There’s so much politics in the news nowadays that some really important stories are falling under the radar. For example, the NXIVM alleged “sex cult” MLM involving celebrity actresses and heiresses is getting very little attention. That particular link is just the latest news that came out yesterday. Stuff like that has been streaming out for a year or two now.
For a long time, I covered MLM scams as a side project here. MLMs fit well within personal finance territory because they bill themselves as a entrepreneurial opportunity to make extra income. They even fall within the area of FIRE (Financial Independence/Retire Early) because they pitch the idea of working for yourself with just a few hours of week.
Of course those claims are too good to be true and the real “opportunity” is to trap a dozen others in a money-losing pit to boost yourself out. Not only that, but MLMs are NOT businesses since they avoid many core basics of business.
After reviewing a few dozen MLMs on the site, I realized there was a pattern. Each one would say that their MLM is different or better, but except for minor inconsequential details, they were the same. In fact, there videos like this one (not made by me), that covers many of the basic ingredients:
Of course John Oliver does the job with a lot more humor making it hilarious to watch:
Because each MLM seemed so similar, I decided to posit a theory… that every MLM is a scam. I realized that this would be practically impossible to prove for two reasons:
- We all have different opinions of what a scam is.
- It would be exhausting to go through the 1000+ MLMs and convince 100% of the people above to hold that same opinion.
Despite this, no one has been able to meet the challenge of showing me a legitimate MLM. A few have tried with hilarious failings such as the ViSalus scam.
However, what I wanted to show with that article is how they all could be scams. My idea was based on the fact that MLMs contribute fiercely among themselves for distributors. This is done in secret much of the time, but it leaks out through lawsuits that companies poach other distributors. This is almost always done by targetting someone high up and getting their entire recruited pyramid of people – sometimes referred to as a downline in MLM.
My theory was that a legitimate company basing commissions on sales and not recruiting is at a competitive disadvantage. It’s an impossible sales pitch to tell someone with a big pyramid of recruits that they have to make money selling product by knocking on doors or setting up yard sales. Thus, I presumed the reason why no one can name a legitimate MLM company is because one doesn’t exist because it can’t exist in the competitive environment. Specifically:
If you are going to try to run a legitimate MLM organization, how can you draw people to your business and compete in an environment of illegal pyramid schemes? You can’t. If everyone is allowed to put a pile of aces up their sleeves in a poker tournament and you play an honest game, you aren’t going to be in the tournament very long.
Imagine if there were no drug testing in the NFL. It would be extraordinarily difficult for a clean linebacker to compete for a job against a group that are extensive steroids users.
FTC Forces Advocare to Leave MLM
I’ve often said that if any MLM wants to prove it is a legitimate company they can simply switch to single-level commission sales. Take the recruiting out of it. If your commissions structure is good enough, you don’t need to pay people to recruit people to it. There are lots of people who make a very good living on affiliate sales. If you’ve read personal finance blogs, you’ve seen them for hosting or financial management software*. Those programs are free to join and there’s no recruiting to them.
It’s such an easy solution to the pyramid scheme problem that MLMs face that no one has questioned it. The MLM supporters just have to change the subject, because if it doesn’t have the pyramid scheme recruiting aspect, they don’t count it. And they are right, the pyramid scheme recruiting aspect is the multi-level in MLM.
The big news is that Advocare has decided to do what seems to be exactly what I proposed… remove the pyramid scheme aspect of their compensation plan.
I applaud this decision because my analysis lead me to have the opinion that AdvoCare was a scam.
At the end of last week, Advocare released the official statement that it “gave notice to its more than 100,000 Distributors… [that] AdvoCare will revise the business model to a single-level distribution model, paying compensation based solely on sales to direct customers.”
The reason for this change isn’t that Advocare decided it was best to get away from what appeared to be a pyramid scheme. Instead it cited that it has been in “confidential talks with the Federal Trade Commission about the AdvoCare business model and how AdvoCare compensates its Distributors.” The CEO futher declared that “Based on recent discussions, it became clear that this change is the only viable option.”
While it would be great to have all the details of those discussions, it sounds to me that the FTC has finally started to regulate the MLM industry and is applying the same test I suggested.
It’s also important to note that there’s a federal lawsuit that alleges AdvoCare is a pyramid scheme. The suit uses AdvoCare’s own numbers to show that only 2000 of the 600,000 distributors make more than a minimum wage income. So you have about 0.33% (1 in 300) of doing better than any minimum wage job. So maybe it’s the lawsuit that is making things difficult for AdvoCare?
In the past when an MLM aspect has been terminated a company has become a shell of itself. The FTC specifically detailed the loss of business that Burnlounge experienced. The FTC similarly brought Vemma’s scam to an end by forcing it focus on sales and not recruiting.
Interestingly, a bunch of MLM people left one MLM to make another MLM called Yevo. Before that company got too far along with their $5 a serving oatmeal, they switched away from the MLM structure. I had received an email that the FTC was cracking on them, but I couldn’t verify its accuracy, despite it making the most logical sense to me. I don’t think the company is still in business.
Like the others, $40 juice or $5 oatmeal doesn’t seem to sell without a pyramid recruiting “business” opportunity.
What’s the Reaction of Advocare Leaving MLM
There are some websites that cover MLM in detail and give additional commentary such as this article. Many MLM distributors visit and comment freely. I don’t want to promote some of them, because I believe they profit by promoting the scams as a regular business. However, I will say that most of the discussion has some very UPSET distributors.
On one hand, it’s hard to blame them. They’ve been told that building a recruited pyramid is a good, legal business. Now they are being told that they’ll have actually sell products themselves instead of the recruiting.
On the other hand, if they had been doing selling products instead of pyramid recruiting there’s no change. There’s nothing to be upset about.
Final Thoughts on AdvoCare
It would be really interesting if AdvoCare was a publicly traded company with earnings that we could review. We might never hear how this impacted their business. My guess is that you’ll see dramatically lower cost products that can compete on their merits. Usually, MLM products are overpriced, because they’re used as an admission ticket to the pyramid recruiting building scheme.
This is an extremely big deal in the pyramid scheme/MLM world. If it can happen to Advocare, it can happen to anyone.
It’s also a reminder that it’s a bad idea to attempt to build a “business” on recruiting downlines or “teams” of recruiters. Not only are the odds of success extremely bad, but any kind of “success” means you put a bunch of others in a financial hole. And sometimes you wake up one morning and find that you never really had a business anyway.
For more analysis of MLMs I’ve covered in the past see:
* I have affiliate links for personal finance management software and blog hosting too, but I rarely include them in articles.
Thanks for keeping us up to date on the MLM world. It is so hard to avoid them. I love Beachbody workouts, but that means ducking and dodging getting sucked into the “business” side. Our church recently rented out a room for an Primerica meeting, so of course those guys bugged everyone who was helping with coffee, etc. about joining in. It’s sad.
Have you done an article on PURE? I was approached by a friend about it. It’s super confusing as they don’t even claim to be selling a product. It’s more like buying in to a “company” and then being forced to buy their products to hold on to your stock. I tried researching but couldn’t find much they the company hadn’t produced itself. I’d love to see your take on this one. Thanks!
It’s funny, but I just heard about them a couple of hours ago. I saw a press release that PURE (People United Reaching Everyone) had some kind of deal with Nerium. I did write about Nerium here.
The name sounds like a cult to me and your description doesn’t ease my fears any.
It does sound like a cult. ? From a few posts I’ve seen they use spirituality and self help to push the agenda. I believe the guy that started this company was Prosecuted in Texas several years ago for claims that green coffee beans caused weight loss. This is the one that got Dr. Oz in trouble. So I guess they’ve moved away from the products and are now just selling the company stock. Very scary. Please let me know if you do research this one. Thanks.
Interesting stuff. I didn’t realize MLMs ever gave up that business model. Like you, I predict it won’t go well for AdvoCare. The companies just aren’t based on their products so the products aren’t viable.
I think it’d be great if the FTC cracked down on MLMs. I’d be interested to see how it would treat more established MLMs like Avon. At least that has viable products that people want to buy, but from what I understand the real money is definitely in recruiting more people to sell those products. Or maybe that’s outdated information. I haven’t checked in a while.
If you’re going to post something at least know what the heck you’re talking about. I do not sell AdvoCare but their products are more than viable. So unless you’ve tried them you don’t have a clue
I guess we’ll see if they are viable. I didn’t try MonaVie’s or Vemma’s juice, but I knew that $45 juice wasn’t viable. Guess what? It wasn’t.
I also used a Palm Pre for years because it was better than iPhones and Androids in my opinion. Turns out it wasn’t viable, because they didn’t partner with the right carrier.
The lesson: One person’s opinion of product viability doesn’t mean much. However, established patterns not based on personal taste are much more telling.
Have you investigated Stella and Dot? Seems to be an MLM
I haven’t looked into that one. Usually, I look at the health ones as there’s a double scam of illegal health claims.
I don’t think we will see the end of predatory MLMs until the FTC cracks down on Amway.
If everyone spreads the truth about MLMs, it won’t matter what the FTC does as very few people will sign up.
It’s sad, but we can’t trust the FTC to protect consumers from MLM scams.
The newest one hitting FB with Live feeds is RevitalU. Suppose to be an energy coffee that promotes energy and weight loss but it’s the same song and dance. “ big business” opportunity. The other thing I’ve notice about these MLM is they like to target Coaches who have large contact with tons of parents past and present and try to entice them to get on board. I’m just so tired of seeing friends and neighbors pulled into these schemes.
Many top sellers from Advocare are now with ID Life. Within weeks these leaders from Advocare transferred most of there teams (downline) and are now National Presidential Directors. I think with the ID Life includes some DNA testing and a daily supplement monthly subscription and then all products like Advocare. Good for them to find another way to make money in the grande “scheme” of things.
Nicole said: “Good for them to find another way to make money in the grande “scheme” of things.”
Ick! I assume that was sarcasm since it’s clearly not good that they went seamlessly from one moronic BS MLM scam to another. It’s a twisted game of whack-a-mole.
So the FTC handed down a verdict yesterday that Advocare was in fact a pyramid scheme.
https://www.consumer.ftc.gov/blog/2019/10/ftc-advocare-business-model-was-pyramid-scheme
https://www.nytimes.com/2019/10/02/business/advocare-pyramid-scheme-ftc.html
Now the company and its senior players are ordered to pay multi-million dollar settlements and are barred from MLMing for life.
Advocare used the well worn MLM tactics of leveraging celebrity/expert endorsers, sponsorships, fake charities, etc.
As much as they all strenuously deny it, like Advocare did, every MLM operating today is just a pyrmaid scheme that hasn’t been busted YET.
I was going to write a new update with this and add some commentary. Hope the weekend isn’t too busy.
Great! BTW, couldn’t help but notice that the Direct Selling Association has Advocare on its 2019 list of top 20 member companies.
https://www.dsa.org/membership/member/membership-benefits/awards-program/top-20
It bears repeating that the DSA lends cover to these scams and has blood on its hands for aiding and abetting the fleecing of consumers .
Well, it appears that Advocare is still alive and kicking. Products must be viable after all. We are coming up on the one year anniversary of the change. I am a Preferred Customer (formerly called and Advisor level distributor) who receives a 40% discount off of the products. The lawsuit and restructured compensation plan has not impacted me in anyway. I always took the products because I get results when taking them. Any money I have made or make comes from my efforts selling the products directly to others who like them. I still see their products being used by others in the gym. So apparently, they may be one of the few MLM’s that actually can survive on the sell of its products directly to consumers… which is funny, being that they are called Direct Sales anyway.
No one ever said that there’s a problem with selling nutrition products. I think that’s been going on a long time. I haven’t looked at how Advocare has restructured itself. It seems like it isn’t the business of selling businesses that loses money anymore.
It’s great that you make money from directly selling product. That’s the way commission sales are supposed to work. Pyramid schemes (and MLMs by definition) have recruitment where money is made by people who did not make the direct sale. That’s what needs to be eliminated from these schemes.
There are a couple of things that seem clear:
1. Advocare’s popularity is nosediving towards irrelevancy – https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=advocare.
2. If you receive a 40% discount, the products are way overpriced. It tells you off the top that they are likely charging double so that they can make a profit from you. For example, if they retail a product at $20 and you get 40% (paying $12), they have to be able to make and ship it to you for about $9 so that they can make $3 for themselves. So customers would seem to be paying $9 for a $20 product when they should be paying $12 like you are. Again, I don’t know the exact numbers, I’m just using what you are telling me. Something here doesn’t add up.
It certainly isn’t clear whether Advocare can survive long term. Show me their audited financials and I’ll take a look.