Financial Sharks in Turbulent Waters

[INTRODUCTION] Welcome to “Christian Financial Perspectives”, where you’re invited to gain insight, wisdom and knowledge about how Christians integrate their faith, life and finances with a Biblical Worldview. Here’s your host Christian Investment Advisor, Financial Planner, and Coach, Bob Barber. [EPISODE] Bob: 1 Peter 5:8, “Be alert and of sober mind, your enemy, the devil, prowls around like a roaring lion, looking for someone to devour.” Shawn: Starting off strong, Bob. Bob: I am. Shawn: So what’s our topic today? Bob: Financial sharks in turbulent waters. Shawn: Okay. Bob: And we’re in some very turbulent waters right now in the markets. And when you have turbulent waters like that, sharks start coming around. Shawn: They take advantage of it. Makes me think of that thing they do every year on shark week. We have all the Great Whites down there by Seal Island, whatever they call it. You have all these seals, way too many seals. Bob: They’re outta room and these poor, innocent seals. Shawn: Yep. They’re just trying to get to the island, do their seal thing, and they have these sharks that if the seals stray out too far, those sharks take advantage of it. Bob: Ready to pound on them. Shawn: Yep. And when I say pound on, I mean, these things will launch themselves out of the water by swimming up really fast. It’s crazy to watch, but definitely makes me think of what the financial sharks do in times like these. There are people that, understandably, they’re scared, especially for you if you have investors that maybe they haven’t really been through that many bear markets. It gets scary sometimes. Bob: A lot of people, this is their first real bear market they’ve been through. Shawn: Like a big one. Bob: A bear market is a 20% or more drop. We had a slight bear market couple years ago during COVID, but it was a V-shaped recovery, so we came out of it so fast. Shawn: Wasn’t long enough for people to get too scared. Bob: This one’s prolonged. I mean, we’ve been in this now since January and we’re in the middle of the summer. And it could go on the rest of the year. And during times like this, there are sharks, and I’m sorry to name it that way, but they’re out there. And one of the indicators, one of the sharks that you’ll see. Shawn: So how do they disguise themselves, Bob? What’s something to look out for? Bob: A big picture of a big fat, juicy, beautiful steak. Shawn: Okay. So like on a little card or big postcard. Bob: It’s this beautiful picture. I mean, it’s like, Hey honey, I want to go out to Myron’s steakhouse tonight. Cause this looks good. I might want to go to this. You open it up, and it’s not advertising Myrons. Shawn: Oh, it’s not a special for Myrons? Bob: No, it’s advertising a workshop. Come to our workshop and we’re gonna give you this free, steak dinner. Shawn: No strings attached, right? Just out of the goodness of their heart. Bob: They’re gonna give you this free, steak dinner. And out of the goodness of their heart, they’re sending out 10,000 or more of these that cost $10,000. Shawn: I mean, if it’s only a dollar a piece. Bob: And you go to one of these steak houses, like that’s gonna cost you a $100-120, and they’re gonna get about 30 people there. So just do the numbers. You’re at $13-14,000, the person is putting on the workshop is at $13,000 or $14,000 in the hole. Shawn: Just for inviting people. And then for the people that are there… Bob: The 30 that are gonna respond to the 10,000 postcards. Shawn: Why in the world would they spend $13,000 to $14,000 to give people a free steak dinner? Is there something in it for them? How hard is it for them to make that money back? Bob: Not too hard. They can sell one or two high commission fixed indexed or fixed annuities and get it all back. Shawn: Well, surely that’s regulated though, Bob, right? Surely there’s a lot of disclosures. Bob: Oh yeah. It’s regulated by the insurance industry. Shawn: So not regulated at all. Bob: Very, very low. Shawn: Not as far as investment products are typically concerned. Bob: Shawn, we have met so many people over the years that have gone to these. They get hooked in, because once you buy into one of those… Shawn: You’re stuck for what? 10 years? Bob: 8 to 10 years. And they give them bonuses up front, and they promise them the moon. They say, oh, the market goes up this amount, you’re gonna catch all the upside, but none of the downside. Shawn: Why would you not do that, Bob, if you’re gonna participate in all of the market upside, none of the downside, what’s the catch? Bob: The catch is very high expenses. There there’s like several ways that you can participate in the market ups, but that comes with either a cap rate or it’s called, I think, a participation rate, which means that you have to pay another 4% or 5% just to participate in that upside. So, very high expenses. Shawn: So what you’re telling me is it’s marketed as that you can participate in all of the upside, but the reality is that you can participate in all the upside either to a maximum amount or they effectively charge a management fee or an extra commission. Bob: That’s enormous. Shawn: If you want to go up and over a certain amount, then you pay 4% or 5% additionally. So effectively, the markets could go up 20% and you might get 4% or 5%, or in the case of you’re paying that extra commission, it goes up 20%, but in reality, you only got 15%. Bob: Yeah. Extra fee. Shawn: That’s high. Bob: That’s why they pay such a high commission. Shawn: And most fiduciary advisors charge more like 1%, right? Bob: Between half and one percent. Shawn: For the whole year. Okay. Bob: Yeah. But that’s why a lot of advisors, they don’t wanna be a fiduciary. It takes them too long. They have to be with the client for years and years and years to make it work their time. Shawn: Well, yeah. I mean, we were charging 10% commission, that’s 10 years of revenue. Bob: Right up front. Shawn: Well, I can see why it might be appealing to people. Bob: So, that’s the way one of the sharks do it, you know. Other ways are like, look out for workshops that will offer social security planning. Shawn: Another example are those educational seminar kinds of things, whether it’s social security or maybe it’s how to do your own investments. There’s a lot of those kinds of things, right? It’s like, well, they’re so successful that they wanna go ahead and teach you how to do this. I guess they can’t make a living at, but yet it’s so good that I’m sure it’s gonna help you out, right? And they’ll do it for free. Bob: Yeah. How they doing this for free? There’s nothing for free. No. Nothing. Shawn: If they say it’s free, you’re paying for it later. Bob: One way or another. Shawn: Exactly. Bob: So another way is what I call doomsday newsletters. Those are really out there right now. They’ll lure you in and then you can pay a monthly fee for this newsletter. Or, they’re gonna take you down a path that is eventually going to push you into some high commission product. Shawn: Maybe it’s precious metals or maybe it’s something where, “Oh, sign up for this thing. Do your own research. Here’s my hot stock tips.” Which again, if they are really that good, why would they be charging fees or subscriptions? Bob: It’s kinda interesting, isn’t it? Also, you wanna look out – I’ve heard some advertisements recently on the financial stations – I listen to satellite and I listen to the stations when I drive back and forth to work – of non-liquid alternatives. I’ve been seeing and I’ve been hearing art advertised. Shawn: Really? Art? Bob: Art. Precious art. And talking about the high returns in it. Now, in a recession that we’re moving into – we might already be in. Shawn: Well, and usually the markets are kind of that leading indicator. Well, if we’ve had six months of a bear market, if we weren’t in a recession before, we’re in one now. We’re getting into it. Bob: I don’t know. This is so speculative. And those kinds of investments do well when there’s a full blown, bull market and things are doing well. That’s extra money that you have to by art. Shawn: That just blows my mind. So, even if we just take away the recession part, even if it was maybe a good idea for the art, compare that with just the markets in general. For most investors, if someone is kind of adverse they’re wanting to get a little bit away from all the volatility and the craziness that’s going on in the market, why in the world would you want to consider art? Bob: I don’t know, Shawn. Shawn: Way higher risk. Bob: I don’t know, but they’re out there right now. So, I’m just telling you, right now, you gotta watch out for all these sharks that are in the waters. They’re the free steak dinners. They’re the invitations. They’re the educational workshops, giving false promises to annuities, social security planning, the subscription dues, doomsday letters, and the high commission gold sellers that are learning you in. They are out there. I just wanted to make an episode to tell my fellow brothers and sisters in Christ to be aware of them. I’ll talk to you all day long about this if you want to. Shawn: Yeah. So I guess maybe to kind of summarize it, the things to look out for – those red flags, if something is being offered as, “Oh, it’s free. There’s no charge to you or there’s no risk to you.” Chances are you’re paying for that some other way. So, look at the fine print. Get some more information. There’s probably a high commission involved somewhere, or there’s gonna be something where you’re stuck for an extended period of time. That’s the way you get that benefit. If you see someone offering you free trips or the free dinners or the totally free, no commitment whatsoever educational, they all create a non-biased conflict of interest. So, these people advertising, it’s not out of the goodness of their heart. They’re just doing it to make money. Bob: It’s the old saying, and we’ll conclude on this, “If it sounds too good to be true, it probably is.” Shawn: Amen. Bob: That’s all for today. Shawn: Thank you. God bless. [CONCLUSION] That’s all for now. We invite you to listen to all of our past episodes covering many financial topics from a Christian Perspective. To make sure you don’t miss any of Bob’s upcoming episodes you can subscribe to Christian Financial Perspectives on iTunes, Google Play Music, Spotify, or Stitcher. To learn more about integrating your faith with your finances, visit ciswealth.com or call 830-609-6986. [DISCLOSURES] Investment advisory services offered through Christian Investment Advisors Inc dba Christian Financial Advisors®, a registered investment advisor registered with the SEC. Registration as an investment advisor does not imply a certain level of skill or training. Comments from today’s show are for informational purposes only and not to be considered investment advice or recommendations to buy or sell any company that may have been mentioned or discussed. The opinions expressed are solely those of the hosts, Bob Barber and Shawn Peters, and their guests. Bob and Shawn do not provide tax advice and encourage you to seek guidance from a tax professional. While Christian Financial Advisors® believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.