Bait & Switch
Low quality advisors frequently use a sales tactic that's called Bait & Switch. That is, they show you a high quality product or service (the bait) to win your trust. Then they switch you to a lower quality product so they can make more money. There are three frequent versions of Bait & Switch that we describe below.
Fee vs Commission
Some advisors will market themselves as fee-only advisors to win your trust. They use this tactic because they know you are better off when you compensate an advisor with a fee. Once they have won your trust they begin marketing commission products, for example mutual funds and annuities. They use various sales techniques for explaining their switch from fees to commissions.
You should always require advisors to document all of the compensation they'll receive from you and/or third parties.
Product Switches
A favorite tactic of a low quality advisor is to establish a relationship by selling you a relatively conservative product, for example AAA municipal bonds. Once trust has been established, the advisor begins selling you increasingly aggressive products that produce more income for him or her. The sales tactic is frequently used by advisors who sell financial and insurance products over the telephone.
Professional Switches
Another form of Bait & Switch occurs when an advisor markets the stellar credentials of another professional at his or her firm, but that professional has no responsibility for the investment of your assets. The advisors baits you with the credentials of a high quality professional, but invests your assets him or herself.
Young advisors and advisors with poor credentials or ethical backgrounds use this tactic because they know you wouldn't hire them if you thought they controlled the investment of your assets.
