I'd rather see folks doubt what's true than accept what isn't. - Frank A. Clark

Over the top self promotion

Dodgy gurus like to promote themselves with fantastic self descriptions. "Australia's leading..", "the number one real estate adviser in the world today", "Australia's most respected" etc.

Advisers that promote themselves with grandiose yet glib titles are guilty of more than just over-the-top advertising, licensed financial advisers cannot promote themselves like that at all. It is in fact a violation of the Trade Practices Act to call yourself "number one" in any form of advising unless you really can substantiate the claim with concrete evidence. Just because you've flogged a lot of seminars does not make you Australia's leading investment adviser, and media exposure won't give you the rights to claim that title either. Any specific claims, especially ones that provide a numerical statement of fact need to be absolutely justifiable by quantitative means, if they aren't then they are more than just marketing hype, this may be deceptive advertising.

If a financial services provider is operating in breach of the Trade Practices Act, this is a very worrying sign. You can come to only two possible conclusions. One, the company does not care that they are in breach of the Trade Practices Act, probably because it is one of the less serious crimes they are guilty of. Or, two, the company is quite ignorant of the breach which indicates amateurishness and incompetence, one would wonder what other errors are contained in their course, deep down in all that talk of "perfectly legal" ways to minimise tax, buy property with no deposit, trade in exotic derivatives and set up new business opportunities.

Frequent change of name and address

Gurus like to remain in one place only as long as is necessary. Eventually the word does get out that the product isn't much good so by the time the Sydney Morning Herald or the Courier Mail start running articles the guru will change his business name.

Henry Kaye, who I mentioned in my article on expensive courses moves from one venture to the next, always trying to keep one step ahead of his own bad publicity. When I first heard of his "National Investment Institute" I wasn't aware that Kaye was behind it. If I had known I would have been sure that NII was a scam much earlier on. He's gone from promoting some course called "Investment Mastery" through to NII and other ventures over the last few years.

No license or FSG

As I say in the Financial Planning FAQ, requirements to get a financial services license are not hugely difficult, especially if you wish to get a restricted license that covers only one or two things such as running a trading seminar or selling a black box. Even unscrupulous people can get a license if they are willing to submit the necessary paperwork.

Licensees are subjected to surveillance by ASIC. There are annual (or more frequent) compliance audits and licensees may face prosecution if matters turn up in their audit that contravene license conditions. As a condition of having a license, licensees must have professional indemnity insurance, must have demonstrated that a compliance system is in place, are bound to disclose commissions, risks and benefits and most importantly are obliged to be a member of an ASIC approved independent external complaints resolution service like the Financial Industry Complaints Service.

But if a person is not licensed you have no protection whatsoever. You may have more limited rights to compensation for following the advice of an unlicensed person and the adviser lacks even the basic scrutiny that ASIC gives to genuine licensees. There will be no annual audit, no compliance regime, no disclosure of risks or conflicts of interest and most importantly no independent external complaints resolution scheme.

If you wish to recover your money from a guru you may have to go through the courts and sue them. You may find that they hire better lawyers than you, you may find that you don't have enough money to afford this litigation and above all you may find that the guru is a straw man with no assets for you to recover, having stashed everything in secret offshore accounts.

If a person is a licensee, expect to receive a Financial Services Guide. (Or an Advisory Services Guide, if they are licensed with an older style license and haven't converted to an AFS license yet). If there is no FSG (or ASG), do not deal with this organisation.

Investment scheme dressed up as a loan

Many unlicensed investment schemes are dressed up as loans in order to try to bypass the legal requirements (i.e. licensing) of running an investment scheme.

Foreign bank accounts

Needless to say, if the promoter of the scheme says they need to move your money offshore (e.g. to avoid taxes), your chances of getting your money back are almost nil.

Australia's tax system contains provisions to tax all income earned by residents, including income earned offshore. If you have overseas bank accounts and investments, even if they are owned by a trust or company, you will still be caught by these provisions. There are only a limited number of exemptions, but generally they are not available to the majority of people.

The only way to avoid taxes by moving money offshore is to do it secretly, in which case you are breaking the law by committing tax evasion.

Knowing that you are committing the crime of tax evasion, you are then placed in a very difficult position. You can not expect much sympathy from Australian authorities helping you recover your assets.

There have been cases where people were enticed into offshore schemes and then blackmailed by the scheme promoters.

Referral and marketing system

Although often scams are advertised openly (dodgy wealth creation seminars for example often advertise prominently in newspapers), a high proportion of scams are promoted only through word of mouth through communities or groups, ethnic communities, church groups, retirement homes, etc.

Sometimes scams employ agents to sell the scheme, which helps the scheme masterminds distance themselves from some of the marketing practices used, for example they can claim that the scheme was high risk but it was the agents who failed to disclose this properly.

When the scheme is based on multi level marketing (MLM), such abuses can become particularly common and egregious. There is almost no control over what the "downline" people do and say to promote the scheme and hence well meaning but misinformed people can become the worst kind of scam promoters. Unfortunately, the nature of MLM is that people will tend to hurt their friends and family first of all with serious negative consequences to family and friendships.

Use of religion or ethnicity as a selling point

Sadly, multi level scams are particularly common among evangelical Christian churches because often scammers are able to convince people that they have been sent by God (manna) as a bountiful blessing for their faith. Once the scammer has "converted" one person, the endorsement by a friend lends the credibility of that friendship to the scammer and his scam. They may believe that the financial help they prayed for was answered when God sent them them a man flogging the Mannatech MLM scheme and their little fruit sugar pills that help their body heal itself. (Don't laugh, I've actually seen this happen to people I know personally and it wasn't funny watching a friend fall for a scam and refuse to believe my warnings until it was too late.)

Repeatedly in statistics and reports about scams it is shown that church groups are particularly hard hit because they are targeted more aggressively than secular groups because they can be more trusting (the faithful are are more inclined to believe in miraculous claims) and because they like to "spread the word" and share their perceived blessings. You don't tend to find many scammers trying to target the members of Australian Skeptics for example.

Christians are of course not the only groups targeted, I've heard of scams in the Moslem community as well as among various ethnic groups.

When scammers try to use religion or ethnicity or some similar link to flog their scam, this is known as "affinity fraud". There is no guarantee of course that a person attempting to employ affinity fraud actually has to share the beliefs or ethnicity of the group he or she is targeting, that could be faked as well.

Citing meaningless or unimportant achievements

Some gurus try to win your trust by providing credentials that mean absolutely nothing at all.

Examples of meaningless achievements include:

Emphasis on how rich they are

How wealthy the adviser is has nothing to do with whether their advice is good or not. I know this because within my own industry of financial planning the wealthiest advisers I know tend to be the most powerful salesmen or the most expensive and worst value for money. I doubt I'll ever be as wealthy as many of my competitors simply because my income from advising is not as great as that earned by hard selling fund and insurance floggers, many of whom earn a seven figure income through what amounts to portfolio churning and overcharging. Needless to say, you would not benefit from finding one of these advisers yourself.

Nevertheless, I get emails every now and then asking me, "In order to see if you are a competent adviser, I need to ask you this: Are you rich?"

Inevitably I find that this is not an email from a genuine prospective client, to date every single person to say that to me has launched a volley of abuse at me in their second email criticising me for something I said about either Robert Kiyosaki or nothing down real estate investing in general or about multi level marketing. After further discussion with these people I generally come to the conclusion that they are completely ignorant of finance and not themselves successful investors. Nevertheless, I insulted their favourite guru and now they are mad at me.

Not all the best teachers are highly wealthy, not all the most wealthy are good teachers. "If you are so smart, how come you are not rich then?" is a common question asked of top finance professors, even though their students often go on to become captains of industry or top fund managers. This is a reality of life, despite the old joke "those who can, do, those who can't, teach, those who can't teach, teach physical education (or manage, the punch line varies depending on the teller)", it is a fact that the quality of a teacher is not always proportional to his personal wealth, even in finances.

Warren Buffett is one of the world's wealthiest men, and he also happens to be one of the world's great teachers (in an informal sense). Despite his wealth, even though he happens to actually own a corporate jet company, Buffett is not usually pictured posing by his jet, or his car, or his house. In fact, he's remarkably low key about his wealth.

A good seminar peddler can make staggering amounts of cash selling seminars, even if when he started out on his "millionaire's school" tour he was flat broke. Here is a reality check for you, before you go thinking this guy must be clever being a millionaire and all, 10,000 subscribers, $500pa subscription = $5,000,000 a year! Or 300 seminar attendees, twice a week every week for three months, at $500 a ticket = $3,900,000pa. Does his Ferrari look that incredible now? Many highly skilled investors prefer to stash their money in less flashy assets, like an investment portfolio for example. At the other end of the scale from highly skilled investors are a bunch of highly successful seminar sellers, few of the former are necessarily among the ranks of the latter!

You see these guys posing in front of corporate jets and luxury yachts to imply their wealth, and they draw 100% of their credibility from inciting materialistic urges in those they try to impress. There is little correlation between number of Porches (claimed to be) owned and the investment skills of the person giving the slide show. Warren Buffett lives in a fairly average house for someone of his means, he hasn't moved in 40 years and as far as I know his name has never been attached to any steamy sex romps with Hollywood starlets, real, implied or otherwise in his whole life. Warren Buffett is worth thousands of Robert Kiyosakis and Henry Kayes yet Buffett talks very little about how much money he has nor poses for promotional photographs depicting scenes from the "high life".

The question you want to ask is, "Where are the customer's boats?"

Emphasis on how rich you'll get

Seminar peddlers don't make money by selling information, they make money by promoting a dream. They show off a photo of their yacht (actually, it might not even be their yacht), or their sports car purely to incite greed in the audience. As long as the audience is thinking of greed and about all the money they'll make, their usual sense of caution will drift away long enough for them to pull out their cheque book and write out a cheque amounting to their entire life savings so they can attend the more expensive advanced version of the seminar.

If all you hear is wealth, all you can see is that Ferrari you are going to be driving, if you are thinking about all those debts of yours and how finally you can get out of debt and get that car you always dreamed about, then you obviously aren't thinking about much else just then, in particular you aren't thinking what a load of horses..t this stuff really is.

Of course all advisors and product providers want to promote the idea that you'll get more wealthy if you follow their advice but get rich quick scammers take this to another level. It takes enormous wealth to be able to afford yachts and exotic sports cars because in addition to paying the initial purchase price there is also the running costs and insurance. No mere millionaire could really afford such a lifestyle, you'd need tens of millions of dollars.

Very few people ever achieve that kind of wealth and those that do tend to run large and successful businesses, not trade shares or buy residential properties (even with substantial amounts of borrowed money). Making a fortune like that from the capital that a middle class worker could scrape together would require rates of return that are simply unachievable.

Realistically, you have no chance whatever of becoming a multi millionaire through the methods taught at any seminar or by using trading software, therefore an organisation that uses imagery promising (or hinting at) you getting that wealthy is being deceptive.

The most egregious get rich quick scheme marketers don't bother to explain what the wealth building scheme is about. Their advertising only seeks to sell the get rich quick myth rather than give information.

Advertisements that give little detail about the product but instead feature pictures of luxury yachts, private jets, big beautiful houses, handsome well dressed couples walking barefoot along the beach, pictures of celebrities etc are usually a warning sign.

Extremely high prices

If you want to know how to make a billion dollars, you can learn about it for free from someone that actually did. Look at the books section of this FAQ and notice that the most you'll pay for those books would be $70 for the really big thick tomes in hardback, not a couple of thousand for a booklet and some tapes. Warren Buffett's annual reports for Berkshire Hathaway are archived and available for free download from Berkshire's web site. You can even get away with not buying any Warren Buffett books if you study all his reports, as Buffett's reports are tremendously educational, and tell you plenty about his investment philosophy.

Investment is one of those fields where the very most expensive material is necessarily the worst available. Smart people don't over-pay for advice, and so those that charge the most are necessarily looking to prey on the ignorant. Since the audience absolutely lacks sophistication a dodgy guru can feel quite free to give advice that merely sounds impressive. As long as the relevant disclaimers are given to advise that no investment is free of risk, people can get away with telling people any old thing and charging whatever the market will bear.

A focus on beginner audiences

The seminar game is not one played between teachers and students, it is one played between predators and prey. In the wild all predators focus on easy prey, the dying, the sick, the injured or the very young. Lions don't hunt healthy adult bulls.

No get rich quick seminar peddler that I have ever seen advertises in Asset, Independent Financial Advisor, Money Management or any of the other magazines and journals that cater to financial analysts, advisers, portfolio managers and researchers. One might expect that these magazines would be an ideal medium for such advertising because clearly if the techniques work anywhere near as well as advertised professional investors and advisers would be very interested in them.

You never see Henry Kaye or David Bowden or any other famous wealth guru advertise in these magazines, because they aren't interested in trying to market their product to professional advisers. It isn't as if there isn't a demand among advisers for good quality research, there are various organisations such as van Eyk Research, Lonsec, InvestorWeb, Morningstar and many others that provide good quality investment research and commentary to advisers (and also to the public, for a fee).

Advisers pay thousands of dollars to Steven van Eyk because he has a track record that is known to be good and the information his organisation provides is thorough, impartial and professional. Organisations like this focus on the professional and/or sophisticated market because the type of sophisticated information they provide has no popular appeal among the punters. Rather than produce a report filled with get rich quick crap they instead market themselves to professionals.

Unsophisticated people are looking for a type of product that does not in fact exist. They are looking for the kind of information that will enable them, without much effort on their behalf, to become extremely wealthy in a fairly short period of time. They don't want to hear about the guy that spent twenty years building a successful business and thanks to the good return on the money he invested in shares and property is now able to retire a multimillionaire at the age of 50.

That is too boring and too slow. You could get that kind of result by working hard and investing prudently for the long term, but where is the fun in that? More importantly, how does that kind of information help someone that never did adequately plan their finances and is now realising that they are only a few years away from retirement and have little saved? The latter type of person doesn't need good advice, he needs a miracle.

Sorry, there are no miracles, only charlatans.

Sometimes the targeting of beginners can be subtle, such as when advertisements are made in generalist newspapers and magazines, rather than trade publications, sometimes they can be overt.

For example, the Tradetech people sell their product (a black box trading software package costing well over $10,000) at "free beginner trading seminars". The ad doesn't say the seminar is a marketing presentation for trading software and doesn't even give any clear idea of what the organisation does at all, you only find that out on the night. People thinking of dipping their toe into share trading will respond to the evening, thinking that this might be a good time to pick up some free tips from a real life trading professional, not realising that what they will instead be subjected to is a hard sell.

I giggled for months after attending a Tradetech seminar because the information provided was so hilarious (the presenter didn't even correctly pronounce the jargon he was trying to use, let alone demonstrate that he understood what he was saying). From what I could see there were no people in the audience with any real market experience, the audience looked like the one I describe in the next point.

In a presentation to investors on their business model, the parent company Tomato Technologies Ltd (an ASX listed company), creators of StarTrader / Go Gecko say the following about the target of their marketing:

Marketing pitched at mum and dad "investor" demographic with limited share market expertise, not day traders or sophisticated investors

That is of course a presentation to investors in the company, Tomato Techologies Ltd, not to buyers of the software!

Rabble in audience

Look at the kind of people that the organisation market to. A reputable seminar put on by a reputable fund manager or respected speaker in the industry will attract a variety of people including financial advisers, accountants and other professionals. More than half the audience will be wearing suits or at least smartly dressed and you get the impression that many people in the audience are already reasonably wealthy.

When I have gone along to seminars of gurus, this is not the case. The car park is full of rust bucket cars and there is a definite working class look to the audience.

I'm not putting down the working class and taking on an elitist and arrogant attitude here but just ask yourself when you get there if the audience looks like that you'd expect to see turning up to hear a reputable presentation or a get rich quick suckers' meet. Do the audience look like a bunch of healthy adult bulls, or injured lambs bleating helplessly while the wolves circle?

Bear in mind that many seminars have audience plants, so if you see some enthusiastic true believer in the audience dressed in a suit and offering up inane questions then this may be the case. I saw such a gent at an Investors Club seminar and Amway meetings always are full of them.

Everyone who is happy with the product has only just started using it, none of those who have been using it a long time are making money

When searching for information about certain quacks on the Internet I have often found large numbers of people willing to endorse the quack's products. Usually these are anonymous people who provide only a Yahoo or Hotmail email address, if that.

But the most outstanding thing about positive testimonials is that they nearly always seem to come from brand new users who have only just started using the product. For example it is not uncommon for these testimonials to be made from someone writing to the company rejoicing that in their first week of trading they've already made good money, sometimes it relates to their first trade or first couple of trades.

Very rarely do you hear about someone claiming to be a successful user when they've been doing it for many years, even though some get rich quick companies have been around for a very long time.

I've also heard anecdotes from customers of some of the quacks mentioned in this page. (I get a lot of emails from this, apart from the occasional anonymous abuse from someone saying I don't know what I'm talking about I often get emails from people either wanting to volunteer information about a quack or bring a new quack to my attention.)

One customer of Safety in the Market said she felt like she was attending an Amway meeting because every person around her considered themselves to be a success despite not making any money. She'd gone to a number of their functions and tried her best to find someone who was doing really well but she didn't find one.

The meaning of "success", for a quack's customer, is evidently different to success for the rest of us. Many of these people said they were doing "great" when they had managed to stop losing as much money as they had previously lost. Others were basically breaking even but considered this a success because stop loss orders had saved them from making very large losses.

Of course this particular recognition point is difficult for people to use when checking out a company because generally you only get access to other customers when you become a customer yourself. Also, the really angry customers who want to complain a lot generally don't show up at the quack's paid get-togethers. It is, however, useful for anyone who is already a customer of a quack to keep an eye out for this sort of thing so that they can realise they've been had before they blow another small fortune on more advanced quack courses and further tuition to remedy what they perceive to be a problem with themselves rather than the system they are being taught.

It also provides useful insight into why there seem to be so few complaints about these companies on the Internet and the media.

Remember that prior to Henry Kaye's demise it was only a few journalists who wrote nasty articles about him as well as web sites like Neil Jenman's and mine. Companies also regularly search the Internet for negative reviews of their products and have their lawyers send nasty letters to webmasters and ISPs. (I've received such letters before, some companies have a very aggressive policy of silencing Internet critics and I've heard from a number of other webmasters who have received the same letters and faxes that I've received from the same companies.)

Dispatching critics by criticising their "attitude"

If the product or advice is good, it will stand on its own merits. The promoter will be able to defend it with technical arguments and data.

Many times I have seen critics at seminars promoting suspicious looking real estate strategies or multilevel marketing or something similar dispatched with the ad hominem attack that the critic has a bad attitude and will never succeed in business and should now resign themselves to a lifetime of being a loser.

Multi-level marketing organisations even have a standard term for critics, "dream stealers". I've been called a dream stealer (and variants) on several occasions, which I always find amusing. A common accusation is that I'm jealous of MLM success and for some sick reason am trying to stop people getting rich! If you hear of any similar sort of accusation being levelled at a critic, you can be sure you are watching a quack in action.

I can't imagine any reputable organisation ever using that kind of argument with a critic. If someone has a criticism there ought to be a good answer to that criticism, otherwise the critic may indeed be correct.

You don't have to like a person but when you attack them personally rather than going to work on their argument it indicates that you can't counter the argument.

One course is just a teaser for another course

Bait and switch is a common scam on the guru circuit. You sign up for a course that you were led to believe will teach you the true secrets of wealth accumulation only to find that it is a rather expensive appetiser for the next course.

National Investment Institute does that, the $16,000 course is a way of warming people up to buy the $60,000 course.

Another good example of a bait and switch is David Bowden's Safety In The Market package. If you ask for info on it you'll be sent a package that goes on and on and on about Bowden's prowess at calling market turning points using Gann methods. (Although much of it is exaggerated and doesn't mention his lack of success since the mid 1980s.)

So if you want to write out a check to David Bowden for $995 (last time I checked, quite a while ago, that was what SITM cost), you might expect that you'd receive something talking about forecasting. Instead, you get what I am told (by people that bought it) is a rather slim package, bulked up with tapes and posters and such of course, that teaches how to create a Gann "swing chart", as well as some really basic stuff about stop loss orders etc. There is no forecasting taught in this course at all, though you are led to believe that the follow up course has it.

No, I'm told the follow up course doesn't have any forecasting either, though it expands a bit more on refining those swing charts and choosing entry and exit points. For those that are taken in you can pay hundreds of dollars to listen in to a Bowden conference call, multi-thousands to attend "trading incubators".

Now of course all education is a bit like that, you don't learn the good stuff right in the first lecture of the first course. What is different about universities and dodgy gurus is that universities don't give you the impression that Economics 101 will make you an expert, there is a clear progression of units with a defined curriculum where more and more complex information is built up over several years, and that post-graduate studies can follow that to enable to you become even more specialised and expert in your chosen field.

A dodgy bait and switch guru sends out promotional material advertising skills that they know are not taught in the basic course, but they'll imply quite strongly that course you are buying for $1,000 is all you need to become a millionaire. If they were straight up in the first place and disclosed that the cost to complete their course was actually a few hundred thousand dollars then far fewer would pay the $1,000 to start with.

One reason why gurus charge like this is because people fall prey to the "sunk cost fallacy". The sunk cost fallacy is where a person feels they need to spend more money so the money they already spent is not wasted. Forking out $5,000 to pay for the second course is frequently done because people didn't want to think the $1,000 they spent on the first course would go to waste.

Excessive "motivational" content

Hype is always a bad sign, but some gurus take hype to the next level.

If you know what you are doing you don't need someone to prop up your self belief. You'll do what you need to do because you know what you need to do. If you don't feel comfortable doing it then most likely that is because you don't know what you are doing. Getting all pumped up by the guru's racing music, flashing lights, on stage pyrotechnics and inspirational testimonials is hardly enough to compensate for the fact that the guru hasn't taught you anything useful.

Dodgy gurus like to mix motivational speeches with their investment advice. Now a bit of motivation does some good, but it can be very harmful when it takes the place of judgment and rational thinking. People like Robert Kiyosaki, author of the best-selling Rich Dad, Poor Dad series, stand up there and give a very inspirational "we're all going to be really rich" talk that whips the crowd into a feeding frenzy as they rush to the back to buy tapes, but as one respectable real estate guru in America said of him, "The guy was extremely arrogant, and gave us no information about Real Estate or notes or how he made his money. He seems to have come up with one idea about investing in assets and is riding that pony to lots of best sellers. I have never been so appalled at a speaker's ability to talk for over an hour and share no substantial knowledge."

A high content of motivational, showman type stuff is often the surest sign that a guru is dodgy. Real investment professionals do not leap onto the stage in a shower of sparks and flashing lasers and spend the next 50 minutes hyping up the crowd and talking about how rich they can all be, they usually just talk about investing. If a person is properly educated then they don't need to be motivated by some guy jumping around with a stirring rock and roll sound-track, it would be far better just to tell them about stocks and real estate instead.

Amway are also masters of this, apart from their obvious appeal to greed whenever a speaker appears, inevitably wearing fabulously expensive clothing and jewels and throwing in anecdotes about all the crazy things that they did last summer while hanging out with the Sultan of Brunei, they also have a "tape of the month" club and recommend various books (including Kiyosaki, whose books never sold well until he embraced multi level marketing and thus became recommended reading for hundreds of thousands of Amway reps, which pushed him up the list to the point where he could start marketing himself as a best selling author and could score a spot on the Oprah Winfrey Show).

I was once courted by Amway guys three times in several weeks, I was doing direct sales during my school holidays and of course they could see the potential for someone like me to go very far in this "business". Each time I was lent tapes and books to read, they contained nothing but the usual generic platitudes about wealth and an endless insistence on slavish following of the "system" (which, among other things, meant paying big bucks every month for their motivational tapes and books, attending meetings and of course buying lots and lots of Amway for personal consumption). They contained investment advice, which was roughly as useful as anything Kiyosaki says, and the rest was just an appeal to pure greed.

I have found that get rich quick suckers also get duped by the motivational speakers as well. Someone told me by email that her parents went to a Henry Kaye seminar and met a couple that had "invested" almost a six figure sum in NII courses, but they had spent almost as much again on Anthony Robbins "Awaken the Giant Within" stuff.

Warren Buffett never spent a cent on motivational seminars and tape sets, he just read The Intelligent Investor and took Graham's Securities Analysis course at Columbia University. I don't know any wealthy people that did. Re-mortgaging the house to spend tens of thousands of dollars on seminars and tape sets has never been a path to wealth, though regular savings, investing in stocks and property, and a life of thrift have always been the tried and true ways.

Simplistic politicising

Picking on unpopular targets and appealing to the prejudices of the uneducated masses has always been a way to gain power, as any populist demagogue can tell you. Whether it is a race or religion you are blaming, or a government, or a tax, nobody ever failed by underestimating the intelligence of an uneducated crowd.

For example, the popular line is that superannuation is a rip-off because money is taxed when it goes in, while it is there, and when it comes out. Many people I've met and many aus.invest readers (including a few accountants!!) think that superannuation is far more heavily taxed than personal income. I have heard people arguing that superannuation should be taxed at personal marginal tax rates because the present system is a rip-off.

In fact, superannuation is far less heavily taxed than personal investments. While there are pros and cons to it, from a tax point of view superannuation is a superior environment for long term retirement savings. I'm all for reducing the super tax rates further, but compared to personal marginal tax rates super is not heavily taxed at all.

Still, at every property seminar I've been to the speaker has complained about the over-taxing of superannuation. It is also frequently claimed that it is impossible to use superannuation to invest in property. Actually, you can invest in property with super, just the super fund isn't allowed to borrow any money to buy that property. This won't stop you from acquiring a partial share in a property or investing in a property trust if you don't have sufficient funds in super to buy the property outright.

Property marketers bash super because it is a complex area that is mistrusted and misunderstood by much of the population, especially financially unsophisticated people that attend get rich quick seminars. They do this partly to score populist points with the audience and partly as a way of smearing the opposition, given that the promoter is advocating negative gearing strategies that aren't available within superannuation.

A common line, especially by real estate promoters, is that the reason why people are poor is because they pay too much tax. Mind you, in countries like Russia where very little tax is collected people don't seem to be any wealthier, but nevertheless you'll never alienate an audience by telling them you can save them tax.

At a property seminar I went to (not Investors Club or NII, for once), they quite explicitly made the claim that guys like Kerry Packer pay a surprisingly small amount of tax. They didn't mention that this is because they don't have much personal income and all the tax is paid by their companies both locally and offshore. Nevertheless, the seminar presenters were quite clearly trying to imply that the top end of town pay very little tax because of their clever tax planning and that the negative gearing strategy that was being presented at the seminar is one way to be as clever as Kerry Packer.

They never actually said that Kerry Packer made his money by negative gearing into a property portfolio, which was just as well because Kerry Packer didn't make money like that at all - he made money as a businessman buying and managing both public listed and unlisted and private companies. Still, the point was clear, if you are smart you can pay next to no tax and get really rich, and here they were telling you that they could make you wealthy if you borrowed against your house and bought a few properties off them.

Financial Advisers, always a popular target (sometimes rightly, usually not), also are the target of much criticism. Particularly in times when shares aren't doing well managed funds and financial planners are easy targets. The industry super fund ads on TV don't talk about "adviser fees", they say their product is better because there are no "agent commissions". Agents now make up only a small proportion of the financial advising industry, but appealing to people's hatred of old style 1980s insurance salesmen they use the term "agent" anyway.

Now the industry super funds are perfectly legitimate businesses. If they resort to populism, what can you expect to find at guru seminars? The same, but much more of it.

Every property seminar I've been to has given the message that their product is good because licensed advisers are bad. They tended to overlook the fact that real estate agents enjoy an even lower standing and that get rich quick gurus are well below that again.

BS artists often label the rich as one monolithic group with great fundamental money sense and the poor as a bunch of failures. Anyone who talks in a negative way about the strategy is dismissed as a cynic and a variety of insults are used, "chicken littles" and "bean counters" being among Kiyosaki's favourites. They use grand, but meaningless, slogans like "don't work for money, make money work for you!!" and pepper their talk with lots of little jokes and put-downs for those unfortunate people unable to see what those present in this room can see. Nothing like giving people the impression they are accessing a superior and exclusive opportunity to make them take out their cheque books.

Attacking of traditional education

Get rich quick suckers tend not to be overly educated. Another populist approach taken by seminar gurus (most conspicuously Robert Kiyosaki) is to denounce education. Pointing to the occasional entrepreneur who started up a promotional company and now has teams of MBAs at his beck and call, such gurus point out that it is possible to get wealthy without an education, and that educated people aren't necessarily any wealthier.

It is true that some courses do not lead to wealth, for example there are plenty of underpaid researchers with PhDs toiling away in chemistry and physics labs, also it is possible to spend five years at university doing a course that will add little economic value to the student, courses like art degrees or social work.

When I was doing my science degree, I was not doing it because I ever expected it would make me rich. I did science because I had an aptitude for science and mathematics and a fascination with it. After I completed my honours year I wound up in an entirely different career (Financial Planning!), but this had more to do with limited science opportunities in my home town (Perth) than anything else. I would have been happy to be an underpaid materials scientist, developing new alloys and ceramics, but the Perth job market only had more routine lab work and I wasn't keen on moving, which is why I changed career. The point is, people do degrees for reasons other than the financial benefits. Personal development, interest, aptitude.

Surveys have shown that well educated people on the whole do much better than undereducated people. Doing an MBA is quite likely to lead to you getting a pay rise, if you are interested in management and finance. People with a degree are usually promoted faster and higher than people with a diploma, who are usually promoted faster and higher than someone with something less.

That you never learned about the stock market in high school does not mean the educational system is defective. The educational system is designed to produce graduates with the required skills to be employable and earn a living. Not everyone has the natural skills required to succeed as an entrepreneur.

Bashing education helps provide a simplistic scapegoat that uneducated seminar attendees can relate to.

It is a simple sales technique, the more things you can get an audience to agree with, the more they'll accept the rest of the things you say.

When I took a sales job in the summer holiday of my uni I was taught a great deal on salesmanship. One of the techniques I was taught was the technique of having customers say yes a lot.

Do you like ice cream? Yes! Do you want to be completely free of debt? Yes! Do you want to never have to work again unless you actually want to? Yes! Do you feel the traditional education system failed to teach you how to get rich? Yes! Do you think you pay too much tax? Yes! Do you think shares are too risky? Yes! Do you agree that financial planners are a bunch of commission taking bozos getting rich on your super! Yes! Do you really want a financially secure future? Yes! Do you want to be able to buy anything you want? Yes! Are you going change your life for ever by writing us a cheque tonight for the tiny insignificant sum of only $10,000? YES!!

This is a classic sales technique. Get the customer saying yes enough and they'll be more likely to say yes when you try to close the sale, it is practiced by salesmen the world over. Just keep an eye out for this and note how often salesmen ask questions that everyone is going to agree with.

Much effort to discredit buy and hold investment in a diversified portfolio

A millionaire guru seems to spend as much effort trying to discredit standard investment strategies as he spends promoting his own.

Property seminars dwell on the risks of the stock market and talk ceaselessly about the crash of 87 and the tech wreck. Rarely is the early 90s property bust mentioned nor is it discussed what happened to real estate investors who borrowed against their houses and kept buying one property after another with more borrowed money when interest rates rose to over 17%.

Managed funds are disparaged as being only for losers. If I had a penny for every time I heard that "nobody ever got wealthy with managed funds", I'd have, well, a lot of pennies. This isn't true, unless you are one of those people that invest only in bull markets and always sell during bear markets it is possible to make quite a lot of money in managed funds. Besides which, if you really think property is so great you can buy commercial property managed funds, which certainly do a lot better and with less expense and effort than residential property.

Share trading seminars also focus on this sort of thing a lot, funnily enough often saying similar things about buy and hold stock investing as the property pushers say. The substantial body of evidence against trading does not seem to deter them in making these claims.

A sensible and balanced approach which includes exposure to a wide variety of asset classes will pay off with better returns and lower risk in the long term than someone that adopts a simplistic world view and decides that only a single asset class, like residential property, is the way to go.

Emphasise that anyone can do it and that no starting capital or experience is required

One of the big features of shonky advice is that people insist you can use their system even though you have no money and bad credit. Most of the get-rich-quick suckers are pretty broke, this is simple salesmanship in overcoming the "but I don't have cash to invest" objection.

Leverage is a wondrous thing in the hands of the skilled investor, although Ben Graham taught never to invest in shares on borrowed funds, Warren Buffet often does, which is partly why he was able to make so many billions.

No investor can use leverage without substantially increasing risk however, as Buffett well knows. A guru that advises you on how to become a gazillionaire on a low income is either being totally unrealistic, a liar, or is advocating something illegal or supremely risky. They claim that it isn't money that is a barrier to becoming wealthy, it is fear and ignorance. No one has ever really invested their way from rags to riches, along the way they had to create the cash to invest somehow and this either meant going for broke with speculations or getting a higher paying job. Thrift is of course very important, but it helps to be thrifty and well paid instead of thrifty but still only on a couple of hundred dollars a week.

The "master entrepreneur"

Gurus paint themselves as master entrepreneurs. You are told that people who work for a living are losers and idiots, real wealthy guys like this do deals, or make spectacular killings on sophisticated futures trading strategies that you can only hear about if you buy their stuff. They say you don't need money to make money, a true master can go from zero to hero by his wits alone.

While a genuine master trader could in theory do a few masterly plays on the futures market and get back into business, or a great negotiator could set up some great development deals, these people are few and far between, and most likely they are actually out there trading or doing deals, not appearing on early morning TV infomercials or selling seminars to beginners.

At any rate, most rags to riches tales involve someone betting the farm and this paying off. Rags to bankruptcy tales are far more common, though less likely to become the subject of a seminar.

Prohibition on taping seminars, confidentiality agreements

I know of no reputable organisation that doesn't allow you to tape or film their lectures for your own scholarly use, especially if it is just the introductory seminar. (Seek permission out of courtesy, don't then try to sell the tapes though). Typically cameras and tapes are not allowed by dodgy organisations, and you often have to sign confidentiality agreements. This is all supposedly to stop piracy of their system, but that hardly holds water as with or without a tape you can always rip them off by your lecture notes alone. The reason they don't want cameras and tapes is that such things make them look bad in court, and take away the whole "his word against mine" defence, the whole thing is just a gag. If you are asked to sign a confidentiality agreement when you walk into a seminar, use a fake name or leave.

They say repeatedly that this is legal and approved by ASIC

Whenever I hear a promoter repeatedly say that the deal is honest and ASIC approved, I get suspicious. "This is not a get rich quick scheme" is as big a lie as "This is not spam, you signed up to receive this email, if this was an error click on the link below to be unsubscribed from our list".

Claim that they are in the business because they want to help the little guy

Nothing could be more insulting to your intelligence than a hard selling seminar guru claiming he is only doing this to help the little guy. There are a number of organisations that claim that they are not motivated by profit in selling their material.

They of course have to say that, because every seminar has someone asking the question "if the system is so profitable, why are you selling it to us and not using it yourself?"

If the guru claims he already has all the money he'll ever need and wants to help people then surely the most logical way would be to either use it themselves and donate the profits to charity or to run some sort of intellectual charity where they'll volunteer to teach needy people their secrets to wealth building, and provide them the capital to get started.

If they say, as one seminar guru said, that they are charging $5,000 for the seminar not because they need the money but because they want to ensure that only "serious" people attend the seminar, make sure you ask them if they are going to donate your $5,000 to a worthy cause and can you choose the charity?

Any system profitable enough to require big blokes and heavy doors to defend the "secrets" most likely would not be advertised for sale in the newspaper or ads in the back of magazines. Think about it! These vendors are not philanthropists, if they just wanted to help people they would make masses of money themselves and set up charitable foundations like Sir John Templeton did, or they would tell people about their systems for free. Any system worth paying money for would be practically priceless. Any system sold to the general public can only be worthless.

When Warren Buffet dies, he will leave his money to the Buffett Foundation. He doesn't want to leave everything right now because he believes he can do more good by increasing the funds. The Buffett Foundation will be the largest charitable gift ever made. Buffett's skills are such that they are better applied to managing money than to flying around the country charging people $10,000 a head to teach them about stocks.

The Investors Club obviously are trying to appeal to people with this whole "nice guy" routine with their name. Although The Investors Club is in every sense of the word just another property marketing company, calling themselves a "Club" falsely implies that they are not a for-profit organisation whose sole raison d'être is to make Kevin Young incredibly wealthy and hopefully prevent him going bankrupt again.

Incredible testimonials with incomplete names

Gurus like to make up testimonials and often use false or incomplete names. If Kevin Y. of Brisbane or J. Smith or Sydney are quoted as happy customers who made millions then it is impossible to check up on this.

Genuine testimonials need to properly identify the person giving them. If you can't, at least in theory, check up on the testimonial then you can't rely on it.

Often actors are paid to give testimonials, and Media Watch often runs stories on the popular Channel 7 and 9 6:30 current affairs shows identifying the happy customers as staff of the marketing company. One such story that I saw recently was another one of those stories about a miracle pain relief cream. Media Watch found that every single person who gave a glowing testimonial was an employee of the company, mostly from the telemarketing and advertising divisions.

A couple of my clients have offered to write testimonials for me but I said unless they want to have their full name and location published with that testimonial I couldn't wish to use it because it would look like a stunt. That is why at this time my FP site has no testimonials!

Anonymity on the Internet

Anonymous individuals on the Internet are accountable to no one. Aus.invest, other newsgroups and many web sites are full of people who refuse to identify themselves. Without knowing who they are and what their credentials are it is impossible to make an informed judgement of whether they are providing good advice or not.

Often, they may be seminar shills themselves. Do not accept the opinion of any person whose name you do not know and can't be contacted.

It is hard to prove, but there are a number of examples of possible "sock puppeteering" promoting various trading software packages.

For example, in a thread on the Trade2Win discussion forum, a question appeared on 12 October 2004 from a brand new forum contributor. This was followed a short time later by a number of postings from more brand new contributors, most of whom had not posted to Trade2Win before or since, many of whom made extraordinary claims of success using the product/ Most of whom were Americans, even though Trade2Win is based in the UK and mainly frequented by British contributors. About half way through the discussion a number of regulars began to grow sceptical of these anonymous Americans claiming extraordinary results and accused them of being sock puppets. When the anonymous new posters began to get abusive toward the sceptics, the site moderator closed the thread and told contributors if they want to say more they should use email.

While it is hard to prove that these were faked testimonals, it is important to note that it is impossible to prove they are true either. When anonymous people show up out of nowhere a short time another anonymous person asks an "innocent" question about a product, and the testimonial givers are claiming to make returns like 16% a month, the benefit of the doubt should not be automatically granted to the testimonial givers. (Though a signed statement from an independent auditor or researcher could be given more credibility).

Coining new terms

It is bad enough when gurus throw around jargon, it gets worse when they make up jargon of their own.

It is possible to "rent out your shares", as banks do, by lending your scrip to a short seller for a fee. Banks and other financial institutions make good money renting out their scrip (though I've not heard of a low net worth natural person doing it).

Nevertheless, several options trading system sellers refer to short options strategies as "renting out your shares". This is nothing at all like renting and this is an incorrect description of what is being done. Supporters of this guru claim that this is a "folksy" way to describe the strategy.

Sure, why call something by its real name when you can call it something it isn't and be all "folksy"? By the way, the seminar is a load of rubbish.

Buy now, because the price will be higher in one month

Another typical sales ploy is to threaten a price increase. Tonight you can buy the product for $5,000, but if you don't sign up right now you'll regret it because the price after the seminar is $6,000.

No reputable organisation I have ever known does that. This is a hard sell trick that frankly is well below what an ethical salesman would do.

Another trick; "we're so confident in our system that we'll make an offer, you can pay us $5,000 now for our $20,000 software, you can pay us the rest out of your trading profits!"

The trick with the pay some now and the balance later deal is of course that they want to take you for your $5,000, they don't expect to get the $15,000, though some may threaten to sue you for it later.




An alternative list of signs of guru dodgyness, applicable more specifically to real estate gurus, is published by John Reed: http://www.johntreed.com/BSchecklist.html

ASIC also have a consumer protection page, http://fido.asic.gov.au, with a number of articles on scams.