The 2 Bonus Words

Amar Pandit , CFA , CFP

Many of you loved last week’s post and I could see that in the comments received. This week is sort of a “Part 2” of that post. The previous post covered the words FREE and GUARANTEE. This post aims at the next 2 dangerous words. Can you take a guess?

I am sure you will get at least one of these.

The 2 words are SPECIAL and TAX (FREE).

I will cover the TAX (FREE) first. People are wired to not love taxes even if they do not hate it explicitly. We have been told that taxes are necessary to live in a civilized society but at a deep level most people dislike paying exorbitant taxes. Ask anyone who is paying 45 % tax overall and then 18% GST on practically all their POST TAX Income.

It is a known fact that most people have doubts about their tax money being utilized properly. The crooks and other smart salespeople know this well. All it takes is to show how an investment is TAX FREE and suddenly people start looking at the trees instead of the forest. Life Insurance is a classic example of this.

Take the case of Endowment Plans. Even Private Banks are desperately now calling their customers using these 2 words Guarantee and Tax Free and selling Endowment and Money Back Plans. We gave an example of one such product in our previous post. It is so easy to call the customer after seeing the balance in their account and telling them to invest in such insurance products. Most of these sellers are not even using the word insurance in their conversation so people think of these as an alternative to a Fixed Deposit (yet another seemingly free product but one that really costs you – A post on the Real Cost of a Fixed Deposit is coming soon. The objective here is to be aware of such practices by your friendly neighbourhood banker so that when you get a call, at least ask such basic questions:

  1. Is this a Life Insurance Product?
  2. What is the tax-free guaranteed return (if at all such a promise is made)? Assuming they say 5%, ask how is this even protecting the value of my money when my lifestyle inflation is so high?
  3. When can I exit and what are the exit charges? Some lie outrightly, so ask them to show this.

Smart salespeople know how to navigate such questions. “Sir the markets are volatile and can go down too whereas this investment is made specially for you and it’s guaranteed to deliver 5% tax free. Which other investment can promise this?” Just insert these doubts and questions in the minds of prospects and there a sale is sealed.

This brings me to my second and final word which I have used above as a hint in bold. The word is SPECIAL.

“Sir/Madam, you are a special customer. Mutual Funds are for masses, but we have created special products for special people like you. We are targeting a return of 25-30% and we have a solid track record. We only accept Rs. 3 Crore or Rs. 1 Crore in this product but we will make some exception for you as you are our special client. There are many like you who have invested in this product.

After this script is delivered passionately, the salesperson goes on to throw names right from the BULL of India to the Son of a Housing Finance Company to even Executives from Financial Institutions. The following people have invested; you should too.  We have limited seats, and we are closing soon. Some HNIs, in fact the ones who think they are the smartest of all fall for this. This script and act are delivered flawlessly, and people end up believing this SPECIAL Pitch.

In fact, this has made a company so successful that you can see that their mutual fund investments are a tiny fraction of their overall assets, but their PMS and Alternative Assets base is Huge. All this is thanks to this Simple yet Powerful SPECIAL Pitch. They got many people who were invested in Mutual Funds to move into riskier, costlier, and highly profitable proprietary products.

When suited booted and fluent salespeople give you a smooth talk of how you are the best and how you deserve a SPECIAL investment that is reserved for a few only, your antennas should go up.

Even a billionaire cannot eat gold.

Imagine you have more money than you will ever need. Will you start eating something special rather than the healthy food you are eating now?

There is no SPECIAL Investment. It is Pure Marketing and Sales. The Financial Services industry has the power to do Good but instead has become a Marketing and Sales Machine that churns out new products all the time with a different theme each time.

There is no Special Investment for a Special Investor. Every Family/Investor is Special as they have their unique needs, dreams, goals, aspirations, and the only thing Special is their ability to live a life they have imagined with their money (what we call a HappyRich Life).