Their Own Cooking

Jonathan Clements

I JUST PURCHASED a 2013 Honda CRV. I told the “sales consultant” that I was paying cash. He tried to convince me to take out an auto loan, but I explained that borrowing at 3.4% didn’t make sense when I had cash in a savings account earning 0.25%.

Next, he asked whether I had ever considered leasing. I replied that leasing can make sense if you want to drive a new car every three years—but getting a new vehicle every three years was an expensive habit and I planned on keeping the car far longer.

When you lease, your initial payment may be smaller than when you buy a car, but the monthly payments often aren’t that much lower, the auto-insurance premiums are typically higher and you don’t own anything at the end of the lease. That’s when the salesman told me that he always leases—and I was reminded of a phenomenon I’ve seen again and again on Wall Street.

I have spoken to plenty of securities salesmen and women who sell costly products like variable annuities, cash-value life insurance and equity-indexed annuities. The surprise: Many of these folks own these products themselves. They do indeed eat their own cooking. That suggests they’re true believers, which probably makes them better salespeople. But it also suggests they don’t truly understand how expensive these products are and how unlikely they are to generate decent investment returns.

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