Do You Sincerely Want To Be Rich? (31 page)

    Some typical examples were: a major who had started paying
£9
is a month in August 1964. By March 1970 he had paid a total of £289 12s, but his equity units were only worth £200 18s. A company director found that 56.5 % of his first year's premium had been deducted by ili, 22.1% of his second and that the company was proposing to take 18.8% of third and following premiums. An old age pensioner with heart trouble (what was anyone doing trying to sell him
life insurance
in the first place? The policy had to be put in his wife's name) - had invested £2,221 in early 1966 and by October he found to his dismay that his fife savings had been reduced to £1,760.

    The small print of the Dover Plan was also discouraging: the extra accidental death benefit excluded eleven categories of death including for example death from 'any poison or gas or fumes, taken, administered, absorbed or inhaled, whether voluntarily or involuntarily accidentally or otherwise.' This clause alone would rule out many causes of household accidents.

    Eventually IOS had to abandon its methods of getting around the exchange controls, and under considerable pressure of publicity the International Life Insurance Company came more or less clean about its deductions. But by that stage, IOS had made a substantial beach-head in Britain: the whole exercise was an excellent example of the IOS dictum 'write the business first, and fix the sweat later'.

    Tables were included in Dover Plan policy documents which detailed the allocations to the Equity Unit Account, showing the part retained by ill If the quality of the policy was not improved, at least by the end of 1967 it was easier to find out just how expensive it was. It might well be asked how the product could be sold, if it was inferior to other products on a market which swiftly became extremely competitive (within a short time even the mighty Prudential Assurance Company was selling equity-linked policies). The answer is that in direct sales, the enthusiasm of the sales force is more important than the quality of the product. In the American mutual fund industry, a study conducted by the Wharton School of Finance for the sec found that sales of individual mutual funds shares tended to increase as sales charges were increased - i.e. as the product grew objectively
less
attractive from the customer's viewpoint. (The Wharton study found no evidence that funds with high charges had superior investment records.)

    The methodology of selling somewhat unsafe investments, dressed up in the form of a mediocre insurance policy, is illuminated by a brief study of IOS sales techniques. These, as the company grew, were refined and institutionalized with an impressive skill, which showed to its best advantage in a glossy kit, with attached tape-recording, called
Eight Ways To Close Sales.
The 'close' is the move with which the salesman, having made his 'presentation', brings the prospect to buy, and turns him into a client. The tape declares that knowing when and how to close 'can put more money in your pocket than any other sales skill'.

    The closes recommended are embedded in the lore of the doorstep sales game under a number of names: IOS in this kit called them the Basic Close, the Alternate Choice Close, the Winston Churchill Close (usually known in America as the Ben Franklin Close), the Eliminate the Negative Close, the Similar Situation Close, the Provisional Close, the Final Objection Close and, as a last resort - the Lost Sale Close.

    

    The techniques revolve around one idea, which is that sales resistance can always be beaten down by persistance.
Eight Ways to Close Sales
teaches a series of cunning verbal and emotional tricks, in which the salesman is taught to capitalize on the fact that people will be reluctant to hurt his feelings, to tell frightening stories whenever it seems necessary, and to whine for sympathy if all else fails to make the prospect 'relax his defences'.

    There is the standard injunction that the prospect must never be contradicted. 'When the prospect states an objection, agree with him in your response and then go on to point out an advantage that meets his objection.' But there is an even more revealing instruction: the prospect must never be asked to 'sign' the contract. He must be asked to 'approve the application' because 'many people are hesitant to sign anything
without carefully reading it
[our italics] and perhaps
discussing it with a lawyer'.
Only, apparently, to their own salesmen did IOS admit that it might be bad if the customers had their lawyers read the contracts.

    The closes themselves are in essence childlike ploys, but their effect in a prospect's living room, in the hands of a salesman greedy for overrides, was obviously considerable. The Winston Churchill/Ben Franklin close, designed to overcome 'non-specific objection', consists of telling a wavering client that Churchill, Franklin, (any dead statesman will do), when uncertain whether to do something or not, used to draw a line down a sheet of paper. On one side, he would list all the 'yesses' and on the other side all the 'noes'. Then he would add them up, and if there were more 'yesses' than 'noes' he would go ahead. The salesman, having got the prospect to draw the line, then enthusiastically helps in the composition of the 'yes' list. To continue in the taped words of IOS’s instructor:

    'When he gets to the "no" column, what do you think our Associate does? Of course, he keeps quiet, as shown in Picture d. He lets Mrs Smith list all the reasons for not buying, and of course, she may have trouble in doing so. Our Associate then concludes that the decision is quite an obvious one, and closes the sale.'

    All the closes, essentially, are based upon the idea of 'controlling' the prospect, and forcing him to do things, by offering either (a) two alternatives which are both attractive, or (b) by stating hypothetical reasons against buying which are couched in such form that the prospect has difficulty in expressing his or her objections. The principle is 'never offer an alternative that in effect asks whether or not the prospect wants the programme'.

    But the instructions for using the closes reveal even more than do the techniques themselves about the real nature of the 'estate planning' and 'financial counselling' that IOS was offering. First, recruits are informed that 'successful' associates on average have found five 'trial closes' necessary to effect a sale. They are then asked to agree or disagree with this proposition:

    'The close should be thought of as a hammer. If you don't make it the first time, you should keep hitting. If you do this enough times, you will weaken the resistance of the prospect and he'll finally buy from you.'

    On turning to the 'answers' part of his kit, the recruit would find this same remarkable proposition printed right across the page, standing out against a broad band of colour, and with new emphasis added to the word 'hammer'. It receives, actually, more emphasis than any other statement in the chart - although careful examination shows that the more correct answer is to say that the close should be thought of as a 'helping hand' to 'guide the prospect to an affirmative decision'. At this point, the tape-recorder murmurs: 'Don't worry if your words are not the same. It's the thought that counts.'

    When Bernie's hammerers went to work on British prospects after 1967, the Dover Plan policy which they persuaded people to 'approve' was certainly rather more frank than it had been. It even said that the Equity Unit Account bore the costs of investment. But it did not reveal that these included a further deduction of one-half of one per cent taken off when the Equity Account transferred the money into IOS funds. In early 1967, most of the Dover Plan money was going into a new device, called the Fund of Funds Sterling. It had been born, as it were, in the back of a taxi, and suffered some disadvantages.

    For the first two and a half years, Dover Plan money went into dollar funds via the loophole discovered by Hammerman, Ed Cowett and the imaginative lawyers, ili was not keen that the means be publicized, but the salesmen, it seemed, began to mention it as an inducement to customers, and the Bank of England got to hear. The Bank is charged with implementing British exchange controls, and in 1965, with the pound under pressure, the Bank was as acutely conscious of the problem of capital flight as any South American country.

    The traditional description of the Bank's method of regulation is 'by nods and winks'. When the Bank heard about ili's reinsurance arrangements, it shook its head, ili was not doing anything illegal, but the Bank didn't approve.

    In America, IOS was able to sue the sec, and win a measure of support: indeed, some Southerners appeared to approve the more of any outfit that tangled with the hated bureacrats in Washington, and sales to them increased before the final ban. In London, however, you cannot sue the Bank of England, not if you want to stay in business.

    On November 25,1965 Hammerman blandly announced that ili had made its first investment of £500,000 in a new device called the Fund of Funds Sterling, IOS, it seemed had become convinced that there were good opportunities in British ordinary shares, well chosen. Secondly, they wished to diversify the underlying securities of the equity account… It was not until two years later, during the great 'image-polishing' era, that IOS admitted publicly that the real reason was the collapse of the 're-insurance' scheme.

    To those British investors who had been buying the Dover Plan because the salesmen sang the glories of dollar investment, Hammerman's sudden discovery of the London market seemed strange indeed. As luck would have it, it was a not unhelpful moment to switch new investment, because the British market held on for a few months after Wall Street burst through the iooo mark on the Dow Jones and then began sliding. But the reprieve was brief. By the end of the year, both markets were down 20%, and the cries from Dover Plan purchasers were dolorous, indeed.

    The sag in the market was a passing phenomenon, but shortly after its hasty erection, IOS must have realized that the Fund of Funds Sterling was a serious business mistake in itself. This was because IOS, the great 'tax minimization' experts, had somehow quite managed to misunderstand some basic facts about the insurance business they had entered.

    The Fund of Funds Sterling was registered in the Bahamas, which is part of the Sterling Area, and so open to free currency exchange to and from London. However, Bahamian funds escape British capital gains tax. FOF Sterling was no more a true fund-on-funds than, by that time, was the Fund of Funds proper - all it did was collect money from the Equity Unit Account of the Dover Plan and channel it to investment advisers in London, clipping one per cent off the money in the process.

    It did avoid capital gains tax. But its British investments also produced income, as well as capital gains, and this was subject to a 40% tax in Britain. The great irony was that if the investment income had been received direct by ili, without the phoney fund intervening, the company could have offset expenses against the income and claimed substantial tax repayments. In fact, because of British tax law, the essence of the insurance business is to generate investment income, and then claim tax relief on it. Even capital gains, in an insurance company, can be offset against expenses, ili, having cunningly divested itself of investment income and gains, had little against which to offset its expenses, which were thus pure loss.

    Showing characteristic IOS flexibility, ili more or less dropped FOF Sterling by the middle of 1967, and reorganized their investment system to fit in with the real taxation advantages. The only remaining usefulness of FOF Sterling was that it could be sold to Sterling Area residents who did not want the life insurance component of the Dover Plan. As far as most of ili's customers went, it had no more significance-except that a half per cent charge survived it, and still went to IOS. But the customers were not told about that anyway.

    The fact that the Dover Plan survived these mishaps and misjudgements was a tribute to the unresting acquisitiveness of the sales force. In early 1967, the Plan was being subjected to a wave of hostile criticism, the British stock market to which its investments were committed was sagging, and the competition from British companies was increasing. The Board of Trade refused to let ili buy a unit trust company which was up for sale. Yet the salesmen, helped by a timely recovery in the market towards the year's end, brought in almost £10 million in Dover premiums, which was more than enough to cancel out the £1,673,000 taken out by unhappy investors in surrenders.

    This was partly because ili, existentialist as ever, had branched out. The 600 Dover salesmen now spent less time persuading the middle class, who had been so vociferous in their objections, and ili developed new markets among the immigrant communities in Britain - Indians, Cypriots and Pakistanis especially. And, reversing an earlier trend, salesmen followed these people and their families
back
to the colonial lands from which they had come. Dover Plan operations flourished in Malta, Cyprus and East Africa. (Ah these were Sterling Area countries, but the Kenyans wouldn't let the premium money go out, so ili had to use it for property investment in Kenya.)

    By 1968, ili had resumed its position as one of the fastest-growing insurance companies in Britain, with a cash inflow of £24 million a year, and commitments by the end of the year of £250 million. Its main achievement had been to bring about a quantum jump in the sales pressure used by the insurance business, a somewhat ambiguous blessing. But at least the IOS sales force remained more or less under control in Britain. That was hardly the case in Germany.