Results from SEC’s Inspection of “Free Lunch” Seminars

September 12, 2007

The United States Securities and Exchange Commission (“SEC”), North American Securities Administrators Association (“NASAA”) and Financial Industry Regulatory Authority (“FINRA”) released the findings from their recent joint inspection of “free lunch” seminars targeted at seniors.

Based on the findings by these securities regulators, there are several valuable lessons for those financial professionals that are currently conducting “free lunch” seminars.

  1. Do not offer door prizes or other prizes to attendees of the “free lunch” seminar.
  2. Do not describe the “free lunch” seminar as “educational” or “nothing will be sold” in the advertising materials.
  3. Do not use testimonials of clients in seminars or advertising for the seminars.
  4. Do not make exaggerated, unwarranted or misleading statements about safety, liquidity or rates of return such as “Immediately add $100,000 to your net worth,” “How to receive a 13.3% return,” and “How $100K can pay 1 Million Dollars to Your Heirs.”
  5. Ensure that descriptions of the financial adviser’s expertise can be quantified and documented and are not misleading. Avoid using professional designation implying expertise with seniors.
  6. Disclose specific product manufacturer’s name if such company is paying for the “free lunch” seminar. Explain that this creates a potential conflict of interest.
  7. Do not double bill two different product manufacturers for the same “free lunch” seminar.
  8. Obtain the advance approval of the seminar script and advertising material by the financial professional’s broker-dealer and/or investment advisor before use.
  9. Fully disclose the risks associated with a particular product and do not over state the benefits.

It’s clear from this report that “free lunch” seminars and the financial professionals engaging in such activities will be under intense scrutiny by the securities regulators. Consequently, it might be prudent to consider whether the regulatory risks justify this marketing technique.

Posted by Bryan Hill
Labels: Uncategorized