An Employment Scam in the Financial Services Industry
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First of all, yes, if you believe in your products and firm, it is natural to want to extend those benefits to your friends and family. However, I see far too many people mistake this for prospecting. This section attempts to dissect the difference.

Sales is a difficult profession, and there's no doubt that some people are more gifted at it than others. Financial planning involves sales. You will introduce a lead to a range of products, and the lead will buy those which fit his situation. You will work hard. But you shouldn't let yourself work stupid. At a scammer firm, you may be required to work just plain stupid.

Most reputable firms spend the money up front to provide their reps with bank leads, trade show leads, and other leads from media advertising as the basis for the rep's income and have the rep supplement this income through prospecting. Prospectors don't sit in an office waiting for calls -- they hoof it and beat on doors looking for the market that isn't calling. Moreover, there's usually a reason that market isn't calling. Advertising reaches just about everyone nowadays, and those who want your product generally contact you. If nobody's calling, chances are the market is just plain saturated and the fight is down to market share. In those lean times, advertising costs must be cut, and prospecting becomes the main tool for reaching this more difficult market. In order to survive, the prospector must carefully qualify his leads; he doesn't beat on just ANY door. The key to qualifying referrals is starting with existing clients that were generated by advertising -- these "warm leads" have already bought and thus stand a good chance of referring other buyers. If the prospector starts from scratch, it's a crapshoot, and no prospector can afford that for long. A lead isn't "warm" or "qualified" just because he fogs a mirror! Face it, not everyone "needs" your products, and that includes friends, family, and their referrals.

In short, prospecting was never designed to replace advertising.

Many scammers seek to minimize or eliminate marketing and advertising costs and will rely primarily if not solely on prospecting, which costs the firm nothing. They don't just reserve it for lean times. Note that the particular advertising costs I'm speaking of are related to lead generation, not just the name recognition which is often sought in order to "legitimize" the business in the public eye. Instead, they seek to mine an already-oversaturated market with the sole intent of gaining market share by exploiting the trust inherent in personal relationships -- hence, "The 100 Friends and Family List." (You may recognize this marketing method as a common prospecting tool of some MLMs, such as Amway.) This list involves the rep making a list primarily consisting of friends and family and calling on them as leads.

The "100 Friends and Family List" shouldn't be confused with prospecting. A "natural market" is the portion of the rep's target market that shares a personal characteristic with him, not simply a friendship or familial relationship. A rep who speaks Greek may naturally attract that portion of the market that shares his language, but he is starting with that portion of the market, not just anybody who happens to speak Greek! At a scammer firm, this "natural market" of friends and family, regardless of their prior interest in the product, becomes the focus -- it's after sales it couldn't otherwise make.

Friends and family introduced into this equation are only more likely to buy because they know and trust the rep and even want his success, not because they necessarily need the product (or service). Oftentimes, they already have bought the product -- elsewhere, from a professional, not some inexperienced rep. Many sales to friends and family involve transfers of funds that were previously invested elsewhere, and they're often the only sales these reps make because they aren't learning to truly prospect. Some firms even require that the rep hand over his leads list of friends and family, effectively using him for his free leads. This "natural market" dries up quickly; only so many friends and relatives can be mined, and referrals become more difficult until the rep might as well cold-call strangers!

An interesting examination of the history of multi-level marketing is on Be warned, the article is heavily anti-MLM. However, it makes a good argument for why the MLM marketing strategy, which often relies on the "100 Friends & Family List," is now obsolete.

Please note that if the "100 Friends & Family List" worked so well, media advertising would be obsolete, and many firms using it would have no need to lure inexperienced reps with promises of unattainable incomes built on the work of a "downline." Think about it. The same applies to any sales job, be it in financial services or any other industry.

Perhaps your firm doesn't utilize the "100 Friends & Family List." Some will simply call on existing clients and offer to "go over their financial plan or policy" in an attempt to sell them more products that they likely don't even need (after all, another rep did this already!). This often happens when a rep leaves the firm; new reps will call on the old rep's clients and attempt more sales since those leads are now considered "warm". It's also used by managers to try to keep new reps motivated by providing them "leads". In any case, the firm's advertising for new clients is kept to a bare minimum. Now ask yourself why the vast majority of the firm's advertising relates not to finding new clients, but to finding new REPS!

The last thing worth mentioning here is that some firms offer reps incentives to supplement their often meager incomes by recruiting other reps. They are encouraged to call up friends and family and scour job search sites for resumes, calling most anyone with a pulse who might be interested in this "exciting opportunity."

In any case, at a scammer firm, reps' earning potentials are severely handicapped, and they must continually be replaced to avoid collapse. The next section discusses in more detail the rep's failure and firm's methods of dodging responsibility for it.

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