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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The Training Program

So how about [XXXX] Corp's "top training program"? That's guaranteed to help the new rep earn that fantastic income, right?

There are no guarantees, of course. But firms truly interested in attracting and training those gems who will produce can spend a heap to get them and certainly don't want to lose them to competitors. They offer reasonable pay structures, benefits, a training program, and a strong lead generation system designed to give every rep a chance to produce. The firm doesn't want to spin its wheels attracting reps who won't stand a chance to begin with. They're careful to seek reps who have a proven track record of sales. If they can't attract those, then psychological personality profiles are given in the attempt to weed out those who can't handle the long hours, possible low initial pay, and rejection inherent in sales. Even the best efforts result in a turnover of 10-15% in the sales profession, so care is taken to ensure that the investment in possible producers is done wisely. No manager at a reputable firm wants to spend massive chunks of his valuable time training reps to leave, but at a scammer firm, that's exactly what he is expected to do!

At a scammer firm, the key to keeping the business profitable is to get the reps to shoulder the costs, including training. Reps may be told up front that they will be paying for the program, or the cost may be creatively hidden, being misrepresented to the rep as being just the cost of "licensing and a background check." Furthermore, the scammer firm must go through a lot of reps just to keep this program profitable. Some firms promise to reimburse up front costs contingent upon some goal (one that few in fact attain, though it is represented otherwise). Those who drop out of the program after paying and becoming suspicious can often find the firm refusing to reimburse; the firm can simply cite that they did not complete the goal that reimbursement was contingent upon. Even those who attain the goal may find that the "rules" have changed or some other obstacle to getting reimbursed has come up.

I believe some fault lies in the law here. If you want to work as a registered representative of a broker-dealer, you must have a firm sponsor you to get your licenses with FINRA (formerly NASD), and this leaves the firm wide open to abuse its role. Costs for the basic licenses are listed on the FINRA's site; beginning reps usually require 2 or 3. The background check / fingerprinting is likewise relatively inexpensive — see one California Live Scan center's rates here. (I paid the mandatory $700+ that my firm required, not knowing that my licensing cost $300 at most - and it was all self-study! The only thing the firm provided was a well-used book that I had to return when finished with it!)

The costs of obtaining the licenses are really quite minimal, and a rep can do it on his own time with only a no-cost sponsorship from a firm. However, the scammer firms may not tell him this and may further inform him that the cost of "licensing" will be some ungodly figure. Without knowing FINRA's true licensing costs and the true costs of background checks and fingerprinting services, many inexperienced reps will shell out many hundreds and even thousands of dollars for what they believe are basic expenses. When confronted, the scammer firm may advise that the remainder of the fees are for the training classes. At one firm, reps paid as much as $75,000 for the licensing / background check / training classes!*

It isn't illegal to charge for training classes, of course. However, it most certainly is illegal to trick the rep into paying an exorbitant amount for these classes without his knowledge. Even uglier is the fact that some scammers promote a "paid" training program with a purported "salary" but neglect to mention to the rep that this pay is a draw against future commissions (read: A LOAN). Once again, unless the rep is smart enough to ask, he may end up owing the firm a load of money if he leaves!

It is worth noting that the inexperienced work force the scammers seek need this training, and the scammer may avoid hiring an experienced rep who doesn't require this licensing or training. Similarly, recruits who cannot afford the licensing/training may invariably not be offered jobs. Some scammers even compensate their managers according to how many new recruits they can get paying for this licensing/training. Quite honestly, the rewards system is set up to keep those few who make it to the management level motivated, at the expense of recruits (who are only as valuable as the business they bring the manager).

In summary, the training program run by scammers may be designed not to mold hopeful new recruits into tomorrow's top performers; it may be designed to keep constant recruiting profitable.

But there's more money to be made! The next step is getting the recruit down to producing -- mining his friends and family!

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* Quote is from public forum.