An Employment Scam in the Financial Services Industry
A Warning for Recent College Grads and Others New to the Financial Services Industry

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How The Scam Works

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How The Scam Works

First of all, I didn't dream up this scam. I'm not an authority on how it works, but these are the components I've been able to identify. Throughout this site, when I say "scammer," I am referring to those who deliberately deceive their work force for profit.

In a nutshell:

1.) The scammer firm advertises that it needs salespeople. It usually refers to them as "financial consultants," "finance management trainees/associates," "financial services sales professionals," "financial executives," "investment advisors," "financial planners" (particularly offensive, as this title implies a professional designation) and the like. Recruiting is done through traditional media as well as through heavy college campus recruiting. Some college campuses have banned pure commission jobs from being advertised in their career fairs because of this scam. Sometimes a potential recruit will simply receive a call out of the blue indicating that the recruiter found his resume on a job search site and thinks he might be a good fit for his fantastic firm (reps at some scammer firms are sometimes given incentives to recruit). Needless to say, all the scammers are 100% commission. If they advertise a "salary" or paid training, it's a draw against future commissions (a loan).

2.) The recruits interview for the position. The recruits are carefully and deliberately misled about the position's true earning potential. Recruits who can afford the fees for the licensing/background check and training classes are hired (barring the discovery of any serious criminal record, of course). The cost of the classes may remain hidden, instead being presented as simply the cost for the licensing/background check.

3.) The recruits begin training. Training may consist of several weeks of preparation for the basic securities and insurance licenses for work in the industry followed by the memorization of a standardized sales script. Near the end of training, the recruit may be instructed to create a list of leads consisting of friends and family to "practice" on, or this step may occur once training is complete.

4.) The recruits obtain licenses and begin selling the firm's products.

This is where many new recruits get a cold dose of reality involving two things: a) commissions generated are completely dependent on sales to leads consisting mainly if not exclusively of these friends and family, and b) unless the rep has loaded friends and family willing to invest, his commissions will fall well below that magical income that was advertised. I'll discuss each in part:

a) Commissions. I'm constantly amazed at the number of new grads who do not understand the difference between a commission-based job and a salaried one, or a draw and a salary. I've seen recruits who never knew they were on full commission until two weeks into training when they asked about their first paycheck! Fully commission-based jobs are notoriously difficult to survive at during the first few months and even years. Stability is obtained when continuing commissions on one-time sales (for example, insurance) begin to buffer the rep's earnings, but they are usually a long time coming. At a scammer firm they may never come. Scammer firms may handicap the earning capacity (commissions) of the recruit.

b) Lead generation - the "100 Friends and Family List." This method as used by scammers is severely flawed, as you'll see later. Unfortunately for the recruit, the "100 Friends and Family List" is often the main source of leads and thus sales/commissions. Media advertising on the scammer firm's part is weak or nonexistent; scammers attempt to minimize or even eliminate advertising costs. Even if the firm advertises at trade shows, the recruits pay for it.

Unfortunately, most recruits don't have loaded friends and family who can be convinced into investing enough to sustain the recruit, and the recruit cannot survive without an alternate income. Worse, the scammer may require him to use only this method and may restrict him from concurrently working for anyone else. A recruit may notice that his office's reps are married to solid wage-earners or live with their parents!

5.) The recruits fail to earn a livable income (much less the promoted income!) and quit. It's a failure engineered to profit the scammer both during the recruit's employment and after he's gone, and it's no real loss -- recruits are constantly being sought to do it all over again. Worst of all, the recruit's options for recovery are limited.

The next sections will examine components of the scam as it unfolds in more detail.

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