Jeunesse And Other Network Marketing Companies Condone & Promote Lifestyle & Income Claims?

jeunesse-global

jeunesse-globalA week or so ago I covered the lawsuit filed by Matthew Nestler a former leader in Jeunesse Global. (Read Here)

        As our team started reviewing social media to see what the Jeunesse      field culture was promoting we quickly found that many of the up and  coming Jeunesse Diamonds and other leaders were promoting income and  lifestyle claims, even though the Jeunesse Global policies and procedures are very clear this is a violation. We also saw where inside the Jeunesse P&Ps it was clear the company didn’t condone raiding other direct selling companies either!

So what is going on and is the company holding people accountable for policy violations or looking the other way?

The MLM Attorney Kevin Thompson: MLM Income Claims: Basic guidelines for companies and distributors | FTC (Part 2)

INTRODUCTION

In the last article, MLM Income Claims: Basic guidelines for companies and distributors | FTC, we walked through the Federal Trade Commission’s (“FTC”) recent allegations against Fortune Hi-Tech Marketing (“FHTM”) regarding income claims made by its distributors. In this installment, we’re going to see what it takes to give an adequate disclosure for the claims made.

The format is simple: First, I’m going to lay out what a company needs to provide for its distributors in order for them to give proper disclosures. Next, I’m going to walk through the examples cited by the FTC against FHTM and demonstrate how to make a proper disclosure under the circumstances using the framework provided by the court in Nat’l Dynamics and the FTC’s .com Disclosure Guidelines. The goal of this post is to provide you with practical, blanket instructions to make adequate disclosures. Ready to get started? All right, let’s get down to business.

THE INCOME DISCLOSURE DOCUMENT

The best way for a company to ensure that claims regarding its payment plan are given properly is to put the information on a silver platter for the distributors to use. It’s not the distributors’ job to gather the data; it’s the distributors job to zealously represent your company and all the while properly disclosing the information provided to them. This is why every company should provide its distributors with an income disclosure document: the ultimate, end-all-end-all, “Swiss Army knife” for distributors to give income claims.

At a minimum, an income disclosure document should include:

  1. A statement of the average amount of time per day, week or month spent by the distributors at each rank to achieve the various levels;
  2. The year or years during which the disclosed results were achieved;
  3. A statement of the average earnings achieved by all distributors at each rank;
  4. The Highest and Lowest earnings achieved weekly by distributors at each rank; and
  5. The percentage of distributors at each rank who achieve the average income.

Here is a (very) simple example of what an income disclosure document should kind of look like. This can be done on Excel in 10 minutes:

disclosure chart

These are some specific examples referenced by the FTC in its lawsuit against FHTM.

RECORDED VIDEO PRESENTATIONS

Claim #1:

One distributor claimed in a recorded video presentation that “four months into the business [with FHTM]… I had actually quadrupled what I have ever made as a Registered Nurse.”

Claim #2:

A distributor claimed on her Vimeo site that distributors who reach the National or Executive Sales Manager levels “are making thirty-, forty-, sixty-, seventy-thousand a month.”

Claim #3:

The FTC alleged distributors frequently made lifestyle claims, such as highlighting extended family vacations to exotic locations, driving nice cars, and purchasing large homes with luxurious amenities.

The Answer

If you will remember back to the FTC’s Disclosure Guidelines for Online Marketing: How to get it right (Part 2), we explained that a text income disclosure displayed in the video DURING the claim in addition to a more detailed audio and video formatted disclosure at the end of the testimonial was the best strategy. During the video disclaimer at the end of the testimonial video, an image of the company’s income disclosure document should be displayed with audio narration regarding the average earnings.

Regarding Claim #2, the court in Nat’l Dynamics provides some guidance:

Statements of ranges may be deceptive if the earnings ranges are too large. A consumer presented with a statement that thousands of distributors have earned from “$ to $” is likely to assume that the average lies somewhere near the middle of the range, and that substantial numbers of people have achieved results in the top of the range.

In order to provide an earnings range like the one given above, it must be provided with a “clear and conspicuous” disclosure of the percentage of all distributors that achieved results within the range. If the ranges are from $0 and up, the disclosure only needs to indicate the number of distributors within each range or the percentage of distributors in each range. Luckily, all of this information is provided in our income disclosure document shared above.

RECORDED AUDIO PRESENTATIONS

Claim #4:

The FTC alleged that a distributor on a recorded conference call stated that someone earned over $50,000 in his sixth months with the company alone and that he “earned millions and millions beyond that” in subsequent years.

Claim #5:

Regarding another conference call, the FTC alleged a distributor stated that someone else was earning “over $100,000 a month” after three years with the company.

The Answer

It’s impossible to give an audio disclosure simultaneously as an audio claim (Go ahead and try it out loud to yourself). Since the claim is in audio format, we must provide a disclosure in audio format as well. Using the information provided in the income disclosure document, all earnings discussed should be addressed.

This isn’t a science, so you must get creative in order to find the easiest and most efficient way for you to equip your distributors with the tools they needs to give adequate disclosures. One suggestion is to provide distributors with a script to read before these calls that explains the average earnings. Another option is to provide an audio file to download on your homepage that distributors may attach to the beginning of their audio presentation before they post it.

Since the audio claims were posted on team websites, a hyperlink could also be provided under the audio clip like this: “The average distributor earns $___ per month. Click here for more information and disclosures about the income ranges discussed in the audio presentation.”

TWITTER

Claim #6:

The FTC alleged a distributor posted on her Twitter account about a recruiting meeting, encouraging people to “Bring ur friends & learn how 2 make $100k aYR.”

The Answer

I’m going to preach this until the cows come home: Do not make income claims via Twitter. “But Kevin!” you say, “I can simply insert a hyperlink to a proper disclosure, right?” Wrong! There is simply not enough real estate to provide an adequate income disclosure on Twitter.

FACEBOOK PHOTO

Claim #7:

The FTC alleged that at a national convention, 30 top earners were called to the stage to be presented with a mock check for $64 million to represent the amount of money they earned with the company. Several distributors later shared a photo of the presentation on Facebook.

The Answer

In the caption of the photograph: “Results not typical. The average distributor earns $____ per . Click the link for a full disclosure.” The link should lead the consumer to a page where they will be provided with an image of the income disclosure document.

CONCLUSION

It’s time for the industry to wake up and smell the coffee.  The FTC is taking these earnings claims very seriously.  And as technology is making it simpler for distributors to make these sorts of claims, the responsibility is increasing for companies to properly educate the field. Looking forward, it’s vitally important to have adequate compliance training and to supply distributors with the up-to-date information that they need to make proper income claims. Most importantly, the information needs to be provided in such a way that they any consumer can look at the information and be able to understand the underlying facts so they may make a fully informed decision.

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MLM News Report: Learn About The DIrect Selling Education Foundation & The DSA Five Part Trends Report For 2012

news

This week’s MLM News takes a look at the DSEF (Direct Selling Education Foundation) and the new report commissioned by the DSA “Consumer Trends Impacting The Direct Selling Industry” commissioned with GFK Roper.

What Is The DSA Code Of Ethics

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What Does The DSA Code Of Ethics Says About Product Claims Made By Network Marketers

What Does The DSA Code Of Ethics Say About Income Claims Made By Network Marketers

What Does The DSA Code Of Ethics Say About Product Buy-Back

What Does The DSA Code Of Ethics Say About The Cooling Off Period

The DSA U.S. Consumer Trends Impacting the Direct Selling Industry Report

Part 1 – College Students Look to Direct Selling for Income, Business Experience

Each generation of Americans finds value in different aspects of direct selling. Boomers, for example, like the fact that direct selling can provide post-retirement security. The Gen-Y crowd likes the fact that in direct selling they can be their own boss. Today’s college students—those who will be the next generation to enter the workforce—are no exception. In an ever-changing socioeconomic environment this segment of the population is key to building and maintaining a successful enterprise. They are tomorrow’s workers and the budding entrepreneurs who have already discovered direct selling value not only the income, but also the business experience they can gain. (Read The Full Report)

Part 2 – Post-Retirement Generation Fulfills Unique Role in Direct Selling

While many generations of Americans have turned to direct selling for income, flexible scheduling, networking and a one-of-a-kind business opportunity, one generation that benefits from the direct sales channel also provides the industry with a unique level of experience, expertise and people skills: the post-retirement generation.

According to the DSA-commissioned report, “U.S. Consumer Trends Impacting the Direct Selling Industry,” issued by GfK Roper Consulting earlier this year, many Americans who have reached retirement age have looked to direct selling for opportunities to earn extra income and remain active in their communities. In fact, according to the Direct Selling Association’s 2008 National Salesforce Survey Report, 22 percent of the direct salesforce is comprised of individuals 55 years or older. (Read The Full Report)

Part 3 – Gen Y Emerges as the Latest Face of Direct Selling

In 2010, the Pew Research Center estimated 37 percent of 18-29 year-olds have been underemployed or out of work during the recession, the highest share among the age group in more than 30 years. While in the United States alone, the total number of Gen-Yers—those born from 1980 through 1992—has reached more than 70 million people, in recent years, much of the Gen-Y population (also known as Millennials) has turned to direct selling for many reasons beyond financial need. (Read The Full Report)

Part 4 – Military Community Takes on Unique Role in Direct Selling

As the effects of the economic downturn continue to impact the U.S. job market, direct selling companies can look to one demographic in particular to provide the industry with a unique, far-reaching network of potential recruits and customers, an invaluable determination to succeed and a propensity to establish teams across many regions simultaneously: the military community.

According to a report issued earlier this year by the Military Community and Family Policy office at the Pentagon, the unemployment rate for military spouses stands at 26 percent, despite the fact that 80 to 85 percent of military spouses are actively seeking employment. Additionally, the DSA-commissioned report, “U.S. Consumer Trends Impacting the Direct Selling Industry,” issued earlier this year by GfK Roper Consulting, predicts that over the next decade a decline in traditional employment and an increase in access to entrepreneurial education will lead to a rise in small businesses and expanded participation in direct selling—a trend military spouses are uniquely positioned to take advantage of. (Read The Full Report)

Part 5 – Through Direct Selling, Mompreneurs Establish a Unique Level of Trust with Consumers

Countless men and women of all demographics have shaped the direct sales channel throughout the years, but today’s “Mompreneurs” not only embody the spirit of entrepreneurship and empowerment that characterize direct selling, they also contribute a level of credibility that resonates with consumers and field members alike. What’s more, they bring access to a network of consumers that offers tremendous buying potential.

“Mompreneurs add a unique element to direct sales,” said Adrienne Murphy, Vice President of Sales for Gigi Hill. “People tend to have, in their minds, a perception of what direct selling is or isn’t, but when they see moms working in direct selling, they get a glimpse of how the industry affects not just individuals, but families as well. It creates this new level of energy within the direct sales channel.” (Read The Full Report)

MLM Editorial: What Are Income Claims And What Does The FTC Say?

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 ThompsonWhy More Disclosure is a Bad Idea

MLM Attorneys Grimes & ReeseFTC 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 ThompsonFTC’s tips for discerning good companies from bad

MLM Attorneys Grimes & ReeseBIGSMART Not So Smart!

MLM Attorney Kevin ThompsonThe Burn Lounge Decision

MLM Attorney Kevin Grimes Covers The Laws Regarding Income Claims 2011

Living An Epic Adventure,

Troy Dooly