Commentary: How I learned about pyramid schemes and MLMs

Hang on for a minute...we're trying to find some more stories you might like.


Email This Story






Those looking for employment should be cautious before joining multi-level marketing (MLM) plans.

I was checking my Facebook messages awhile ago when I saw that an acquaintance from high school had contacted me. This was odd, because while we were on good terms, we were never close and there wasn’t a reason, that I could think of, for her to message me. I got my answer once we exchanged pleasantries, and she began to talk to me about the company she had just started working for, Primerica, which sold insurance.

I did a quick Google search and saw a number of negative comments surrounding the company online. Websites, such as glassdoor.com, which allows people to anonymously review their employers, listed complaints from people who felt Primerica took advantage of its distributors. However, the most troubling criticisms I saw were those accusing the company of being a pyramid scheme.

At the time, all I knew about pyramid schemes were that they were scams that required representatives to recruit more salespeople and that they often cost money to join. This is why I was especially suspicious of the “starting fee” of $99 that Primerica required, as stated by its website– as well as the fact that it asks its representatives to use and pay for monthly access to its online resources, which “costs $25 per month for representatives,” according to the company’s website.

While any talk of “building your team” or a “starting fee” from a business to potential workers sets off alarm bells for me, some may have nostalgic memories of the Avon lady or Tupperware parties.

Predictably, my acquaintance’s next message asked whether I was interested in selling insurance for Primerica. I’m immediately wary of starting fees as it seems odd for me to pay my employer in order to work for them. While she was persistent, I had to decline her offer of joining or meeting with her to learn more. I did, however, do some of my own research regarding pyramid schemes, MLM companies and the difference between the two.

After my acquaintance tried to recruit me, I learned that The Federal Trade Commission (FTC) does differentiate between pyramid schemes and legitimate MLM companies, although the business models of both are very similar. Many MLMs have been accused of being pyramid schemes, such as Amway and Herbalife, while maintaining legal legitimacy. While the line delineating the two can be thin, proponents of MLMs maintain that, unlike pyramid schemes, the true focus of MLMs are to provide a product. Therefore, people should be especially cautious of MLMs that appear to place greater emphasis on recruiting new salespeople than selling a product.

While MLMs usually offer salespeople a commission on the sales of their recruits, people should be wary of companies that offer bonuses simply for recruiting new representatives.

According to the FTC website: “Not all multi-level marketing plans are legitimate. If the money you make is based on your sales to the public, it may be a legitimate multi-level marketing plan. If the money you make is based on the number of people you recruit and your sales to them, it’s probably not. It could be a pyramid scheme. Pyramid schemes are illegal, and the vast majority of participants lose money.”