revolve around paying off your mortgage faster (usually quoting numbers like 10 to 15 years earlier), saving interest and reducing your tax. Sounds great, who wouldn’t to pay off their mortgage early and reduce interest and tax? The strategy they recommend isn’t wrong; it is effectively buying an investment property and utilising a debt recycling strategy. The idea being that you use income and tax benefits from the investment property to reduce your own debt, whilst keeping your deductible debt at the same level (sometimes they are more aggressive and recommend capitalising interest on the deductible debt). This strategy is fine and, in many cases, a very effective option that good financial planners utilise all the time. However, it is definitely not suitable for everyone. They also do calculations based on current, all-time-low interest rates, capital growth being constant and consistent full occupancy. This is the same as those agents in the ‘80s quoting on once-in-a-lifetime high interest rates.
What also irks me is the amount of money these guys are making and not disclosing. They are making money on the investment property and commission on the mortgage broking on top of fees related to the advice.
If they were genuinely providing advice, not flogging property and loans, they would tell you to buy any investment property, go get any loan (they may refer you to an expert in these areas) and simply make a fee on the advice they provide.
Be wary of anyone promising something that seems too good to be true – it probably is.