Multilevel Marketing Schemes: Always a Risky Investment

Multilevel Marketing Schemes: Always a Risky Investment

At Crash Proof Retirement, we are dedicated to helping people in or near retirement protect their nest eggs from the risk and fees of Wall Street. While this is an important part of our mission, we also feel that it is our responsibility as consumer advocates to raise awareness about common scams so retirees can protect themselves from financial predators. Even if you invest your money in safe financial vehicles, you could still lose everything if you become the victim of a scam. Today, our team would like to tell you about one type of scam that is promoted as multi-level marketing schemes (MLMs) and why you should avoid these schemes in retirement.

How do Multilevel Marketing Schemes Work?
In an MLM, businesses recruit unsalaried participants to sell products like vitamin supplements, energy drinks, household products, and more. Participants make money by earning commissions on the products they sell or by recruiting others into the business and earning commissions from the sales made by their recruits. This is called a “downline,” which indicates that the recruits sales funnel upwards to existing participants — like a pyramid scheme. While it seems like a legitimate way to earn money, participants are required to purchase large amounts of product up front and then make back that money through their commissions. To make a livable income, a participant would have to market and sell enough product to pay for their purchases (and then some) or recruit enough participants into their downline to create income. As the Federal Trade Commission (FTC) has reported, very few MLM participants ever achieve this goal.

Since 1979, the FTC has filed cases against 30 MLM companies, accusing them of being illegal pyramid schemes. In 28 of those cases, courts sided with the FTC, who settled with these companies under the agreement that they would alter their business model to comply with the law. Unfortunately, there are typically more than 1,000 MLM companies operating in the U.S. at any given time, which makes it difficult for the FTC to regulate them all. In addition, the rise of social media has given MLMs fertile ground to continue their borderline-illegal activities and target unsuspecting victims.

If you’re currently retired, or you are looking for ways to grow your nest egg before retirement, the claims of MLM companies can be very tempting. Be your own boss, make significant income working from home, and build your network to receive passive income. If these claims seem too good to be true, it is because they are. The FTC reported that in 2016, more than 70% of MLM investors did not earn any money or ended up losing money. Another 18% earned between one cent and $250, and 6% earned between $250 and $1,000. The approximately 4% who earned more than $1,000 did so by working tirelessly to recruit others into the scheme, often damaging relationships with family and friends in the process.

Multilevel Marketing Companies and the COVID-19 Pandemic
With COVID-19 forcing millions of people to work from home, many MLM companies kicked their recruiting efforts into high gear. Some MLMs sold health and wellness products and claimed their oils and supplements could boost the immune system and protect against COVID-19. Others concentrated on convincing participants to invest in MLM products using their stimulus checks. Through the power of social media, these companies could easily reach millions of people without spending a lot of money, and their network of participants provided their own free marketing. During the pandemic, the FTC sent letters to 16 MLM companies to warn them about marketing their non-FDA-approved products as COVID-19 cures and making specific claims about income for participants in their schemes.

Although seniors are not the specific target audience of MLM scammers, there are several reasons why seniors and people approaching retirement age might be attracted to MLM companies. During the COVID-19 pandemic, 5.7 million workers over the age of 55 lost their jobs, and with the prevalence of age discrimination in the job market, many of them are having trouble getting rehired into the workforce. As a result, MLMs may seem like a good way to make money on the side while continuing to search for work. In addition, seniors often become the victims of elder abuse, and financial scams, like MLMs, are a part of that. Older Americans tend to be more trusting of strangers – especially those who go door-to-door or solicit by phone – and may become targets of MLM scammers as well. Every senior should be on the lookout, not just for MLM scams, but also for other forms of financial scams.

Are MLMs a Good Investment?
While multilevel marketing companies are not illegal in the United States, it is debatable whether they are considered a “scam” in the traditional sense. It is true that the vast majority of MLM participants either lose money or break even. If you have the money and free time to participate in an MLM, the team at Crash Proof Retirement can educate you about much better ways to invest your money. Risky investments are never a good idea, especially for people in or near retirement, and multilevel marketing schemes, are some of the riskiest investments that a retiree can join. As a result, seniors should always be on the lookout for potential elder abuse scams.

Investing in multilevel marketing schemes is like investing in stocks, bonds, and mutual funds which carries significant risk when compared to the proprietary Crash Proof Vehicles which have protected more than 5,000 retirees from losing their money to risk and Wall Street fees. If you would like to know more about the Exclusive Crash Proof Retirement System and how you can achieve guaranteed income and security with no fees or market risk, call 1-800-722-9728 or visit us at crashproofretirement.com and fill out our online contact form to set up a meeting to speak with one of our licensed retirement phase experts.