Often people will buy financial products not on their merits but on the basis of the salespersons personality. Physical Attractiveness, flattery, and perceived common interests often close the deal. You are often left with a false friend and an unsuitable investment.
Rejecting this tempting bait can be very difficult. Robert Cialdini ,in his book The Psychology of Persuasion, has an effective strategy to deflect these very likable but dangerous people. He recommends being keenly aware of your feelings of affection.
The key is to recognize that if you have become attached to this person in a short period of time, something might be wrong. The free food, compliments and common hobbies that came at you fast and furious should raise your antenna This is the warning sign and will enable you to prepare an appropriate defense.
It would be easy to shift gears and actively dislike this person for trying to mislead you. That causes two problems. First, it is unhealthy and disliking a lot of people will have a negative effect on your quality of life.
Second, this will eliminate any chance of you having a business relationship with nice people. This could rule out potential profitable relationships without just cause. Not every nice person is trying to screw you.
Once you are aware of your feelings, you can now implement an effective strategy. According to Cialdini, what you need to do is separate the salesperson from the investment itself. This will let you judge each category on its own individual merits instead of dangerously merging the two.
You have to ask yourself some questions. Will this investment perform better because the salesperson is funny? Is this the best Life Insurance policy for my family because the salesperson knows your Aunt Gertrude? Does this persons good looks give me a better chance to attain my financial goals?
If the answers to questions like these are no, you can begin to make an informed decision instead of being manipulated by someone schooled in the art of persuasion.
Being a fee only RIA, I have a great deal of experience with clients who refused to ask themselves these questions and wound up purchasing inappropriate investments. The penalty of choosing financial salespersons personality over the merits of the investment is severe.
This could lead to insufficient life insurance if you were sold whole life instead of much cheaper and practical term policy. This mistake could extend your working years because you placed a high cost variable annuity inside of a retirement account instead of a much cheaper index fund.
In the worst case scenario, you could end up losing all of your money if you a purchased a complicated investment that you did not understand because you were convinced the salesperson was your best friend.
The common refrain I have heard in cases like these was “He seemed like a nice guy.” It is amazing that people will gamble their financial future on this one criterion. They do and the results are often disastrous.
Human beings have a psychological make up that is more suited for survival rather than investing. We are hardwired toward greed and fear or fight or flight. Rational long term thinking is not part of our basic brain functioning.
Being aware of this defect is most of the battle. In the end we all have to make our own decisions on whom to have managing our investment portfolios.
Just remember don’t make a decision as if you were judging a beauty contest. While the swimsuit might look good today, a few decades from now you might think very differently.