MLM Legal: What you Need to Know
Last night I had MLM Attorney Kevin Thompson on my call. It was a GREAT conversation if you missed it!
We had an amazing conversation about the legal side of MLM/network marketing, which we'll refer to in this post as MLM Legal.
Some things in life aren't a whole lot of fun to talk about. Pretty sure that LAW for lots of people is one of those not so fun things to converse about. I kinda like it, because my life path for a long time was to become an attorney, until I found marketing, and more specifically, network marketing.
So…NETWORK MARKETING and the LEGAL aspect of it to me is very intriguing. And…honestly, as much as you may not love the subject, you should dig in and not ignore it.
Most people tend to avoid talking about LEGAL ISSUES, tax-related items, or insurance conversations…just because for the most part, it's not really a pleasant conversation, or exhilarating chat.
For me…the conversation with Kevin last night WAS an exhilarating and exciting one to have.
We covered quite a bit during that hour on MLM Legal, including:
- The Federal Trade Commission and MLM
- Income Claims and Product Claims
- Auto-Ship and Legal Issues Around it
…I'll give you the specifics below, but first I want you to understand a few things.
IF YOU HATE LAW, DON'T IGNORE IT.
Here's the truth…and it's something you can't slip past or ignore. There are certain things in life that aren't exactly the most appealing or exciting things to talk about or deal with, but they are necessary. Kinda like that phrase, “there are two certainties in life, death and taxes”. I'm sure you've heard that one before.
I don't particularly like paying attorneys (sorry Kevin…love you man, just don't like writing checks to you guys), but I will, I have, and I am. I don't like buying insurance or paying taxes, but I do.
Be SMART. If you don't love something, especially when it comes to LEGAL DISCUSSIONS, tune in. It's important and necessary. You need to know about MLM Legal.
I asked him a ton of questions during this interview. I took feverish notes during the entire interview. Here's what he had to say about MLM Legal and you…(I'm paraphrasing a bit from my notes)
TFN: Why MLM Law my friend?
Kevin: Very simple. Ambiguity in the law is a bad thing. Bad companies can look good and easily blend in with good companies, so people can't really tell the difference. We need intelligent regulatory activity.
TFN: What is the definition of a pyramid?
Kevin: The FTC doesn’t technically have a definition of what constitutes a pyramid scheme, or what defines what a legitimate network marketing company looks like. I'll make the definition of pyramid as simple as possible, as it was defined in ONE court case back in 1974.
A pyramid is when you pay rewards unrelated to product sales.
And…they must be legitimate product sales. What defines legitimate? That's a gray area as well. But…for example, you couldn't go around selling pencils for $1000. Most people would consider that far from legitimate and reasonable. Another thing to look at is this. Would people outside of the network buy the product? That's a great litmus test. Would people buy the product if there was no compensation plan attached to it? Also…are their generous refund policies? There are a number of things to look at, but it boils down to movement of products to end users, and only paying rewards for the sale or movement of that product or service.
TFN: What are some of the common mistakes people are making in the field?
Kevin: The companies bear a lot of responsibility by providing marketable products, but from the field, the biggest issue is INCOME CLAIMS.
The FTC considers any income claim as being deceptive, unless it is accompanied by an Income Disclosure Statement.
When distributors use language like “It's easy” or “it doesn't take much work”, there's going to be a problem. So often people are afraid to use their Income Disclosure Statements. But here's the thing. When you use your Income Disclosure Statement, your prospects see you as being transparent, and they trust you. Herbalife has voluntarily added a button on their sign up page, where it shows their Income Disclosure Statement prior to anyone enrolling on their site.
TFN: What are some simple things companies can do to avoid trouble?
Kevin: Regulatory activity is a big discussion, but there's not a lot of “intelligent” regulatory activity. When companies receive letters from their lawyers advising them do act on something, they should pay attention to that. Consumer complaints should be paid very close attention to and resolved quickly as well as steps taken to ensure whatever happened, doesn't happen in the future. And…for sure, if a company is caught up in the Media, they should be have their radar on high alert and be sure to act quickly to resolve whatever problems have surfaced.
One of the most important decisions a company can make is getting serious about Compliance Training. The more companies make a concerted and serious effort to educate the field on what they can do and cannot do, the less problems they will have.
TFN: What are some signs of a bad company?
Kevin: I call it the “grandmother test.” If you can't pretty easily sell the product to your grandmother, you may not want to do that business. Is the product legitimately marketable? Product value is high on the list of priorities when it comes to establishing a good one, from one that is not so good.
How is the auto-ship positioned? It can be a problem if the field promotes it as an easy way to qualify for bonuses. Auto-ship isn’t about qualifying for bonuses, but about replenishing inventory, and for convenience. How is the auto ship being positioned? If the focus is on using your auto-ship so that you can qualify for your check, that can present a serious problem.
TFN: What do you have to say about Auto-Ships now and into the future?
Kevin: I think having auto-ship available as an option is ok as long as it's positioned appropriately. Again…this is the big issue here. A company can't be verbalizing something like, “You don’t have to be on auto-ship, but if you want to be successful, you'll be on auto-ship.” Wink-wink. Promoting as “just get on auto-ship to qualify” is a problem. Long term…if a company has a volume requirement, I'd propose the idea of a 50/5o split. You can use 50% of your auto-ship to qualify you, and the other 50% has to come from customers. That's an idea I think would be very effective.
TFN: What are some basic Do's and Dont's for Distributors?
Kevin: First off, the good news is that it’s hard for reps to get into legal trouble. So, relax. There’s room for error. No one is perfect. I would encourage distributors to focus on merchandising and selling your product. There should be a big emphasis on selling products.
Number two. Avoid hype. Making it sound like there's now work, it's easy, or you can make a ton of money with little or no effort is a mistake, and simply not true. Number three. Be patient. You talk about this all the time. If you want to be successful, find a company you like and stick to it. Put your head down, your blinders on and stay the course.