Do you know anything about World Financial Group (WFG)? Please be specific rather than saying stay away from them.
Thanks
May
Total Comments: 15
Posted: Fri Dec 21, 2007 01:36 am Post Subject: WFG stands for World Financial Group
WFG stands for World Financial Group. They are independent agency group. They work under network marketing. You become an agent under them then you recruit and recruit and you make money out of them as well.
May
Posted: Fri Dec 21, 2007 05:27 am Post Subject: world financial group pyramid scheme
Hi May, nice to hear back from you. You have heard right about the World Financial Group. They are a ‘multi-level marketing company' where the recruited agents have to pay a percentage of their sale's profit to their seniors. The concept is, however, not new. There are many MLM companies, operating successfully, involving people form all walks of life. This system has helped them to earn additional income.
Well, about WFG…….like any other system, WFG also enjoys its share of praise and criticism. Critics of WFG say that it encourages its agents to befool customers by misrepresenting facts and thus breaking the ethics of business.
However, my personal suggestion is that you do an in-depth research on their products and if possible, investigate little more about the company, before taking any decision. As an aspiring agent it's very important that you take the right step to launch your career.
Regards,
Juanita
Posted: Fri Dec 21, 2007 11:42 am Post Subject:
Great advise Jaunita! (as usual!) :D OP you might find the ins.investigators web site it's on either his posts or his profile (find him in the member tracker) and maybe post a note or pm him re: does he know anything about this outfit....not my area, just a thought......
Posted: Sat Dec 22, 2007 07:25 am Post Subject: world financial group scam
Hello everyone,
Hey Lori, thanks for the vote of confidence. As you all have noticed, May originally asked for specific information on World Financial Group. We could, of course, all stand in line to tell her what a bad choice it would be to get involved with a company like that or we can give her what she asked for - and allow her to make the decision.
From one of my articles that has been circulated a bit, here ya go:
You've undoubtedly seen them numerous times. Messages which suggest that, for a relatively small investment, you can make huge amounts of money. Phrases like Financial Security, Financial Freedom, Debt Free and Secure, etc., etc., are often tossed about like dimes at a carnival's coin toss booth.
There are literally countless variations, but they all are based on the same fraudulent concept. With a typical “chain-letter”-based pyramid scheme, the process is represented to go something like this:
You receive a copy of a letter or an email message, claiming that you can “earn” a huge amount of by participating in it. You send an amount of money (typically around $5) to some number of people who have joined this scheme ahead of you.
You are instructed to alter a list of previous participants, removing the one at the top of the list, moving all the other names up one position, and adding your own name to the bottom of the list. Then you send out as many copies of this altered letter as you can, to as many people as you can reach.
As new people join the scheme below you, in numbers which grow exponentially, each one will send you $5, or whatever the requested amount was. Because the number of new participants is growing at a fantastic rate, you should collect this payment from a ridiculously large number of people. How ludicrous does that sound?
There are many variations on this basic scheme. There are various ploys used to create an illusion of legality; some of these involve a set of “reports” which you buy from those above you (your upline) and sell to those below you (your downline). Others instruct you to create a mailing list out of the names of people below you. The language which often describes the money exchanged as a “loan” or a “gift” is intended to keep any gain you might realize free from Federal and State taxes. The IRS, however, might disagree with that particular terminology.
There are even some software-based pyramid schemes, centered around a program which is distributed down the chain; the program keeps track of the list of people from which you must buy the “codes” to “unlock” the program, enabling you to create a version of the program which lists you as a source from which others must buy these unlock codes. There are also variations of this scheme which involve the solicitation of “self-replicating” web pages.
In every case, the basic concept is the same — you pay a relatively small amount of money to a few people above you, with the expectation that later, very large numbers of people will be making similar payments to you.
A deliberate effort is made, in many cases, to confuse prospective victims with regard to the distinction between a legitimate “multi-level marketing” (MLM) scheme, and an illegitimate pyramid scheme. I'm certainly no fan of MLM and I regard even “legitimate” MLM schemes as ethically questionable at best. But there is a vital distinction.
The important distinction is this: With a legitimate MLM, you have a real product that is of significant value in and of itself. Most of your profit comes from the sale of this product to people who will use this product according to its own value and usefulness, and not just try to sell it to someone below them. Although MLMs encourage you to build a strong “downline” so that you can begin making a profit by taking a cut of the sales made by those below you, you do not need to recruit even a single person below you in the pyramid in order to profit; you can profit by selling the product itself, even to people who have no interest in joining the MLM.
In those pyramid schemes which try to pass themselves off as MLM, your “product” is something that has very little inherent value, if any at all, beyond the requirement that one must buy it from you in order to join your “downline”. The “product” may consist of worthless reports, or even electronic codes to unlock a software-based pyramid scheme. Nobody would buy these “products”, except as part of joining the pyramid scheme and reaping the supposed benefits of doing so. The only opportunity for profit is in getting people to join the pyramid in levels below you. As the U.S. Postal Service warns, on one of their own pages on the subject, “Do not be fooled if the chain letter is used to sell inexpensive reports on credit, mail order sales, mailing lists, or other topics. The primary purpose is to take your money, not to sell information. “Selling” a product does not ensure legality.”
A Few Definitions
Chain Letter: Strictly speaking, a chain letter is merely a letter, an email message, or some other communication, which asks the recipient to send copies of it to several other people. In and of itself, chain letters are not illegal, but they are very annoying, and very wasteful of whatever medium is used to carry them. When a chain letter asks the recipient to send money to people through whom the letter passed before, with the promise that the recipient will receive money from those that the letter reaches after he sends it, then it has become a form of a pyramid scheme. Though not all chain letters are pyramid schemes, and not all pyramid schemes are chain letters, the term “chain letter” is often used to mean a pyramid scheme. For example, the U.S. Postal Service's official statement on “Chain Letters” is really about pyramid schemes. Even if they're not illegal, chain letters are, in any form, very annoying to most people, and prohibited by most responsible ISPs.
Pyramid Scheme: A scheme in which a hierarchy is created by people joining under others who joined previously, and in which those who join make payments to those above them in the hierarchy, with the expectation of being able to collect payments from those who join below. Pyramid schemes are prohibited by the laws of the United States of America, by the laws of each of the fifty individual states, and by the laws of most other nations. Pyramid schemes are variously defined under these laws either as a form of gambling, or (more accurately, in my opinion) as outright fraud. Most of my explanations on this page are about pyramid schemes, but have some application to Ponzi schemes as well.
Administered Pyramid Scheme: A variation of a pyramid scheme in which some central person or company is involved in “administering” the scheme, in making sure that all participants have made the appropriate payments to those above them, or even in collecting these payments and redistributing them to the “upline”. The “Administrator” of such a scheme usually takes some fee for himself. In this variation, the “administrator” is assured of some profit, no matter how badly the scheme may work for other participants, because he gets to collect his own fee from every other participant. These schemes usually collapse much more quickly than regular pyramid schemes, because of their dependence on the administrator, who is easily identified and turned in to proper law-enforcement authorities.
Gifting Club: This term, as far as I've ever seen it used, is just another term for a pyramid scheme. The money you pay to join a “Gifting Club” is called a “gift”, and the claim is often made that any money you receive from such a scheme is not taxable, because the IRS does not tax gifts up to $10,000. This is a dangerous falsehood, because the IRS has always considered a gift, by definition, to be something given with no expectation of receiving anything in return. While the majority of gifting club participants usually get nothing in return, their “gifts” are certainly not given without the expectation of considerable return, so these payments cannot be considered gifts for income tax purposes. In addition to the legal problems you could face just from participating in a pyramid scheme, failing to report as income any returns you might get from such a scheme could subject you to tax evasion charges as well.
Ponzi Scheme: Named after Charles Ponzi, who ran such a scheme in 1919-1920. A Ponzi scheme is an investment scheme in which returns are paid to earlier investors, entirely out of money paid into the scheme by newer investors. Ponzi schemes are similar to pyramid schemes, but differ in that Ponzi schemes are operated by a central company or person, who may or may not be making other false claims about how the money is being invested, and where the returns are coming from. Ponzi schemes don't necessarily involve a hierarchal structure, as in a pyramid scheme; there is merely one person or company that is collecting money from new participants and using this money to pay off promised returns to earlier participants. An interesting site about Charles Ponzi and his scheme can be found here.
Straight–Line Matrix: This is a new form of fraud that I began seeing back in early 2005. I have also seen these referred to as “Elevator Schemes”. In these schemes, you are offered the opportunity to buy some valuable product for a small percentage of its usual cost, usually around 10%. These schemes are based on a list of participants, in the order that they joined the scheme. Each person pays the specified price when they join the scheme, and when so many people (usually ten or so) have joined the scheme, the first person gets the product being offered (it having been paid for out of the fees paid by all those who have joined thus far). When ten (or whatever the number might be, more people join, then the second person gets the product. When ten more join, then the third person gets the product; and so forth and so on.
Though this scheme isn't based on the same sort of exponentially-growing structure as a pyramid scheme, most of the same principles apply here as to a true pyramid scheme. As with a true pyramid scheme, a straight–line matrix scheme pays off only for a small percentage of those who have joined, producing a number of people who have paid into the scheme and not yet received any payoff that grows at a much faster rate than the rate at which the number of people who have received the promised payoff grows. As with a true pyramid scheme, a straight–line matrix will pay off quickly for those who get in the earliest, and will pay off increasingly slowly for those who join later, with the vast majority of participants never receiving the promised benefit.
A Pyramid Scheme Dissected
Let's look at a hypothetical pyramid scheme, with respect to how it is claimed to work. Suppose the list included in this scheme contains ten names. You are to send a dollar to each person listed, remove the top name, move all the other names up one position, and send it on to more people. Let's assume that you get ten people to join, and each of them gets ten people, and so on.
As the pyramid grows below you, here's what supposedly happens:
The first level below you has ten people. They each send you a dollar, so you collect $10.
The next level has a hundred people. (Each of your first ten “victims” gets ten more.) You collect $100.
The next level has a thousand people and you collect $1,000.
The next level has 10,000 people, so you collect $10,000.
The next level has 100,000 people, so you collect $100,000.
The next level has 1,000,000 people, so you collect $1,000,000.
At this point, your name drops off the list, and you collect no more.
So, for your initial investment of $10, (one dollar to each of the ten people above you), you collect a total of $11,111,110. There are, of course, many variations on this concept.
It's very easy to understand how this kind of scheme works. While it seems quite simple, it is, unfortunately, somewhat more difficult to understand why this kind of scheme doesn't work, and why it is unethical, dishonest, and, in most cases, illegal.
The simple truth is; this scheme doesn't work, except for those who get in at the first few levels. The vast majority of participants in such a scheme will only lose their original investment, and make no profit at all. In a moment, I'll get into this is a little more and why in every instance where a person is suckered into joining such a scheme, based on the promise that he will make a profit by participating, fraud has been committed.
There is no question that every civilized nation, and every government, has laws against fraud. Most have specific laws against pyramid schemes, Ponzi schemes, and similar operations. Even if the particular variation in which you might participate happens to avoid running afoul of the laws which are relevant in your situation, you need to consider that just by participating in such a scheme, you would be engaging in something that is dishonest and unethical, and which is very unlikely to make you any profit.
In order to understand why pyramid schemes do not work, there are two points which you must understand.
The pyramid must fail because there is a finite or limited number of potential participants.
Pyramid schemes depend on bringing in an exponentially-growing number of new participants. I've used the term “exponentially” several times already, perhaps I should explain it. Where X represents some number; if you start with one person, who gets X number of people to join, and each of those people gets X more people to join, and so on, you have the total number of people growing by powers of X. Even where X is a fairly small number, the total number of people involved grows to amazingly huge numbers without very many steps being required to reach these huge numbers. Indeed, it is these huge numbers, which you are led to believe represent the number of people who will each be sending you $5 or whatever, that makes pyramid schemes attractive.
But these huge numbers are the very root of the problem. There are somewhere between five and six billion people in the world. Let's suppose that every one of these people could be induced to join a particular pyramid scheme. For how many levels could this scheme run before it failed, for lack of new participants? You'll be amazed when you see how quickly the number of required new participants grows to exceed the population.
In the example above, I assumed that each person who joined would bring in ten new people. How many levels can be supported by a population of five to six billion? Stay with me here...
That's ten levels, counting the one person at the top who started it. By the time these ten levels are filled, there will be a total of 1,111,111,111 participants. The eleventh level would require 10,000,000,000, or ten billion new participants to fill in.
But there aren't that many people in the world. There's only between six and seven billion, minus the somewhat over a billion who've already joined. Most of the billion people in the tenth level will not be able to get any new participants below them, and will therefore make no money at all. And of course, none of those who join in the eleventh level will get any new participants below them. There aren't enough people to fill in the eleventh level, much less to start a twelfth level below that.
At this point, the pyramid collapses. And when it does, a solid majority of those who had joined will not have made any return at all. They will have paid their money to get in, but the promise that they will profit as people join below them will never be fulfilled.
Of course, the number of levels that can be filled depends on how many new participants, on average, are brought in by each previous participant. But even if each participant brings in only two new participants, the pyramid will collapse in about 32 or 33 levels (still assuming, of course, that you can get all six or seven billion people in the world to join) with most participants having lost money.
No new wealth is created, the only wealth gained by any participant is wealth lost by other participants.
You need to understand that all legitimate business activities, in some way, create wealth, or contribute to the creation of wealth. When you create a product that is worth more than what it cost to produce, you've created wealth. When you perform a service, which is worth more than it cost to provide, you've created wealth.
If you spend a dollar for a lemon, some sugar, and some water; and then use this to make sufficient lemonade that you can sell twenty servings for ten cents each, then you've created wealth. You've taken ingredients worth a dollar, and used them to create a product worth two dollars. You've created a dollar's worth of new wealth.
Pyramid schemes produce no goods of any significance, and they provide no service. They create no wealth. All they do is move existing wealth. Every dollar a person gains through such a scheme is a dollar someone else has lost.
Do not be fooled if the scheme includes some form of “reports” or lists or other pieces of “information” that you are supposedly buying from those above you, and selling to those below you. In nearly every case, these intangible products have no value imputed to them, other than that which can allegedly be gained by copying and reselling them. The purpose of these reports is not to provide valuable information, but to provide a pretext by which one participant in a pyramid scheme collects money from other participants.
In another example: Imagine there was a scheme where everyone who joins contributed a dollar, which was then put into a box.
No money is put into that box except the dollar from each person who joins the scheme. Is there any way to redisitribute the money that is collected into this box so that everyone who contributed money into it gets more back than what he put in? Let's suppose that a hundred people have joined this scheme. This means there is $100 in the box, and 100 people expecting some kind of payout. If the money in the box is equally distributed among all the participants, then each will get back only $1, the exact amount that he paid to join. You could give $10 to each of 10 people, but that would leave 90 people with nothing, and who have only lost the dollar that each had paid to join. You could give the whole $100 to one person, but that would leave 99 people with nothing. There is simply no way for everyone to get back more than they paid in. In order for anyone to get back more, someone else has to get back less. Anyone who gains in such a scheme does so at the expense of others who have lost.
The same holds true of all pyramid schemes, Ponzi schemes, straight–line matrix schemes, and anything else that is in any way similar. It is mathematically impossible for more to be taken out of any such scheme than what is put into it.
Conclusion
As the old saying goes, “If it sounds too good to be true, it probably is.” Anyone who says that you can make huge amounts of money, with very little investment, and very little work, is almost certainly not telling you the truth. Participating in any pyramid scheme, ponzi scheme, or any other scheme which promises that you will get rich quickly, with little effort is foolish at best. You will most likely only lose money to such a scheme, and you may even find yourself subject to legal prosecution for fraud.
True wealth is only gained through honest work, and honest investment, in enterprises which produce goods and services of value to all. There are no shortcuts, and anyone who tells you otherwise is almost certainly out to cheat you.
Posted: Sat Dec 22, 2007 01:20 pm Post Subject:
Thanks Ins. Investigator
Hey Lori, thanks for the vote of confidence
I knew I'd 'tapped' the right guy!
Posted: Sat Dec 22, 2007 08:13 pm Post Subject:
Hey Lori,
Do ya think I might have overdone that a bit? She did ask for specific information and I doubt I could make it simpler or any more specific.
Mark
Posted: Sun Dec 23, 2007 12:01 pm Post Subject:
Hey Lori,
Do ya think I might have overdone that a bit?
:lol: :P I don't think so but then my answers are generally pretty long too...I (clearly) think you can't have too much information! :wink: :lol: great job!
Posted: Mon Dec 24, 2007 06:56 pm Post Subject:
Thank you Mark for your time and effort. It was very informative . Now I know why one should avoid them.
Six month ago I went to their meetings, I purchased their product . I really could not find out what was their rate of return. Also the guarantee coloum became zero after four years. I could not get an answer for that either. So I cancelled my lifeinsurance with them but I spent more than $1000 , then I understood itis a bad product, and I do not want to have anything to do with it.
Any way I am with John Hancock now and I feel more comfortable with them.
By the way Mark I had a question from you. I have got my life license, and I am going to get series 6 & 63. But I am really interested in bringing awareness and information to the community. I was thinking if I can teach kids about money I will actually go to the root of the problem. As you know I already have an art program that I take to different schools . I thought if I make a research on how to teach money to kids I can put together a program that will teach kids the value of saving, understanding between need, want, and wish and.........
Now my question, is this going to be okay, legal? I was told once I get series 6 & 63 , I need to be authorized in what ever I say about money even to kids. Is this true? I think only you can answer me on that. I hope I made my question clear to you.
Thanks Mark
May
Posted: Mon Dec 24, 2007 08:48 pm Post Subject:
Hello May, Merry Christmas.
I was afraid I had given you far too much information on that last response. Did you find it relatively easy to follow? I have no idea why large portions of it showed up in "quote" boxes. That was not my intention. Someday I'll earn how to use this site as well as the others.
Once you get your 6 & 63, your will then fall under the jurisdiction of the SEC - and, unlike the DOIs in most states, those people don't mess around. Your activities, income, assignments, marketing activities and such are more carefully scrutinized than ever before. I've never found it unresonable nor difficult to work under the microscope - just be careful and follow the rules.
John Hancock is a pretty good company. I consulted for them back in the 90s and saved them $millions in bad faith claims. To the best of my knowledge, they've made a fair and honest return to the marketplace and I've yet to hear anything bad.
Please believe that I would never attempt to discourage you (or anyone else) who came up with a new and potentially lucrative idea. But, I don't know that I would spend a great deal of time working with children in the way that you described.
I have 3 children (21, 18 and 11) and I have done a fantastic job of teaching them about money, finances, balancing their checkbooks, investments, etc., and I'm not sure would I want anyone else - especially an agent whose actions could certainly be misconstrued, "undoing" what I have done for my kids. I realize that I might be the exception to the rule, but I feel a large number of parents might feel the same way.
I feel that the topics you want to cover with children should be introduced by their parents. Maybe you could set up parent/student workshops which would initiate conversation between parents and children and you could be available to answer any questions they might have. I respect your ambition and it sounds like a great idea. You need to be careful, however, not to step on the toes of any parents.
Let's briefly take a look at a childhood behavioral pattern, often referred to as "the McDonald's syndrome," that restaurants, toy manufacturers, and marketing organizations have literally run into the ground. All you have to do is sell the children a "happy meal with a toy" or in this case, an idea, and have them run home to their parents with it.
Because some of them have paid attention to you, they now know more about savings, returns, insurance, etc., than their parents. Parents may assume that you are trying to make a sale by using their children as marketing tools. I can almost guarantee you'll generate bad feelings in that case.
One complaint by a disgruntled parent to your broker of record, Department of Insurance, or the Securities and Exchange Commission could potentially generate more trouble than you are prepared to deal with.
So, be careful with that one.
Posted: Tue Dec 25, 2007 06:36 am Post Subject:
Hello Mark, Merry Christmas to you too,
Thank you for your replay, to answer you question "Did you find it relatively easy to follow? " some part I did ,some part I could follow. Any way WFG claims it has a product life insurance,and they try to sell it to their down line. The product is not a good one. They recruit anyone mainly to sell to that person. I quite agree with you MLM is not a good way of doing business.
I must say when I examin my motives, I see that I am interested in helping people to become financially independent. BUT there is a big but in here, I truely am interested in teaching , public speacking and bringing awareness to the public regarding this. I am not interested in sales. I do not see myself to intrude or push people to buy products.
Also I think if you look around objectively you will see that our kids are missing something very important now a days. There is no education on finance at school. The majorety of parents do not do what you have done with your kids regarding finace. They do not know or do not follow themselves. How many of us have been using our homes as an ATM machines in the past years. And the majority of us are not ready for our retirement. The rate of bankruptcy for young adults below 25 has been douled in the last ten years. I think that is a nice place to start and teach.
I may not be interested in fact in getting series 6&63. I really do not want to be an agent. I would like to bring public awareness on the subject. We live in a materialistic society with an understanding for immediate gratification. On top of this we live in the world of information pollution, which makes it even harder for the person who is looking for an answer to find the solution.
Thank you Mark
May
I would like to see what you think objectively about this. I know your children do not need any education on finance but what about the majority of our kids at school. Please note I do not have any intension of selling anything to their parents. If the idea of educating our children is good I may give up the idea getting series 6&63 all together.
Posted: Fri Dec 21, 2007 01:36 am Post Subject: WFG stands for World Financial Group
WFG stands for World Financial Group. They are independent agency group. They work under network marketing. You become an agent under them then you recruit and recruit and you make money out of them as well.
May
Posted: Fri Dec 21, 2007 05:27 am Post Subject: world financial group pyramid scheme
Hi May, nice to hear back from you. You have heard right about the World Financial Group. They are a ‘multi-level marketing company' where the recruited agents have to pay a percentage of their sale's profit to their seniors. The concept is, however, not new. There are many MLM companies, operating successfully, involving people form all walks of life. This system has helped them to earn additional income.
Well, about WFG…….like any other system, WFG also enjoys its share of praise and criticism. Critics of WFG say that it encourages its agents to befool customers by misrepresenting facts and thus breaking the ethics of business.
However, my personal suggestion is that you do an in-depth research on their products and if possible, investigate little more about the company, before taking any decision. As an aspiring agent it's very important that you take the right step to launch your career.
Regards,
Juanita
Posted: Fri Dec 21, 2007 11:42 am Post Subject:
Great advise Jaunita! (as usual!) :D OP you might find the ins.investigators web site it's on either his posts or his profile (find him in the member tracker) and maybe post a note or pm him re: does he know anything about this outfit....not my area, just a thought......
Posted: Sat Dec 22, 2007 07:25 am Post Subject: world financial group scam
Hello everyone,
Hey Lori, thanks for the vote of confidence. As you all have noticed, May originally asked for specific information on World Financial Group. We could, of course, all stand in line to tell her what a bad choice it would be to get involved with a company like that or we can give her what she asked for - and allow her to make the decision.
From one of my articles that has been circulated a bit, here ya go:
You've undoubtedly seen them numerous times. Messages which suggest that, for a relatively small investment, you can make huge amounts of money. Phrases like Financial Security, Financial Freedom, Debt Free and Secure, etc., etc., are often tossed about like dimes at a carnival's coin toss booth.
There are literally countless variations, but they all are based on the same fraudulent concept. With a typical “chain-letter”-based pyramid scheme, the process is represented to go something like this:
You receive a copy of a letter or an email message, claiming that you can “earn” a huge amount of by participating in it. You send an amount of money (typically around $5) to some number of people who have joined this scheme ahead of you.
You are instructed to alter a list of previous participants, removing the one at the top of the list, moving all the other names up one position, and adding your own name to the bottom of the list. Then you send out as many copies of this altered letter as you can, to as many people as you can reach.
As new people join the scheme below you, in numbers which grow exponentially, each one will send you $5, or whatever the requested amount was. Because the number of new participants is growing at a fantastic rate, you should collect this payment from a ridiculously large number of people. How ludicrous does that sound?
There are many variations on this basic scheme. There are various ploys used to create an illusion of legality; some of these involve a set of “reports” which you buy from those above you (your upline) and sell to those below you (your downline). Others instruct you to create a mailing list out of the names of people below you. The language which often describes the money exchanged as a “loan” or a “gift” is intended to keep any gain you might realize free from Federal and State taxes. The IRS, however, might disagree with that particular terminology.
There are even some software-based pyramid schemes, centered around a program which is distributed down the chain; the program keeps track of the list of people from which you must buy the “codes” to “unlock” the program, enabling you to create a version of the program which lists you as a source from which others must buy these unlock codes. There are also variations of this scheme which involve the solicitation of “self-replicating” web pages.
In every case, the basic concept is the same — you pay a relatively small amount of money to a few people above you, with the expectation that later, very large numbers of people will be making similar payments to you.
A deliberate effort is made, in many cases, to confuse prospective victims with regard to the distinction between a legitimate “multi-level marketing” (MLM) scheme, and an illegitimate pyramid scheme. I'm certainly no fan of MLM and I regard even “legitimate” MLM schemes as ethically questionable at best. But there is a vital distinction.
The important distinction is this: With a legitimate MLM, you have a real product that is of significant value in and of itself. Most of your profit comes from the sale of this product to people who will use this product according to its own value and usefulness, and not just try to sell it to someone below them. Although MLMs encourage you to build a strong “downline” so that you can begin making a profit by taking a cut of the sales made by those below you, you do not need to recruit even a single person below you in the pyramid in order to profit; you can profit by selling the product itself, even to people who have no interest in joining the MLM.
In those pyramid schemes which try to pass themselves off as MLM, your “product” is something that has very little inherent value, if any at all, beyond the requirement that one must buy it from you in order to join your “downline”. The “product” may consist of worthless reports, or even electronic codes to unlock a software-based pyramid scheme. Nobody would buy these “products”, except as part of joining the pyramid scheme and reaping the supposed benefits of doing so. The only opportunity for profit is in getting people to join the pyramid in levels below you. As the U.S. Postal Service warns, on one of their own pages on the subject, “Do not be fooled if the chain letter is used to sell inexpensive reports on credit, mail order sales, mailing lists, or other topics. The primary purpose is to take your money, not to sell information. “Selling” a product does not ensure legality.”
A Few Definitions
Chain Letter: Strictly speaking, a chain letter is merely a letter, an email message, or some other communication, which asks the recipient to send copies of it to several other people. In and of itself, chain letters are not illegal, but they are very annoying, and very wasteful of whatever medium is used to carry them. When a chain letter asks the recipient to send money to people through whom the letter passed before, with the promise that the recipient will receive money from those that the letter reaches after he sends it, then it has become a form of a pyramid scheme. Though not all chain letters are pyramid schemes, and not all pyramid schemes are chain letters, the term “chain letter” is often used to mean a pyramid scheme. For example, the U.S. Postal Service's official statement on “Chain Letters” is really about pyramid schemes. Even if they're not illegal, chain letters are, in any form, very annoying to most people, and prohibited by most responsible ISPs.
Pyramid Scheme: A scheme in which a hierarchy is created by people joining under others who joined previously, and in which those who join make payments to those above them in the hierarchy, with the expectation of being able to collect payments from those who join below. Pyramid schemes are prohibited by the laws of the United States of America, by the laws of each of the fifty individual states, and by the laws of most other nations. Pyramid schemes are variously defined under these laws either as a form of gambling, or (more accurately, in my opinion) as outright fraud. Most of my explanations on this page are about pyramid schemes, but have some application to Ponzi schemes as well.
Administered Pyramid Scheme: A variation of a pyramid scheme in which some central person or company is involved in “administering” the scheme, in making sure that all participants have made the appropriate payments to those above them, or even in collecting these payments and redistributing them to the “upline”. The “Administrator” of such a scheme usually takes some fee for himself. In this variation, the “administrator” is assured of some profit, no matter how badly the scheme may work for other participants, because he gets to collect his own fee from every other participant. These schemes usually collapse much more quickly than regular pyramid schemes, because of their dependence on the administrator, who is easily identified and turned in to proper law-enforcement authorities.
Gifting Club: This term, as far as I've ever seen it used, is just another term for a pyramid scheme. The money you pay to join a “Gifting Club” is called a “gift”, and the claim is often made that any money you receive from such a scheme is not taxable, because the IRS does not tax gifts up to $10,000. This is a dangerous falsehood, because the IRS has always considered a gift, by definition, to be something given with no expectation of receiving anything in return. While the majority of gifting club participants usually get nothing in return, their “gifts” are certainly not given without the expectation of considerable return, so these payments cannot be considered gifts for income tax purposes. In addition to the legal problems you could face just from participating in a pyramid scheme, failing to report as income any returns you might get from such a scheme could subject you to tax evasion charges as well.
Ponzi Scheme: Named after Charles Ponzi, who ran such a scheme in 1919-1920. A Ponzi scheme is an investment scheme in which returns are paid to earlier investors, entirely out of money paid into the scheme by newer investors. Ponzi schemes are similar to pyramid schemes, but differ in that Ponzi schemes are operated by a central company or person, who may or may not be making other false claims about how the money is being invested, and where the returns are coming from. Ponzi schemes don't necessarily involve a hierarchal structure, as in a pyramid scheme; there is merely one person or company that is collecting money from new participants and using this money to pay off promised returns to earlier participants. An interesting site about Charles Ponzi and his scheme can be found here.
Straight–Line Matrix: This is a new form of fraud that I began seeing back in early 2005. I have also seen these referred to as “Elevator Schemes”. In these schemes, you are offered the opportunity to buy some valuable product for a small percentage of its usual cost, usually around 10%. These schemes are based on a list of participants, in the order that they joined the scheme. Each person pays the specified price when they join the scheme, and when so many people (usually ten or so) have joined the scheme, the first person gets the product being offered (it having been paid for out of the fees paid by all those who have joined thus far). When ten (or whatever the number might be, more people join, then the second person gets the product. When ten more join, then the third person gets the product; and so forth and so on.
Though this scheme isn't based on the same sort of exponentially-growing structure as a pyramid scheme, most of the same principles apply here as to a true pyramid scheme. As with a true pyramid scheme, a straight–line matrix scheme pays off only for a small percentage of those who have joined, producing a number of people who have paid into the scheme and not yet received any payoff that grows at a much faster rate than the rate at which the number of people who have received the promised payoff grows. As with a true pyramid scheme, a straight–line matrix will pay off quickly for those who get in the earliest, and will pay off increasingly slowly for those who join later, with the vast majority of participants never receiving the promised benefit.
A Pyramid Scheme Dissected
Let's look at a hypothetical pyramid scheme, with respect to how it is claimed to work. Suppose the list included in this scheme contains ten names. You are to send a dollar to each person listed, remove the top name, move all the other names up one position, and send it on to more people. Let's assume that you get ten people to join, and each of them gets ten people, and so on.
As the pyramid grows below you, here's what supposedly happens:
The first level below you has ten people. They each send you a dollar, so you collect $10.
The next level has a hundred people. (Each of your first ten “victims” gets ten more.) You collect $100.
The next level has a thousand people and you collect $1,000.
The next level has 10,000 people, so you collect $10,000.
The next level has 100,000 people, so you collect $100,000.
The next level has 1,000,000 people, so you collect $1,000,000.
At this point, your name drops off the list, and you collect no more.
So, for your initial investment of $10, (one dollar to each of the ten people above you), you collect a total of $11,111,110. There are, of course, many variations on this concept.
It's very easy to understand how this kind of scheme works. While it seems quite simple, it is, unfortunately, somewhat more difficult to understand why this kind of scheme doesn't work, and why it is unethical, dishonest, and, in most cases, illegal.
The simple truth is; this scheme doesn't work, except for those who get in at the first few levels. The vast majority of participants in such a scheme will only lose their original investment, and make no profit at all. In a moment, I'll get into this is a little more and why in every instance where a person is suckered into joining such a scheme, based on the promise that he will make a profit by participating, fraud has been committed.
There is no question that every civilized nation, and every government, has laws against fraud. Most have specific laws against pyramid schemes, Ponzi schemes, and similar operations. Even if the particular variation in which you might participate happens to avoid running afoul of the laws which are relevant in your situation, you need to consider that just by participating in such a scheme, you would be engaging in something that is dishonest and unethical, and which is very unlikely to make you any profit.
In order to understand why pyramid schemes do not work, there are two points which you must understand.
The pyramid must fail because there is a finite or limited number of potential participants.
Pyramid schemes depend on bringing in an exponentially-growing number of new participants. I've used the term “exponentially” several times already, perhaps I should explain it. Where X represents some number; if you start with one person, who gets X number of people to join, and each of those people gets X more people to join, and so on, you have the total number of people growing by powers of X. Even where X is a fairly small number, the total number of people involved grows to amazingly huge numbers without very many steps being required to reach these huge numbers. Indeed, it is these huge numbers, which you are led to believe represent the number of people who will each be sending you $5 or whatever, that makes pyramid schemes attractive.
But these huge numbers are the very root of the problem. There are somewhere between five and six billion people in the world. Let's suppose that every one of these people could be induced to join a particular pyramid scheme. For how many levels could this scheme run before it failed, for lack of new participants? You'll be amazed when you see how quickly the number of required new participants grows to exceed the population.
In the example above, I assumed that each person who joined would bring in ten new people. How many levels can be supported by a population of five to six billion? Stay with me here...
Level People in Level
But there aren't that many people in the world. There's only between six and seven billion, minus the somewhat over a billion who've already joined. Most of the billion people in the tenth level will not be able to get any new participants below them, and will therefore make no money at all. And of course, none of those who join in the eleventh level will get any new participants below them. There aren't enough people to fill in the eleventh level, much less to start a twelfth level below that.1 1
2 10
3 100
4 1,000
5 10,000
6 100,000
7 1,000,000
8 10,000,000
9 100,000,000
10 1,000,000,000
That's ten levels, counting the one person at the top who started it. By the time these ten levels are filled, there will be a total of 1,111,111,111 participants. The eleventh level would require 10,000,000,000, or ten billion new participants to fill in.
At this point, the pyramid collapses. And when it does, a solid majority of those who had joined will not have made any return at all. They will have paid their money to get in, but the promise that they will profit as people join below them will never be fulfilled.
Of course, the number of levels that can be filled depends on how many new participants, on average, are brought in by each previous participant. But even if each participant brings in only two new participants, the pyramid will collapse in about 32 or 33 levels (still assuming, of course, that you can get all six or seven billion people in the world to join) with most participants having lost money.
No new wealth is created, the only wealth gained by any participant is wealth lost by other participants.
You need to understand that all legitimate business activities, in some way, create wealth, or contribute to the creation of wealth. When you create a product that is worth more than what it cost to produce, you've created wealth. When you perform a service, which is worth more than it cost to provide, you've created wealth.
If you spend a dollar for a lemon, some sugar, and some water; and then use this to make sufficient lemonade that you can sell twenty servings for ten cents each, then you've created wealth. You've taken ingredients worth a dollar, and used them to create a product worth two dollars. You've created a dollar's worth of new wealth.
Pyramid schemes produce no goods of any significance, and they provide no service. They create no wealth. All they do is move existing wealth. Every dollar a person gains through such a scheme is a dollar someone else has lost.
Do not be fooled if the scheme includes some form of “reports” or lists or other pieces of “information” that you are supposedly buying from those above you, and selling to those below you. In nearly every case, these intangible products have no value imputed to them, other than that which can allegedly be gained by copying and reselling them. The purpose of these reports is not to provide valuable information, but to provide a pretext by which one participant in a pyramid scheme collects money from other participants.
In another example: Imagine there was a scheme where everyone who joins contributed a dollar, which was then put into a box.
No money is put into that box except the dollar from each person who joins the scheme. Is there any way to redisitribute the money that is collected into this box so that everyone who contributed money into it gets more back than what he put in? Let's suppose that a hundred people have joined this scheme. This means there is $100 in the box, and 100 people expecting some kind of payout. If the money in the box is equally distributed among all the participants, then each will get back only $1, the exact amount that he paid to join. You could give $10 to each of 10 people, but that would leave 90 people with nothing, and who have only lost the dollar that each had paid to join. You could give the whole $100 to one person, but that would leave 99 people with nothing. There is simply no way for everyone to get back more than they paid in. In order for anyone to get back more, someone else has to get back less. Anyone who gains in such a scheme does so at the expense of others who have lost.
The same holds true of all pyramid schemes, Ponzi schemes, straight–line matrix schemes, and anything else that is in any way similar. It is mathematically impossible for more to be taken out of any such scheme than what is put into it.
Conclusion
As the old saying goes, “If it sounds too good to be true, it probably is.” Anyone who says that you can make huge amounts of money, with very little investment, and very little work, is almost certainly not telling you the truth. Participating in any pyramid scheme, ponzi scheme, or any other scheme which promises that you will get rich quickly, with little effort is foolish at best. You will most likely only lose money to such a scheme, and you may even find yourself subject to legal prosecution for fraud.
True wealth is only gained through honest work, and honest investment, in enterprises which produce goods and services of value to all. There are no shortcuts, and anyone who tells you otherwise is almost certainly out to cheat you.
Posted: Sat Dec 22, 2007 01:20 pm Post Subject:
Thanks Ins. Investigator
Hey Lori, thanks for the vote of confidence
I knew I'd 'tapped' the right guy!Posted: Sat Dec 22, 2007 08:13 pm Post Subject:
Hey Lori,
Do ya think I might have overdone that a bit? She did ask for specific information and I doubt I could make it simpler or any more specific.
Mark
Posted: Sun Dec 23, 2007 12:01 pm Post Subject:
Hey Lori,
:lol: :P I don't think so but then my answers are generally pretty long too...I (clearly) think you can't have too much information! :wink: :lol: great job!Do ya think I might have overdone that a bit?
Posted: Mon Dec 24, 2007 06:56 pm Post Subject:
Thank you Mark for your time and effort. It was very informative . Now I know why one should avoid them.
Six month ago I went to their meetings, I purchased their product . I really could not find out what was their rate of return. Also the guarantee coloum became zero after four years. I could not get an answer for that either. So I cancelled my lifeinsurance with them but I spent more than $1000 , then I understood itis a bad product, and I do not want to have anything to do with it.
Any way I am with John Hancock now and I feel more comfortable with them.
By the way Mark I had a question from you. I have got my life license, and I am going to get series 6 & 63. But I am really interested in bringing awareness and information to the community. I was thinking if I can teach kids about money I will actually go to the root of the problem. As you know I already have an art program that I take to different schools . I thought if I make a research on how to teach money to kids I can put together a program that will teach kids the value of saving, understanding between need, want, and wish and.........
Now my question, is this going to be okay, legal? I was told once I get series 6 & 63 , I need to be authorized in what ever I say about money even to kids. Is this true? I think only you can answer me on that. I hope I made my question clear to you.
Thanks Mark
May
Posted: Mon Dec 24, 2007 08:48 pm Post Subject:
Hello May, Merry Christmas.
I was afraid I had given you far too much information on that last response. Did you find it relatively easy to follow? I have no idea why large portions of it showed up in "quote" boxes. That was not my intention. Someday I'll earn how to use this site as well as the others.
Once you get your 6 & 63, your will then fall under the jurisdiction of the SEC - and, unlike the DOIs in most states, those people don't mess around. Your activities, income, assignments, marketing activities and such are more carefully scrutinized than ever before. I've never found it unresonable nor difficult to work under the microscope - just be careful and follow the rules.
John Hancock is a pretty good company. I consulted for them back in the 90s and saved them $millions in bad faith claims. To the best of my knowledge, they've made a fair and honest return to the marketplace and I've yet to hear anything bad.
Please believe that I would never attempt to discourage you (or anyone else) who came up with a new and potentially lucrative idea. But, I don't know that I would spend a great deal of time working with children in the way that you described.
I have 3 children (21, 18 and 11) and I have done a fantastic job of teaching them about money, finances, balancing their checkbooks, investments, etc., and I'm not sure would I want anyone else - especially an agent whose actions could certainly be misconstrued, "undoing" what I have done for my kids. I realize that I might be the exception to the rule, but I feel a large number of parents might feel the same way.
I feel that the topics you want to cover with children should be introduced by their parents. Maybe you could set up parent/student workshops which would initiate conversation between parents and children and you could be available to answer any questions they might have. I respect your ambition and it sounds like a great idea. You need to be careful, however, not to step on the toes of any parents.
Let's briefly take a look at a childhood behavioral pattern, often referred to as "the McDonald's syndrome," that restaurants, toy manufacturers, and marketing organizations have literally run into the ground. All you have to do is sell the children a "happy meal with a toy" or in this case, an idea, and have them run home to their parents with it.
Because some of them have paid attention to you, they now know more about savings, returns, insurance, etc., than their parents. Parents may assume that you are trying to make a sale by using their children as marketing tools. I can almost guarantee you'll generate bad feelings in that case.
One complaint by a disgruntled parent to your broker of record, Department of Insurance, or the Securities and Exchange Commission could potentially generate more trouble than you are prepared to deal with.
So, be careful with that one.
Posted: Tue Dec 25, 2007 06:36 am Post Subject:
Hello Mark, Merry Christmas to you too,
Thank you for your replay, to answer you question "Did you find it relatively easy to follow? " some part I did ,some part I could follow. Any way WFG claims it has a product life insurance,and they try to sell it to their down line. The product is not a good one. They recruit anyone mainly to sell to that person. I quite agree with you MLM is not a good way of doing business.
I must say when I examin my motives, I see that I am interested in helping people to become financially independent. BUT there is a big but in here, I truely am interested in teaching , public speacking and bringing awareness to the public regarding this. I am not interested in sales. I do not see myself to intrude or push people to buy products.
Also I think if you look around objectively you will see that our kids are missing something very important now a days. There is no education on finance at school. The majorety of parents do not do what you have done with your kids regarding finace. They do not know or do not follow themselves. How many of us have been using our homes as an ATM machines in the past years. And the majority of us are not ready for our retirement. The rate of bankruptcy for young adults below 25 has been douled in the last ten years. I think that is a nice place to start and teach.
I may not be interested in fact in getting series 6&63. I really do not want to be an agent. I would like to bring public awareness on the subject. We live in a materialistic society with an understanding for immediate gratification. On top of this we live in the world of information pollution, which makes it even harder for the person who is looking for an answer to find the solution.
Thank you Mark
May
I would like to see what you think objectively about this. I know your children do not need any education on finance but what about the majority of our kids at school. Please note I do not have any intension of selling anything to their parents. If the idea of educating our children is good I may give up the idea getting series 6&63 all together.
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