Episode 4: What the FTC has to say about MLM Plans

If you review a plan, and find out that it offers to pay commissions for recruiting new members, be advised:

Most states have laws agains this. It is known as "pyramiding."

State laws against pyramiding say that a multilevel marketing plan should only pay commissions for retail sales of goods or services, not for recruiting new members.

Why?

Go back to Episode One. I mentioned the "Last Two People On Earth" scenario. If you and I were the last two people on earth, and both in the same MLM company, we couldn't continue to sell anything...

And when a pyramid scheme collapses, most people -- except perhaps those at the very top of the pyramid -- lose everything. Their money, friends, respect... everything.

While the FTC has laws against pyramid schemes, and while it works hard to close illegal companies down it cannot advise you whether a particular multilevel marketing plan is legal. Nor can it give you advice about whether to join such a plan. You must make that decision yourself.

In Episode 3, I talked about 7 things you should do before even considering talking to anyone about a business opportunity online.

The FTC has their own list of 7 things you should do.

1. Avoid any plan that includes commissions for recruiting additional distributors. It may be an illegal pyramid.
2. Beware of plans that ask new distributors to purchase expensive inventory. These plans can collapse quickly -- and also may be thinly-disguised pyramids.
3. Be cautious of plans that claim you will make money through continued growth of your "downline" -- the commissions on sales made by new distributors you recruit -- rather than through sales of products you make yourself.
4. Beware of plans that claim to sell miracle products or promise enormous earnings. Just because a promoter of a plan makes a claim doesn't mean it's true! Ask the promoter of the plan to substantiate claims with hard evidence.
5. Beware of shills -- "decoy" references paid by a plan's promoter to describe their fictional success in earning money through the plan.
6. Don't pay or sign any contracts in an "opportunity meeting" or any other high-pressure situation. Insist on taking your time to think over a decision to join. Talk it over with your spouse, a knowledgeable friend, an accountant or lawyer.
7. Do your homework! Check with your local Better Business Bureau and state Attorney General about any plan you're considering -- especially when the claims about the product or your potential earnings seem too good to be true.

A lot of what the FTC has to say is pretty good. They're a little behind the times when it comes to technology, but they're on target.

"Phil, I have followed your advice, and have joined what I think is a good online business. However, to date, they haven't been able to produce what they said they were going to do. I've gotten several excuses about why I haven't seen any results. What should I do?"

Being that you were able to talk to someone is a good sign. Now it just seems to me you're not talking to the right person. Keep calling back, every day if you have to, until you get the answer you're looking for. If they have not kept up their end of the deal, check any signed documents you have. If you think you have recourse there, talk to your attorney and ask him to call the company on your behalf. Sometimes, all they need is a good swift kick in the rear to get going.

As I have said before - Not all MLMs are bad. There are some great ones out there. And the great MLMs of today give the average person a fighting chance on realizing a lot of their dreams. You now have the tools you need to evaluate legitimate online business opportunities and make educated decisions on joining them or not.

Join me next time as we discuss the 7 Great Myths Of MLM.

I'll be reluanching my website soon - look for it to go live on the 1st March. With the amount of information I'm working with, I want the site to be a great resource for people involved with any online business.