Over the last few months I have seen an increase in free to low income opportunities launching within the network marketing arena, which from the outside sure seem to fall under the legal definition of illegal pyramid, vs. a legal direct selling compensation structure.
At the same time I have seen a huge increase of network marketing professionals starting to video their back office to prove their incomes or upload images of their actual checks in order to combat the hype of these questionable business opportunities.
This last week, I entered into a discussion on FaceBook, where some great boys, were questioned my understanding of the laws when it comes to income claims and disclosures.
There understanding is, if the figures they are showing are legit, then it is cool to show their income. WRONG!
Just showing income, without providing complete disclosure on what all distributors make on average (Income Disclosure Statement) is illegal in most states and at a federal level.
Income claims and disclosures is 100% in the hands of the company, not the distributors. And depending on the industry a network marketing channel is being used, showing income without the right disclosures could result in hundreds of thousands if not millions in fines.
So, what are the guidelines and how can you as a distributor or even a company executive protect the team and the longevity of your organization?
1. DO NOT allow any income claims (actual or projected) period! This is the most conservative way to protect your team.
2. Company provides a current Income Disclosure Statement on the main website for prospects, regulators and distributors to review for current income facts.
3. Create and enforce a company policy that all income claims, actual or projected are for “internal training only” and are only created by the company.
Now, let’s look at a few other issues, that most distributors never take into account when making income claims; actual or projected.
1. Lately it has become common business practice to pay signing bonuses, make bridge loans, or provide some form of performance bonus to top leaders. Under the current FTC Endorsement Guidelines, if a Master Distributor or top leader received any form of compensation outside of the normal compensation plan, this could open the door for a potential legal liability. If any form of income claim is made, and all parties involved do not disclose specifically how the income is earned, then the FTC may see this as an “unfair business practice.”
2. Under the majority of company P&Ps (Policies and Procedures) it is made clear, all company information is propitiatory and the distributors are placed under “NDA” (Non-Disclosure Agreement), so when a distributor shows their back office to validate their income, they could possibly be violating their distributor agreement, and end up being suspended or terminated.
I want to provide some additional resources for you to review. Remember, the goal is to do everything you can to correctly build your network marketing business.
MLM Attorney Kevin Thompson – Why More Disclosure is a Bad Idea
MLM Attorneys Grimes & Reese – FTC Policy Statement On Deception
MLM Attorney Kevin Thompson – $50 million Burning a Hold in One Companies Pocket
MLM Attorney Spencer Reese – Securities Law and MLM – What’s the Deal?
MLM Attorney Kevin Thompson – FTC’s tips for discerning good companies from bad
MLM Attorneys Grimes & Reese – BIGSMART Not So Smart!
MLM Attorney Kevin Thompson – The Burn Lounge Decision
Living An Epic Adventure,