Multi-level marketing plans are often pyramid schemes

It appears that Multi-level marketing schemes are making the rounds in Bermuda again. No surprise here, during this rough economy there are all sorts of scams out there and a lot of people desperate to make a quick buck.

Beware!

Most multi-level marketing or pyramid schemes will have you spending a lot of money and making none. I wrote about this last year and got a few calls from some devote MLM supporters chastising me for doing so. I expect I will get a few more calls again, however, I think it is important to provide this information so that prospective buyers can make an informed decision before they join a MLM.

What is a multi-level marketing scheme?

 It is a ‘network’ or ‘matrix’ marketing venture.

On the surface it appears to be an attractive business opportunity to involve your network of friends and family, sell products and make a lot of money.

You have the support of a multi-level marketing company who supplies the product, with marketing support and sometimes training.

They will not call themselves a multi-level marketing scheme and some do not actually sell a product or service, they may just offer an investment opportunity.

Most multi-level marketing businesses offer a plan that claims that you will receive commissions by selling their product as well as commissions on the sales of people you recruit.

Typically, you sign up, send money for the product or business package and your recruits do the same and their recruits do the same.

Everyone is sending the multi-level marketing company money to be a member.

Legitimate?

The whole scheme depends on you recruiting people to distribute the product and of course the people you recruit must recruit and on and on it goes.

Not all multi-level marketing schemes are fraudulent.

A legit multi-level marketing business is designed to move product through a large distribution network.

If you are considering joining a multi-level marketing business, do your research. As with any business venture, investigate the business and its products first.

Advantage

Get as much information as you can, including copies of their sales literature, business plan and/or marketing plan.

There is a ton of information on the Internet, use it to your advantage.

Talk to other people who have experience with the multi-level marketing company and the products, to determine whether the products are actually being sold and whether they are making good money.

If the plan is designed so that your income is derived solely from signing up people, in other words you receive a commission on your new recruits rather than selling the product, it is likely fraudulent and a pyramid scheme and you will be wasting your time and more importantly throwing away your money.

The odds of actually making money in these schemes are about the same as winning the lottery.

Fraudulent multi-level marketing schemes and/or pyramid schemes are designed so that those at the top continue to make money off of a continuous influx of new investors. Imagine what happens when the business is unable to recruit new investors.

The money stops coming in and the business collapses. The business collapses and all but a very few at the top lose their money.

One very important thing to consider, most of these schemes are operated from overseas.

Questions

For us here in Bermuda, if things go wrong there is very little recourse.

How will you find the people who are responsible for your financial losses?

Don’t fall prey to false promises of riches through multi-level marketing or pyramid schemes.

If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck so follow your instincts!

As for locals who are operating these schemes, remember, under the Consumer Protection Act 1999, it is illegal to operate a pyramid scheme in Bermuda (it is an unconscionable act) and a violation of this Act carries a $15,000 fine and/or imprisonment for up to 12 months.

Honey Adams is the education officer for the Department of Consumer Affairs.