Multi-Level Marketing Schemes

A lesson in how not to escape Career Purgatory

The funny thing about Career Purgatory is that you’ll run into your fair share of “classy” people who dress nicely and have flashy cars and profess to have nice homes.  These same people will tell you how they will help you get out of Purgatory.

Since you find yourself in Career Purgatory you can’t afford to be taken to the cleaners by some smooth talking insurance salesmen, or investment bankers.  This is not to say that all of these individuals are con artists, but the sheer amount of multilevel marketing schemes and outright fraudulent activities are mind boggling.

Having the morbid curiosity to explore a couple of different “great opportunities” as described by recruiters, I have figured out that unfortunately the ability for the common Career Purgatory trapped individual to research these schemes is limited.  I will walk you through the warning signs that what you are entering is either flat out too good to be true, or entirely not worth the effort on your part because the time and money invested can yield far better returns elsewhere.

Targets

Common targets for multilevel marketers are current college students, and fresh college graduates.  These candidates are ideal targets because the promised money, prizes, cash bonuses, “free Lexus” in the parking lot, trips to exotic locations, etc. are very enticing.  These hooks are also very enticing for the rest of the population that feel they are slightly ambitious enough to “be their own boss”.

The other class of targets for these type of scams are typically stay at home mom’s and I suppose for an even smaller minority stay at home dad’s.  The reason stay at home parents are targets is because the “job” being offered to you is sold as part time, easy to do, pays well or as having very flexible hours.  It also appeals to the transition from taking care of children to moving back into the real world of working professionals, getting you foot in the door to real life.

Wolves in sheep’s clothing

The best multilevel marketing companies seem to be insurance companies, and then investment related companies.  The recruiters for these enterprises will recruit their targets with colorful high grade marketing texts about how great their company is to work for.  In fact many of these companies will even appear on “Best Places to work for” lists.  These companies are often actually quite nice to work for in fact.

What you are not told is that you DO NOT work for these companies.  You simply represent them as an Independent Agent (i.e. Independent contractor).  This means that while you will ultimately work for an insurance company you will not actually get insurance, and you will self report your taxes on a 1099 form to the IRS.

Often what happens is a reputable company allows a high earner to open their own franchise under the well known corporate banner in a franchising opportunity much like McDonald’s has independent owners.  This individual turns into more of a recruiter than an insurance salesman.  So as an individual agent you are two levels below the company you are representing.

The quickest way to sniff out these shady offers is to flat out ask in person or over the phone, if you are an employee and literally ask if you will be getting a W-2 from said company.  If you are a W-2 full time employee there still may be snags in this opportunity much like any other career job you will encounter.  The key to sniffing out the worst people though is the W-2 test.  There is a really good primer for IRS tax forms and what they are used for at Wikipedia.

Where do people get caught in these traps?

Career Fairs -Go to just about any career fair and there will be most likely be no less than three insurance companies represented.

Career Workshops – These salesmen and recruiters are also often invited or make themselves available to speak at university and college career workshops and are often the most enticing speakers.  Keep in mind this is no accident, these recruiters speak to large groups all the time and have great training to go with this.

Cold call – You’ll get an enthusiastic recruiter that will call you because your resume was posted on Linkedin.com or through any other service.  They insist they have a great job for you, in some cases they may lure college students with the promise of an internship (don’t worry they still want to sell you).

Enthusiastic Family – this is a bit more like the traditional “Am-Way” sell.  Your cousin you haven’t seen or heard from in years suddenly drops by or calls because they hear you’re unhappy with your current career and want to help out the family.

Old co-workers – Pretty much the same as the family route here, in some cases current co-workers will hit you up to sell a product with them on the side often it is some Am-Way gig.

Common Sales pitches

• You can win a free car!
• I go to exotic locations for vacations every year.
• You control your own hours.
• It’s a part time job.

Another sales tactic that I have seen used which worked quite well for the unsuspecting was basically along the lines used in those shady how to seduce a girl books.  The presenter or in some cases presenters asks if you have heard of a particular concept.  Most people have not, and they will give you a slight insult as if you have never heard of this revolutionary concept.  They will back peddle and say that’s okay if you haven’t heard of it most of your customers aren’t aware of it either.  I experienced this tactic with the mention of the Rule of 72.

Use the Rule of 72 i.e double your money = http://www.moneychimp.com/features/rule72.htm

Why do you need to sell me a job?

The guy who is selling you this job is getting his cut off of your sales and recurring contracts what the industry guys refer to as trailers or residuals.  Some companies do not even pay out residuals or trailers at the expense of providing you with other services like administration support.

You have to purchase marketing materials.

They sell you customer leads.

There are no preset sales territories.

Use of office equipment is billed to you.

I’ve never pursued any position that had these constraints where I would have to shell out money for marketing materials, customer leads, office equipment use etc.

I would expect these expenses incurred to be used a positive spin by the recruiter.   Something along the lines of since you are a 1099 and making tons of money, you can meet with an accountant to write these off as expenses against your earned income.

What Can I look for?

Revenue earned per employee.  This should help expose really high efficiency companies, but in reality most insurance products are largely the same.  The key here is that you are looking to join a publicly traded insurance company and you can find their latest Annual Report or 10-K Report, some quarterly earnings reports or 10-Q reports will contain total number of employees.  Some of these will also disclose the total number of agents.  Again this agent number is the key here.

Total Employees, search for number of “agents”

I hate to link to a site that bothers me because so much of the feedback is completely negative, and filled with vulgar complaints and poor grammar, that basically prove most of these employees couldn’t cut it in any field that requires proper grammar, good communication skills, and lots of ambition.  If you go to www.jobvent.com you will find the majority of insurance and financial companies and the terrible conditions that come from working as an independent agent.  Do not despair if you are interested in becoming an agent there are companies out that that do have W-2 full time employees.

Also this isn’t a dig on the insurance / investment products themselves often these products are pretty good, the methods that the big insurance guys employ to sell them on the other hand are quite terrible.

You can freely get an idea of most large public companies number of employees by using Wolfram Alpha which is one of the easiest tools to use for stock information that I’ve come across.  The employee numbers are typically updated each quarter or year by companies.

Additional information

Also Check out our avoid hiring scams piece.

http://en.wikipedia.org/wiki/Multi-level_marketing

http://www.ftc.gov/

http://www.bbb.org/us/article/ftc–multilevel-marketing-plans-4755

Feel free to leave your comments and experiences here in the comments.   If you happen to have any long winded things you’d like to add submit it to us at [email protected] and we’ll turn it into a guest post and plug your blog.