Getting back to churning, this is one of the all-time sell-side favourites. After all, a client with no new cash does not generate much revenue, unless he or she sells one thing and buys another, preferably with another round of up-front fees.
The specious argument is that this sell and buy will 'optimise your portfolio'. And beware any requests to reveal what other money you have elsewhere, under the pretext once again of optimisation. The usual motive is to use this either as a basis for churning your money or to lure your other money over to them.
Attitudes and behaviours
Let us move on to the psychology behind these processes.
Firstly, most people do not want conflict and seek harmony. This is fully exploited in the financial advisory process by taking advantage of people’s natural desire to please and to avoid awkward situations.
So the adviser may say: 'I see you have €15,000 in your current account, which is not earning anything. I have an excellent product that many of my clients have and they are all very satisfied...'. How do you say no to this, even if you suspect that are better vehicles out there for your money?
Even worse, the authors of this book point out an insider saying in the industry "when the client says no, that is when the real work begins". At its simplest, the adviser just will not take no for an answer and tries again and again, hoping to wear you down.
Alternatively, they ask you what your objections are and talk you out of them (or at least negate them) one by one, then stating that you can now go ahead. All of this is pure high-pressure selling, but it works on the unwary or those who just cannot stand up to it.
Many investors are unable say no firmly enough, which is quite understandable. At best, such 'advisers' can be described as double agents, but with a clear and substantial bias in favour of helping the firm rather than you.
As my friend Reinhard once said to me “the (banks) enrich themselves first”. At worst, client interests are simply disregarded entirely.
The common sentiment in the literature is that banks are more suited to conventional banking activities like current accounts, loans and mortgages. For investments, however, it is generally necessary to find specialists in this specific area who keep costs low and advise you objectively without the standard conflicts of interest and pressure to sell.
