| Starting
Out : "If I work hard, I'll make it!"
What a fantastic
opportunity!
There
are several ways you'll hear about this "job" opportunity.
You may answer an ad from job search media, hear about it at a job
fair (often on a college campus), or be called out of the blue by
someone who found your resume on a job search site. In any case,
it often sounds quite fantastic.
- "Seeking
Elite Individuals to Earn a Six-Figure
Income -- Limitless Potential. No experience
necessary."
Ok,
the above ad may not get too many replies, since most of us are
now wary enough to identify it as one of those too-good-to-be-true
scams. Scammers know this and have moved towards more reasonable
sounding ads:
- "Management
Trainee. Expanding financial services firm immediately
seeks career minded individuals for comprehensive training program.
Individualized,
long-term growth plan allows trainees to earn while they learn
to manage their own branch in 2 years. $50,000
first-year management income."
(Once again, I made that ad up. Any resemblance
to someone's actual ad is purely coincidental.)
That's
more like it! It sounds great to a new grad who can expect less
than $25,000/year for most jobs with no experience, and a career
changer might still find it reasonable.
Unfortunately,
the scammer's target market of recruits consists of just
that -- new college graduates with perhaps only a few years of general
work experience and career changers who haven't previously worked
in the financial services industry. In the past, there
would be a "group" interview during which these "elite
individuals" were surprised to find themselves as part of a
cattle call. The faces around them were overwhelmingly young and
fresh. Managers would be quick to tell recruits that the ad mentioned
the low end of what they could expect to make. Some managers
would boast about their own six-figure incomes (highly doubtful)
and how they were now living the good life (also highly doubtful),
or they trotted out the obligatory "star performer" to
heap accolades on the firm's training and compensation programs.
They may proudly brag about the firm's inclusion in prestigious
"lists" such as The Inc. or Fortune 500, or a high rating
in A.M. Best if in the insurance industry. (These claims may be
true, but see my
opinion on how scammers accomplish this.)
Scammers
are now more careful to avoid projecting such an image (they might
leave the cattle-call till a second or third interview or "orientation"),
but the representations remain the same: The firm helps the rep
make a lot more money than he should reasonably expect given his
background, managers up the lines get their overrides on these sales,
top brass makes its share, and everybody's happy.
It's
a win-win situation, right? Not at a scammer firm. The inexperienced
rep is instead set up to fail while the firm profits and hides its
tracks. The only currently illegal employment-related point that
I know of that can be sued for is deceptive advertising, so scammer
firms make sure that misrepresentations are verbal:
Commissions:
Make a lot of money! Some managers may make the income
represented, but it may also be that very few make it
to management, and those that do may earn significantly less than
represented.
Though
some scammers may still advertise the "six-figure
income" hook up front, the trend has moved
towards introducing it later, during the interview process, and
then only verbally. The execution of this deception
is very careful and deliberate. The reason has to do with legalities
-- if the rep does not make the advertised income range, he may
have a case for suing for false advertising.
It
should also be noted that scammer firms used to deliberately advertise
the job as a "full-time employee"
position with a salary
(+ commission, usually) with benefits
when in fact a) it is a full-commission, non-salaried independent
contractor position, usually misclassifying the employee to his
detriment; b) any "salary" is actually a draw, or loan
that must be repaid to the firm out of the rep's future earnings;
and c) all benefits (and all other "business" expenses!)
are to be borne by the rep, not the firm. There are often criteria
for getting benefits that few reps ever meet and maintain, such
as a certain level of earnings; benefits are not earned under
the usual meaning of 'employee' wherein you obtain them automatically
after a certain period of employment. This is false advertising
as well, though I still see it done sometimes.
Another
fact that may be hidden or denied altogether is that the position
involves sales,
a position many experienced job hunters will know to avoid. The
job may be listed under the 'financial services' category, though
it shouldn't be; many job search media do require sales jobs to
be listed in the 'sales' section. Some firms may advertise that
the position involves no sales or telemarketing, but that is just
a flat-out lie. You will not make your money simply handing out
advice! You will make it by selling financial products (and usually
recruiting others to do the same).
So
in the "realistic" ad above, note that the $50K/year
first-year income is management income, not the first-year
income for an average rep. Also note that the "earn-while-you-learn"
phrase applies to your pre-management phase and carries
the implication that the firm is devoted to helping you earn while
grooming you for management.
At
the interview, the
true average incomes of the firm's reps as stated in the firm's
corporate literature may be withheld unless the applicant is smart
enough to ask for it, so the inexperienced rep must rely on what
the interviewer represents to him. Additionally, employee turnover
figures, which are invariably very high at scammer firms,
may be withheld or expressly lied about in order to promote a
false image of the training program's success rate. So while the
firm's corporate literature states that the average rep
is expected to make $12,000 or less in his first year,
the rep verbally hears that "the average rep in
the industry makes over $100,000 a year" and "the firm
is committed to getting you there." This misrepresentation
is no accident.
The
Non-Compete Agreement: We'll take your money. Also
factored into the possibility of lawsuits is the Non-Compete Agreement
(or Non-Solicitation Agreement) that a rep must sign upon employment.
Reputable firms have these agreements for the purpose of preventing
departing reps from stealing clients and benefiting a rival firm,
and that's reasonable when the firm has invested heavily in
providing those reps with the leads to obtain those sales.
The usual requirements are that clients obtained during the rep's
tenure are property of the firm, and he may not solicit those
clients again for a period of a year or so after he leaves. It
may provide that the rep can continue receiving commissions generated
on those sales for up to a year, or it may explicitly
state that the rep gives up the right to those commission trails
once he leaves. At a scammer firm, the rep is very likely
to shoulder all work associated with obtaining his own clients
with little investment by the firm, so why should the rep agree
to leave behind the commission trails on all his hard work? And
of course there is nothing in writing informing the rep that he
will be providing his own leads.
The
aggregate commission trails lost through these reps' ignorance
can run into millions of dollars that continue to benefit
the firm once reps have left. Managers don't have much
reason to complain -- instead of receiving overrides on those
commissions, now they can receive the full commissions,
and they're already recruiting the next group to exploit.
Handicapping
Earning Capacity: We'll take your money. Redistributing
the above commission trails in retro is one way of keeping managers
down the line motivated at the expense of the reps who leave.
The other method involves taking the full commission up front
before they leave. Scammer firms may use a rep's lack
of knowledge about industry licensing to further cripple him.
They may verbally discourage the rep from obtaining an
insurance license once he starts, instead telling him to master
securities sales first. The real money is not in securities but
in insurance, which has a higher payout and pays the above
commission trail over a portion of the life of the policy.
(An insurance license is important as well for the client
-- his needs will likely not center around securities alone.)
To this end, these firms may verbally encourage reps
without insurance licenses to take along a manager who is
licensed to sell insurance products when a client shows a need
for it. Since the rep cannot legally earn any commissions
from an insurance transaction without an insurance license, the
full sale must in reality fall to the manager, even if the manager
has verbally agreed to split the commission. Again, nothing's
in writing.
Also
handicapping a rep's earning capacity is the lead generation method
mentioned above, that of marketing to friends and family. This
method, heavily promoted by many scammer firms, is also heavily
flawed, as you'll see later. And... nothing about the firm's use
of it is in writing.
It
is worth mentioning here that managers at scammer firms cannot
be roundly denounced. Remember, they were usually as ignorant
at the start as those they're now recruiting and are only the
more successful victims of the scam. By the time they reach management,
they're often desperate, not the power earners they thought they'd
be.
The
scammer firm has carefully factored in the possibility of lawsuits
for these verbal deceptions. If the now-broke ex-rep can scrape
enough together to sue for fraud, the scammer's defense is its written
literature, which it will claim was all presented to the
recruit so that he made an informed decision.
Regrettably,
the scammer firm's true commitment
lies in profiting from a steady stream of recruits who will pay
an inflated fee just to get trained, will generate some sales before
their "natural market" (friends and family) dries up,
and will leave behind the commission-generating clientele that they
struggled to establish when they fail. Deception
is the key -- let's face it, few of us would pay hundreds if not
thousands of dollars to get a $12,000/year job with no reasonable
chance to advance.
Ok,
so the unsophisticated and inexperienced rep is blissfully unaware
of the above pitfalls before he's even started, and he's
ready to go. The training program itself is about to cost him a
wad of money, and his earning capacity is about to be further compromised
by the firm's flawed method of lead generation, but first... he's
about to start his own business!
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