Research-MLM

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Consumer Awareness Institute

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Extensive Research Reveals the Truth about MLM

"Your logical questions and objective research are exactly what is needed in this industry." —Donna Horowitz

Research and Consumer Guides.

This research and information on MLM were prepared with the help of top experts over ten years by the Consumer Awareness Institute, directed by Dr. Jon Taylor. Opinions vary widely on MLM's legitimacy. But here you will find objective research on success and loss rates, pay plans, etc. – as a basis for deciding whether or not to participate in a particular MLM – or any MLM. Regulators and researchers will also benefit.

What Went into This Research: EXCLUSIVE! The investigative research that formed the basis of these reports includes:

–Extensive comparative research on MLM compensation plans and alternative business models to clarify differences

–Interviews with and feedback from thousands of MLM distributors and ex-distributors in a wide variety of MLM programs,

–Interviews with top experts

–Surveys of hundreds of tax professionals where MLM is concentrated – representing thousands of tax returns of MLM participants,

–Actual tax records examined by Wisconsin investigators

–Court records in MLM cases – including IRS income tax records of top distributors in one state,

–Household consumer surveys regarding MLM participation,

–Surveys of leading MLM company presidents,

–Private and public financial disclosures by MLM companies,

–Communications with law enforcement officials at all levels, and—

–Direct experience with prominent MLM companies.

Readers' comments:

"Thank you for your great insights and all the work you have put into researching this little-understood subject. If every [person] interested in joining recruiting MLM's would just take the time to read your [reports] and educate themselves, they could save a lot of grief." —Michael Rawlings

"Thank you for your work on MLM! It is exactly what I've been looking for to get a data-based picture of the opportunity I am currently pursuing. Your logical questions and objective research are exactly what is needed in this industry. Time for you to go on Oprah or some such program to get the word out!" —Donna Horowitz

(Referring to an earlier version of "The 5 Red Flags" report) ". . . the very best piece I have ever read on this subject—very incisive, thorough, and illuminating. I think it would benefit every regulator in America and abroad to read this." –Robert Fitzpatrick, President of Pyramid Scheme Alert

1. Read "TOP TEN THINGS I LEARNED FROM TEN YEARS' RESEARCH ON MLM" for a quick summary of Dr. Taylor's investigations, together with input from the world's top experts on product-based pyramid schemes. [Click here for PDF format.] For more information about the Consumer Awareness Institute and Dr. Jon Taylor, click here.

2. Tax Prof's Know Who's Making Money in MLM/Network Marketing. It's not the new recruits. Conclusions from this survey are strengthened by household surveys on MLM participation. See "SURVEY OF TAX PREPARERS."[Click here for PDF.]

3. The 5 Red Flags of a Product-based Pyramid Scheme, or Recruiting MLM: At the request of the National White Collar Crime Center, Dr. Taylor prepared a white paper for the 2002 Economic Crime Summit Conference. This information was also presented at the 2004 conference in Dallas. Read "THE 5 RED FLAGS: Five Causal and Defining Characteristics of Product-based Pyramid Schemes, or Recruiting MLM's." [PDF] At the very least, you should read the consumer-friendly summary, entitled "The 5 RED FLAGS for Identifying Exploitive Product-based Pyramid Schemes, or Recruiting MLM’s"

The 5 Red Flags were selected on the basis of over eight years of experiential and comparative research, along with input from the top experts in the field. They were then validated with actual data from MLM company financials, court records, etc.. Serious researchers will want to carefully review the grid that was used for the final selection of the 5 Red Flags. Read "Comparative Analysis of Direct Sales and other Legitimate Distribution Models with No-Product Pyramid Schemes and Recruiting MLMs, or Product-based Pyramid Schemes." [Click here for shorter PDF format.] This comparative analysis, identifying the causative factors in the compensation plan which collectively led to extremely high loss rates, was selected from earlier syndrome analysis, as reported in an earlier report - "PRODUCT-BASED PYRAMID SCHEMES: When Should an MLM or Network Marketing Program Be Considered an Illegal Pyramid Scheme?" [PDF]

4. Research Shows Gambling Beats MLM: "Recruiting MLM's" make gambling in Las Vegas look like a safe bet. Naked pyramid schemes do far better. See "Which Does the Greater Harm?" [PDF].

5. Review of the table in 30 Typical MLM Misrepresentations will help you to see that recruiting MLM's obtain their revenues by a whole set of misrepresentations. Taken together, they could constitute deceptive sales practices or simple fraud in virtually any jurisdiction.

6. Tax Returns of the Top Amway Direct Distributors in Wisconsin. In a 1980 suit by the State of Wisconsin against Amway, the tax returns of the top 200 out of 20,000 distributors were examined. Their average income was minus $900! For more details, click here.

7. Review of Average Income Reports by Pyramid Scheme Alert also shows MLM/Network Marketing Programs to be Unprofitable. Robert Fitzpatrick, President of Pyramid Scheme Alert, examined reports of average incomes of participants in several MLM/network marketing programs, using somewhat different assumptions than those used by Consumer Awareness Institute. He accepted their numbers without attempting to debug the deceptions in their reporting. Still, he came up with essentially the same conclusion – Their loss rates were horrendous. Read "The Myth of 'Income Opportunity' in Multi-level Marketing."

8. Fascinating Case Study – Nu Skin: Read the "REPORT OF VIOLATIONS" (PDF – also mentioned in "law enforcement" section) by Nu Skin of the FTC's 1994 Order for Nu Skin to stop its misrepresentations, which required personal experience with and extensive research on Nu Skin and MLM generally to complete. Appendix E of the report (a separate PDF file), illustrates the mega-pyramid structure of Nu Skin's breakaway compensation plan, which enriches Blue Diamond distributors at the expense of huge downlines of victim-participants. In 1998, Nu Skin reported almost five times as much U.S. revenues to prospects (until 2001) and to the FTC as to the SEC in its official financial reports. Also, while Nu Skin officials did disclose some average income figures as requested by the FTC, the report supplied to the agency and to prospects was found by Dr. Taylor to contain 20 deceptions on the a single page! This also was reported to FTC officials.

9. Unmet Research Request: The "NETWORK MARKETING PAYOUT DISTRIBUTION STUDY" [PDF] includes a long-standing request for data, which was sent to the presidents of 60 of the largest network marketing companies. MLM officials were provided a form for them to demonstrate that they are not a pyramid scheme. Though some tried, none of the 60 companies were able or willing to comply.

10. Victims and Observers Speak their Minds. Read "Excerpts from Quotes Regarding the Effects of MLM (network or multi-level marketing) on Participants and Families."

11. Other Research: Dr. Taylor has also done extensive research and written on the impact of MLM on members of the Church of Jesus Christ of Latter-day Saints, who seem particularly vulnerable to these schemes, due at least in part to very trusting relationships cultivated in their ranks. The book The Network Marketing Game: Gospel Perspectives in Multi-level Marketing addresses the ethics of MLM for Latter-day Saints, and in fact for all persons with a Judeo-Christian code of ethics.