The Straight-Line Pitch

In our last newsletter, "Inside the Wolves' Den," we explained how low-tier, "transactional" brokerage firms make their money and how the brokers at these firms strive to be the next Gordon Gecko or Jordan Belfort. We also promised that our next newsletter would reveal the sales pitch brokers at these firms use to bully investors to open accounts with them.

These brokerage firms depend on their brokers making 300-400 cold calls per day to get clients. These brokers also engage in "cold slamming," whereby they call a prospect they've never spoken to and act as if they are following up on an earlier conversation. Brokers at these low-tier firms sell each other their burned books and sucker lists, which explains why the people on these lists get many calls every week from broker-dealers.

The "straight-line pitch" is designed to take the broker from the introduction to the close quickly by addressing the major concerns of prospective clients. This method consists of a series of closes and rebuttals intended to keep the pitch on track and moving toward the close while keeping the prospect on the phone.

You will see that when you look closer and dig deeper, the real purpose behind the "straight-line pitch" is to enable the broker to engage in a form of psychological warfare against the unsuspecting targets they are cold calling. The broker's responses are pre-meditated and rehearsed repeatedly until they can speak the lines confidently and naturally as they lead the prospect into the trap by agreeing to send the broker money.

Here, for your reading pleasure, are excerpts from the actual scripts (also called "wraps") that senior brokers drill their trainees on to deliver the high-pressure sales tactics many of you have experienced. You will see how each example follows the pattern above: pitch, objection, rebuttal and close. We think some of these lines will sound familiar.

When a prospective client says, "I'm not interested," the broker's response to the objection is sometimes called the "slap and hug." The broker basically disparages the investor and then builds him back up through contrived concern or compassion:

Broker: "I have never in my life met anyone who wasn't interested in making serious money. My firm is making more serious money than anyone else out there. It's not that you're "not interested" it's that something else is bothering you. I am a problem-solver. Perhaps if you tell me what your actual concern is, I could help." With the investor disarmed, the broker will try to close the deal: "The bottom line is this. All we want to do is share one idea with you. If you like the idea, maybe you'll do some business. That's fair, right?"

When a prospect tells the broker that he has no money to invest, or is not liquid, the broker has many scripted responses to choose from to overcome the objection. Further, brokers are trained to take this objection as a personal insult and to consider this objection as an outright lie as this excerpt illustrates:

"No disrespect, but you telling me you are not liquid is an insult to both you and me! A guy with (amount) in the market has a couple hundred in the bank to back it up. There is always an excuse not to buy stock, but there is never an excuse not to make money! If I offered you a Rolls Royce in mint condition today for $10,000 could you come up with the money? OF COURSE YOU COULD!! Let's be candid, if you like my idea today, you could come up with ten times that amount! Now I realize you're not one of my existing clients, so let's start out small with a purchase of somewhere between 100 and 1000 shares. What would be a comfortable amount for you?"

Many of the scripts, or "wraps" are deliberately sarcastic and insulting. They are the tools the broker uses to bully and intimidate prospects, making them feel foolish or stupid for not jumping on the opportunity to have the broker manage his investments:

"With all due respect, liquidity is a relative statement especially in these rough markets, but to tell me you can't get your hands on $2,000? We both know that is absolutely absurd."

The brokers also tell prospects that they are two men "cut from the same cloth" and therefore should "level" with one another, for example:

"I hear what you're saying, but you may not be as rich as my top clientele, but you are not as poor as you're making yourself out to be. Is it that you're being a little bit more conservative now? Okay, great! Because I'm a conservative myself and I believe that all smart investors like us should look at their downside. So, hypothetically speaking, let's say you were to take a blind leap of faith with me on 100 shares and the stock goes up 20 points – you make yourself 2 grand and it doesn't really impact your net worth, right? On the other hand, if the stock goes down 3 points and you lose $300 I'm not going to see you outside your house with a cup in your hand, right? Exactly!!! That's my point. See, first time around I'm not looking to make you wealthier than you are right now, and I'm not by any means ever looking to lose you money. One 100 shares, all I need to know is if you want to set this up joint with your wife or individual?"

A similar arsenal of responses is available to brokers when a potential client says, "Let me think about it. I'll call you back." The broker is trained to reply:

"There is not one thing you will know tomorrow that you don't know today. We both know the time to make a decision is when the facts are fresh in your head."

Central to the theme of these scripts is to create a sense of urgency and perpetuate the fear of missing out on the next big thing:

"The only problem I have with you getting back to me in a situation like this is I think we pay up 2-3 percentage points on this transaction. Don't get me wrong, we're still right, and we'll still make money, but right here, right now...I feel like we are EXACTLY right! With all due respect, I'm not asking you to make a quick decision. The decision to buy this company has already been made and I've been as sincere as possible. Our top analysts have done a detailed examination of (stock). We know this company inside and out. Our decision was reached slowly, step-by-step after much careful consideration by recognized experts. Let's go with my minimum of 100 shares and over the next 60 days, the results will convince you that you've made the right decision."

One of the most common objections brokers get from prospects is the need to speak with their wife. Internally, the rule among brokers is "Don't Pitch the Bitch," a phrase made famous in the movie "Boiler Room." One of the more popular scripts for this objection instructs the broker to question the prospect's masculinity:

"If you want to call me back so you can ask your wife if you can buy the stock, I will call my wife and ask if I can sell you the stock, COME ON! You make business decisions daily without your wife. Let's face it, if you go home and tell your wife that you want to invest with a broker whom you don't know very well, chances are you will be hit with a frying pan and be spending the night on the couch. However, once she sees the brochure from my firm and the dossier that I send you in the FedEx package with a buy confirmation, what do you think she is going to say? Besides, it is a lot easier to beg for forgiveness than to ask for permission, right? Should I send it to your home where your wife will throw it our or to the office where you will put it by your merchant banker book that you never read either?"

Some of the wraps come with instructions such as "BE VERY SINCERE AS THIS WRAP IS VERY POWERFUL!" And, "These are Special Wraps to Use ONLY When Close! Be Very Specific on Which Ones You Use!"There are also "power phrases" that brokers pepper their pitches with. Here are a few of them:

1. This isn't something I want you to do; this is something you need to do for yourself."
2. This account will come back to you in spades!"
3. Read those numbers back to me!"
4. Do you see the power here?"
5. I think what you really want to know is, will the stock go up and make you money? Absolutely!!!"
6. Listen, we have done our homework on this one and if you are serious about investing, this is the opportunity!"
7. This idea is that good! Why do you think I'm spending so much time with you?"
8. I'd call that a Major League Homerun, wouldn't you?"
9. We know what we're doing. We are the best in the business!"
10. Within one year, I am confident I will be handling the bulk of your portfolio."

All of these scripts are devised to make the broker sound like he is oozing with confidence and intelligence. They are calculated to convey success, wealth and superiority over the other brokerage firms "out there." As such, some of the language in these scripts is really over the top. For example:

"I want you to realize I manage money and people better than anyone on this planet. Do I expect you to believe me? Quite sincerely, I don't, but I do expect you to see it over the next few months." How about this: "My reputation is only as good as my recommendation, and timing is the most important key to making money in the market! Trust me, I'm that good! I am not going to let you down! I know the future of this relationship hinges on this one trade, right? Correct! Exactly! And I couldn't think of a better way for you to get started with me and my firm than on a position of 100 shares of (company)."

Some scripts are so detailed, the broker is told when to speak, when to pause, when to giggle and when to talk about the prospect on the other end of the phone:

"I'll tell you this much, we've been on the phone for quite some time, and I realize at this point in time, I cannot afford to be wrong. I'm putting my best foot forward with (name of stock) because, let's face one thing, any future business we do together will be based upon my performance right HERE and NOW! Basically, if I'm right, I have credibility with you! If I'm wrong, I don't get a second chance. Now, I'd have to believe very strongly that (name of stock) will outperform (...pause...) 80% of the stocks you are currently holding. (...pause...) Can I make a suggestion? (...pause...) Just to get to know each other and put you on my team – as an absolute joke – we title the account for 100 shares, and when we see the stock at (target) or better, you're going to say, '(broker name), you persistent, good looking son of a bitch, you were right! Why was I fooling around with just 100 shares?' Give me the shot on just 100 shares. It's the right thing to do."

Brokers also try to disarm potential clients by implying they are really not taking a big risk and they have nothing to lose by trusting the broker with this first small purchase. A wrap we come across frequently is a great example of this:

"Please excuse my persistence, but this is why my clients retain my service. I scratch, claw and kill for a 1/2, 1/4 or 1/8 of a percentage point. It may not seem like much on this token trade, and it's not, but when we are talking about transactions of real size, these percentage points add up in a really big way. I'm a nice guy, but I'm a great broker. You're not going to get rich on this one trade, but I think I'll show you one hell of a percentage gain. Do this: pick up 100 shares for a cash outlay of roughly ___________ and give me 60-90 days. I think the biggest problem we will have is that you didn't know me well enough to pick up more!"

Because these broker-dealers rely on cold calling for clients, they need scripts to overcome a prospect's fear of opening an account and/or doing business over the phone with a person they do not know. The rebuttals brokers use in these scenarios focus on the fear people experience doing anything for the first time, such as:

"I know the hardest thing about opening an account is the first transaction. It's like opening your first business, buying your first house, jeez even kissing a girl the first time. My point is the first step is always the hardest. However, when you turn it over with a nice profit, you feel like this is the best investment you have ever made. Let's begin with an amount that will make you feel comfortable – an incidental amount that won't put you out of house and home and won't keep you up at night."

The training manuals or pitch books that contain these scripts are also chock full of motivational phrases and stories to reinforce the need for the broker to be enthusiastic and to use emotion to get the deal closed. We came across one script that uses the tragedy of 9/11 to both disarm the prospect and reference a time of terror and the feeling of being helpless:

"You know my uncle sells life insurance to civil servants -- you know, mailmen, firemen and police officers. The point is, in September of '01, a lot of policemen and firemen left families of 3, 4 and even 5 children behind. Most of the families had insurance, and I know a lot of them were pressured into buying it by my uncle, but you know something? It's a good thing he did and 60 days from now, you'll be just as glad!"

"Glad." Really? Appalling.

So investors, when you get a cold call from a broker at one of these low-tier, transactional broker-dealers, know that they are reading from scripts that have been circulating from firm to firm for decades. Now that baby boomers are entering retirement, the scripts will be fine-tuned to appeal to their generation. As people are living longer lives, these firms are adopting scripts to target senior investors with diminished capacity and other health issues. Those personal stories a broker told you were undoubtedly scripted in an attempt to build a bond of trust and friendship.

If you are currently investing with a broker who used these tactics to pressure you into opening an account, pay attention to your monthly statements and how often your account is being traded. If you suspect your investments aren't being managed in a way that benefits you above all, contact Cold Spring Advisory Group for a free analysis of your accounts. We will let you know if your investments are truly in good hands, or if you are working with a firm that makes its money at their investor's expense. Call us at (212) 566-6060 or visit us online at www.coldspringadvisory.com.