The Scam Works
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.
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
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
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.
The recruits obtain licenses and begin selling the firm's
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:
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.
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.
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!
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.
next sections will examine components of the scam as it unfolds
in more detail.