Financial Independence through the power of MLM (Multi Level Marketing)

“45 seconds to change your life”. That’s the subject of the email my little brother sent me a few weeks ago. The email included a motivational ebook, with a message from my brother: “Read the first four chapters, and then if you like the idea I’d love to have a chat with you”.

The ebook was talking about all the benefits of multi level marketing (MLM), how it is the future of all retail, and how it will make you rich with little to no work, just by spreading “word of mouth” recommendations for products you love, while being rewarded for it, and sponsor a “downline” of people to do the same.

Sigh.

I had never been directly involved with MLM until my brother mentioned it to me. But the first chapters of that book made it obvious to me that something was extremely fishy. Upon researching the products that my brother was trying to sell and the history of the company behind them, it became fairly obvious to me that the thing was a scam. I won’t name the company, but it doesn’t matter: if you know how to properly search for information on google, you will quickly find out that all MLMs are a legalized, large scale pyramid scam.

But I’m confident that the regular audience of this blog already knows that. As a matter of fact, I crafted the title of this post in the hope that most of you would want to comment “dude, these things are a scam, why are you promoting them?”. Ha, joke’s on you 😉

Rather than explaining how these companies operate and prey on vulnerable people (I have a series of links below for people looking for information), I just wanted to share my story. My little brother is a great guy, always very positive, so it pisses me off that he got sucked into that scheme.

My brother is a fitness coach. It seems he got “sponsored” into the MLM by colleagues at his fitness club. The whole club is actually promoting the MLM as part of their business, which is kind of scary, but I guess not very unusual: I’ve heard of hair salons promoting some “shampoo/beauty” MLMs, so it doesn’t surprise me that fitness clubs are promoting “health” MLMs.

If anything, gyms are probably the one place that could potentially make a profit out of an MLM without harassing family and friends: with an always evolving client base at the gym, it is probable that my brother and his colleagues are able to sell overpriced health products to “regular” clients. And if it was only that, it could work pretty much the same as regular affiliates marketing or direct sales: the product might be overpriced, but there’s nothing fundamentally wrong with selling it as part of his professional activity if he believes in it, I guess (well, except for the dubious health claims).

The problem of MLMs however as people know (which makes them borderline illegal), is that most of the profit comes from recruiting one’s downline (the pyramid) rather than selling the product, which is exactly what my brother has started doing, by trying to “sponsor” me and a few other people.

I must admit I was initially extremely offended that my brother would think that I would fall for such a dumb scam. In hindsight, I realize he was not trying to scam me, he’s been scammed himself and totally bought into the cult-like mentality of that scheme. He recently told me he’s proud to have sponsored 6 people, and that he’s been doing good money.

That’s the other part that scares me. My brother claims he’s making about $800 a month by selling the products, and that the number keeps going up. When he first told me, I was relieved that he was not losing money, and thought that maybe this thing was actually working for him (I had not looked into MLMs in details at that point). Maybe he was part of the .5% of people who actually make money with this. But as I dig again through our conversations, I realize the reality is probably not so full of unicorns and rainbows:

First of all, my brother is not counting his own purchase of the product as expenses. He claims he would buy the products anyway, since some of them are “every day” consumption products such as toothpaste. I read it is a pretty common mistake for MLM members.

That was also his recent speech to our family when he asked us to “help him” to get to the next level: “don’t stop your habits” he said, “you still buy shampoo and toothpaste, but instead of buying them from your local supermarket, support my business and buy them from my company. I would do the same for you”.

So many things feel wrong with that statement. First, about not categorizing the product purchase as an expense: anyone who’s done some income on the side knows that it’s in your own best interest to categorize such purchases as business expenses, as it will dramatically reduce your tax burden! If I had the opportunity to claim (parts of) my toothpaste purchases as a business expense, I would do it! So either MLM Distributors are extremely naive on that part, or they are just lying (to friends, family, but more importantly to themselves) to maintain the “dream”.

I won’t go into details about the part where my brother really believes he’s an “entrepreneur” and “owns his business” when he says we should buy products from “his” company. Ugh.

Bottom line, I’m worried that my brother is not even realizing he is losing money in the scheme. Based on the data I found, I’d be extremely surprised if he ended up positive after properly calculating his expenses.

Anecdotal evidence also tells me this particular MLM is already saturated where my brother lives: My sister’s husband is from that specific region and told us everyone is trying to sell the product there nowadays.

More dangerously, my brother was able in the same sentence to tell me distributors were not allowed to make medical claims about the products, while actually making medical claims about the product. The irony was lost on him when I pointed it out. Among other things, he stated that his toothpaste helped with gingivitis. After asking to family, it turns out he also said that some of the products help patients with cancer, and was “this close” to stating the thing actually cures cancer. Wow.

In hindsight, I now see the evolution of my relationship with my brother through a new perspective, and understand that he has progressively been drinking the MLM Kool Aid. He now believes that he will be able to stop working next year thanks to the residual income provided by his MLM scheme.

john_oliver

“Oh, so it’s not a pyramid, it’s just pyramid shaped! Like a pile of bullshit.”

The stuff my brother has done/said so far, which all MLM Distributors have been brainwashed to do

Here’s a non exhaustive list of stuff my brother has done or said in relation to his new MLM activity. All of the below, I’ve seen, is extremely typical of MLM Distributors once they have drank the Kool Aid:

  • Contacting me after months of silence. “how is your wonderful family doing?”, “let’s catch up”, “I have a business opportunity”
  • Making illegal health claims about the products he sells (including “People have seen regression of their cancer”)
  • Saying he is saving money by buying “everyday products” from “himself” instead of buying them from a department store.
  • Overly positive posts on facebook, borderline “religious fanatic” kind of shit (even though my brother’s always been extremely positive, these posts feel… weird) with hashtags including the MLM company name and other random “law of attraction” BS.
  • “I’m helping people, not only with their health, I’m also bringing success and happiness to the members of my team”
  • “I’m an independent business owner”, “I’m building my own business”
  • “I’m reaching financial independence with [insert here name of MLM]”
  • “My business is booming. However I need you, my family, to help me reach the next level of compensation”

Based on what my brother has told me, there’s one thing that still baffles me, which is his revenue claims. None of the verifiable information I can find points to it being a remote possibility for people in that scheme to consistently make that amount of money, so I assume it’s one of the following:

  • The MLM is made in a way that people who have been here for just a few months get paid well, to motivate them to “get to the next level”, at which point they’ll start losing money, but stay longer trying to “chase” their early success
  • He’s not counting his expenses properly (that’s IMO the most likely one given what I’ve taken from my discussions with him)
  • He’s making money on the back of his downline, unethically (the only way to make money in an MLM). This is also a likely scenario, and annoys me because my brother is a nice person. So either he’s not realizing that he is hurting people (I assume it gets very easy to be disconnected from one’s downline once you go a few levels deep), or he went through a terrible change in personality.
  • He’s in “fake it til you make it” mode (which would piss me off as it means he’s just lying to his own family about the revenue opportunity)

I believe that my brother is just one step before falling in the cult-like behavior of many MLM distributors. He’s still at the stage where he thinks it’s a great business opportunity and the products are great. The next step will be that it will become impossible to criticize the company or the products, and he will be completely soaked in. The stage after that, hopefully, is when he’ll realize it was a scam, and will get out on his own. There’s not much we, his family, can do, except being here for him when he comes back to the real world. That part is frustrating, but a few of us in the family have tried, without success (which is expected, see “how to help someone in a MLM” link below)

Victims of MLMs are only looking for the same thing we are: Financial Independence

I do feel bad when my brother connects his MLM to financial Independence: I talked with him about financial independence, without ever being able to give him too much details. I am in “stealth mode” like many other FI people, and do not intend to tell my brother that I’m already FI. But I swear it was burning my tongue when he was trying to get me on into his scheme: “you’ve got 3 kids, if you had residual income you could ultimately quit your job and spend more time with them”. “Well duh, that’s exactly the plan, except for me it will work, dude!”.  But no, I did not say that. I politely listened to his stuff, and told him there are other ways to reach FI.

I think he and I are generally on the same page when it comes to frugality (except probably not if he’s spending hundreds of dollars monthly on overpriced “health” products now). His goals sounded pretty much like mine last time we talked: don’t spend too much, live a simpler life, use passive income to eliminate the need for a job. Except his plan isn’t one.

I pointed him to the MrMoneyMustache blog, although he cherry picked some of the suggestions there instead of seeing the broader message (plus his English isn’t that great which probably didn’t help). As a result, he asked me about lendingclub (a peer to peer lending program promoted on MMM’s blog, I assume MMM is an affiliate) instead of asking me about reducing his expenses. Mission failure, in particular since I can’t easily recommend him financial products: he lives in France, and having left that country 12 years ago, I have no idea how I would get him started on passive index investing there.

At the end of the day, people involved in an MLM are just poor souls who have the same goals as us in the FI/RE blogosphere. They were just badly misguided on the path to take. After discussing with family, it seems the only thing we can do is wait until my brother realizes what’s happened to him, and be there for him when he does.

Useful links about MLMs

If, like me, you have family or friends who are considering joining an MLM (or, sadly, have joined already), there are lots of resources that can help you:

  • How to help someone in an MLM on botwatch. Probably the most down-to-earth and sensible approach to the issue. Remember, telling your friend they’re “dumb” is not going to help!
  • MLM Bot Watch on mumsnet. MLMs Prey on the weak, and that typically include moms. This site offers a mostly humorous, but instructive view on what it is to have your entire facebook timeline bombarding you with “exciting opportunities” and fake positivism. A great resource to find serious sites fighting MLMs
  • MLM income opportunity cultic racket on the American Dream made nightmare. A history of MLMs, worth the read but opinions on this blog are pretty extreme which in my view dilutes the (otherwise valid) message.
  • John Oliver on MLM. Popular youtube video on the topic of MLMs (in particular Herbalife), both funny and instructive
  • Timeless Vie – a blog revealing the dark secrets of MLMs in the UK, often in a funny way
  • LazyManAndMoney – a Blog about Financial Independence  that happens to have lots of information about MLM scams
2 Comments
  1. Mr. Tako @ Mr. Tako Escapes
    • StockBeard

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