Is MLM (multi level marketing) a scam?


In your journey with money, I believe some of us would have received calls from long lost friends who have a business proposal that he/she would like to share. When I was 19, I got my first call and found myself in an old and shady commercial building in Taisheng. To my surprise, there were hundreds of people there already. We were brought to listen to a 3 hours presentation (Very often it is about a story of a common to earns his millions passively in a short period of time)

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By the time it ended, it was close to 11pm and we were lead to a table where a mentor would share with you his own personal journey. When I said I wasn’t interested, the people around me (my friend wasn’t even there) quickly became furious and surrounded me. When I decided it was enough and tried to leave, they exclaimed I will never be successful in my life. Feeling very furious, I left. Years later, I realized I was invited to a Multi-Level Marketing recruitment event.

 

What is Mulit-Level Marketing (MLM)?

According to the Ministry to Trade and Industry, a Multi-Level Marketing or Pyramid Selling scheme will typically require participants to pay an upfront charge. In return, the participants are promised financial rewards for each additional participant recruited, as well as all new participants who are in turn brought in by their recruits – hence the pyramid-like structure.

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While I believe it is an interesting business model, this system has been widely abused especially if the company do not sell any useful goods or services. These companies are only interested to make a quick cash from recruitment which makes it undesirable. Therefore, it has recently coined as scams.

 

Is MLM illegal in Singapore?

Yes… and no.

MLM activities in Singapore are governed by the MLM and Pyramid Selling(Prohibition) Act. The Ministry of Trade and Industry administers the Act. Very simply, it is illegal.
However, not all MLM companies are bad, legitimate businesses such as insurance companies, master franchises, and direct selling companies (find the list here) which fulfill certain criteria can still operate in Singapore.

 

Is MLM desirable?

With no vested interest, I believe that MLM has several benefits over traditional businesses.

  1. It offers a ready made system to provide products or services to others.
  2. Training will be provided
  3. Low upfront cost (as compared to a traditional business)

It is the people that make or break a company, this applies to MLM companies as well. A system can only work when there are the right people in the organisation. I have seen interesting MLM companies that provides excellent products and reward their salespeople well. One company that is around for many years is Tupperware. Yes. This company a MLM company.

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What should I take note of?

  1. Would you use the products and services yourself (even before joining the company)? If you do, the people around you might have a need these products or services.
  2. Do you need to “invest” a large sum of money upfront? These are commonly disguised as recruitment fees.
  3. Are there more emphasis on recruitment than their product or services? A company that focus more on recruitment is a red flag for a pyramid scheme.

As much as MLM has received a bad name because of a ponzi scheme called Sunshine Empire in 2006, MLM has evolved over the years, companies such as Amway*, Tupperware*, NuSkin*, etc has become common household names.

In your journey with money, you might encounter new business opportunities. Be open minded, invest safely and enjoy your journey with money.

 

Bonus: Here is a video on an introduction to what network marketing is.

*no vested interest at point of writing

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