Dec

Buyer Beware: Lessons from Ponzi Scheme Billionaire Bernard Madoff

By Emily

Aye, Carumba! Apparently government isn’t the only place there’s graft! Last Thursday, officials pulled the lid off billionaire money manager Bernard Madoff’s 20-year-old Panzi scheme.

Madoff’s illicit “investment fund” paid an attractive 8-12% return reliably, no matter what the markets did. That, say investigators, was red flag number one.

My mother and I chatted about this last night and she mentioned a new investment fund opening in our area is probably not enjoying the ripple effect that Madoff’s headlines are having on its investment prospects. It’s probably tough to be raising money for investments right now. Not only is the economy in the tank, but investors’ confidence is low in the aftermath of this news. Fortunately for me, I don’t have any open funding projects at the moment.

In the wake of this giant blow to trusting investors, (a lot of charities invested with Madoff, too), I think it’s worthwhile to take a look at what to do (and not to do) in selecting our own investments.

Watch Out For Sales Triggers That Lead To Social Pressure To Invest

One of the brilliant parts about Madoff’s business plan was how he attracted new investors. Marketing was largely handled through word-of-mouth. Big-wigs at country clubs and golf clubs would be appointed as ambassadors for the fund. They would go in, brag about their portfolio’s stellar returns, and build buzz to get people talking. When listeners would express interest in the investment fund, the ambassador would mysteriously say that the fund was open by invitation only, but he would see if he could “get you in.”

This was a powerful model because prospects assumed these big-wigs knew more than they did and were more savvy investors. Also, after the ambassador went through the trouble of “getting you into” the fund, it might seem insulting not to invest, or to ask too many questions.

In fact, Madoff was known to turn away investors who asked the hard questions… thereby discouraging that type of behavior and ensuring the majority of his clients toed the line.

Ask the Tough Questions

It’s so hard in today’s busy world to really ask the tough questions (or even figure out what they are, so we can ask them!) when we’re confronted with an investment opportunity. Salesmen are highly skilled at pushing our emotional triggers so we make the decisions they want more quickly (and rashly!) than we might otherwise do!

Here are a few indicators that you are getting sold that I’ve picked up:

Where did you meet this person? Are you in a “sales funnel” right now? If you are at a seminar event, if you have responded to an ad, or if someone called you on the phone to talk to you about this opportunity, chances are good that you are being sold.
What happens if you don’t buy now? Are there any “triggers” being employed to encourage you to make a decision? Common triggers include Time Pressure (you must act before this deadline passes), Social Proof (Testimonials are a common example of this. Anything that promotes the idea that “everyone” is doing it…), Bundling/Bonusing (“When you act now, you also get…” or “But wait, there’s more!”), and lookout for Upsells – now that you’ve bought this inexpensive product, how about upgrading to something just a little bit better.
What is this person’s business model? If they have a HUGE profit margin or spend a lot more time converting prospects than delivering products and services, then chances are good that you’re in a sales funnel.
What type of product are you buying? If it’s something exciting or emotionally charged along the lines of making money, weight loss secrets, a business opportunity, or how to look younger; take a second look. These types of products are perennial best sellers and have attracted a lot of sales professionals and a lot of over-hyped products.

Know How To Brush-Off Frequently Used Sales Devices

One of the best books I’ve read on this topic of understanding the psychology of sales is: Influence: The Psychology of Persuasion by Robert B. Cialdini.

Cialdini, a professor of Psychology, wrote the book because he wanted to figure out why he was such a “chump” when it came to biting on salesmen’s offers, even for products that he didn’t want.

In his detailed research covering donating to charities, joining cults, supporting political causes, and of course, buying things… Cialdini, reveals many sales triggers, and how to combat them when we find ourselves as unintentional prospects for a new sales process.

Ironically, this book has become a sales bible for many copywriters and sales professionals who use it as a “how to” guide when they’re working with prospects.

It’s useful no matter what side of the aisle you’re on….

Trust Your Gut

You’ve heard it before, but when something sounds too good to be true, it probably is. If you are feeling pressure to buy something, or excitement about the buying process, take a moment to calm down and take a deep breath. Walk away. If it’s a legitimate offer for a real product or service, it will still be there tomorrow. Also, talk about it with a spouse or someone else who hasn’t gone through the sales funnel, and see how things sound to someone “on the outside.”

Ask some tough questions… don’t just accept the “illusion” of the success or value of the salesman’s product. Ask how many of their clients are successful with the product or service. Ask about their return/refund and retention/renewal rates. Ask if the seller actually uses the product. Ask to talk to real clients, not just the people quoted in the ads… see if you can talk to both satisfied AND UNSATISFIED clients. I always do this with contractors. It really gives you a better sense of how folks are conducting their business.

In these days of tight economic times, everyone is trying to be more prudent with their spending. Likewise, a lot of people are out pitching “make money schemes” and the like, which really don’t pan out upon closer inspection.

If you are a marketer – Please market with integrity. If you are a shopper, consume with foresight and understanding.

To Prosperity!

Emily

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