In the last article, MLM Income Claims: Basic guidelines for companies and distributors | FTC, we walked through the Federal Trade Commission’s (“FTC”) recent allegations against Fortune Hi-Tech Marketing (“FHTM”) regarding income claims made by its distributors. In this installment, we’re going to see what it takes to give an adequate disclosure for the claims made.
The format is simple: First, I’m going to lay out what a company needs to provide for its distributors in order for them to give proper disclosures. Next, I’m going to walk through the examples cited by the FTC against FHTM and demonstrate how to make a proper disclosure under the circumstances using the framework provided by the court in Nat’l Dynamics and the FTC’s .com Disclosure Guidelines. The goal of this post is to provide you with practical, blanket instructions to make adequate disclosures. Ready to get started? All right, let’s get down to business.
THE INCOME DISCLOSURE DOCUMENT
The best way for a company to ensure that claims regarding its payment plan are given properly is to put the information on a silver platter for the distributors to use. It’s not the distributors’ job to gather the data; it’s the distributors job to zealously represent your company and all the while properly disclosing the information provided to them. This is why every company should provide its distributors with an income disclosure document: the ultimate, end-all-end-all, “Swiss Army knife” for distributors to give income claims.
At a minimum, an income disclosure document should include:
- A statement of the average amount of time per day, week or month spent by the distributors at each rank to achieve the various levels;
- The year or years during which the disclosed results were achieved;
- A statement of the average earnings achieved by all distributors at each rank;
- The Highest and Lowest earnings achieved weekly by distributors at each rank; and
- The percentage of distributors at each rank who achieve the average income.
Here is a (very) simple example of what an income disclosure document should kind of look like. This can be done on Excel in 10 minutes:
These are some specific examples referenced by the FTC in its lawsuit against FHTM.
RECORDED VIDEO PRESENTATIONS
One distributor claimed in a recorded video presentation that “four months into the business [with FHTM]… I had actually quadrupled what I have ever made as a Registered Nurse.”
A distributor claimed on her Vimeo site that distributors who reach the National or Executive Sales Manager levels “are making thirty-, forty-, sixty-, seventy-thousand a month.”
The FTC alleged distributors frequently made lifestyle claims, such as highlighting extended family vacations to exotic locations, driving nice cars, and purchasing large homes with luxurious amenities.
If you will remember back to the FTC’s Disclosure Guidelines for Online Marketing: How to get it right (Part 2), we explained that a text income disclosure displayed in the video DURING the claim in addition to a more detailed audio and video formatted disclosure at the end of the testimonial was the best strategy. During the video disclaimer at the end of the testimonial video, an image of the company’s income disclosure document should be displayed with audio narration regarding the average earnings.
Regarding Claim #2, the court in Nat’l Dynamics provides some guidance:
Statements of ranges may be deceptive if the earnings ranges are too large. A consumer presented with a statement that thousands of distributors have earned from “$ to $” is likely to assume that the average lies somewhere near the middle of the range, and that substantial numbers of people have achieved results in the top of the range.
In order to provide an earnings range like the one given above, it must be provided with a “clear and conspicuous” disclosure of the percentage of all distributors that achieved results within the range. If the ranges are from $0 and up, the disclosure only needs to indicate the number of distributors within each range or the percentage of distributors in each range. Luckily, all of this information is provided in our income disclosure document shared above.
RECORDED AUDIO PRESENTATIONS
The FTC alleged that a distributor on a recorded conference call stated that someone earned over $50,000 in his sixth months with the company alone and that he “earned millions and millions beyond that” in subsequent years.
Regarding another conference call, the FTC alleged a distributor stated that someone else was earning “over $100,000 a month” after three years with the company.
It’s impossible to give an audio disclosure simultaneously as an audio claim (Go ahead and try it out loud to yourself). Since the claim is in audio format, we must provide a disclosure in audio format as well. Using the information provided in the income disclosure document, all earnings discussed should be addressed.
This isn’t a science, so you must get creative in order to find the easiest and most efficient way for you to equip your distributors with the tools they needs to give adequate disclosures. One suggestion is to provide distributors with a script to read before these calls that explains the average earnings. Another option is to provide an audio file to download on your homepage that distributors may attach to the beginning of their audio presentation before they post it.
Since the audio claims were posted on team websites, a hyperlink could also be provided under the audio clip like this: “The average distributor earns $___ per month. Click here for more information and disclosures about the income ranges discussed in the audio presentation.”
The FTC alleged a distributor posted on her Twitter account about a recruiting meeting, encouraging people to “Bring ur friends & learn how 2 make $100k aYR.”
I’m going to preach this until the cows come home: Do not make income claims via Twitter. “But Kevin!” you say, “I can simply insert a hyperlink to a proper disclosure, right?” Wrong! There is simply not enough real estate to provide an adequate income disclosure on Twitter.
The FTC alleged that at a national convention, 30 top earners were called to the stage to be presented with a mock check for $64 million to represent the amount of money they earned with the company. Several distributors later shared a photo of the presentation on Facebook.
In the caption of the photograph: “Results not typical. The average distributor earns $____ per <week, month, year>. Click the link for a full disclosure.” The link should lead the consumer to a page where they will be provided with an image of the income disclosure document.
It’s time for the industry to wake up and smell the coffee. The FTC is taking these earnings claims very seriously. And as technology is making it simpler for distributors to make these sorts of claims, the responsibility is increasing for companies to properly educate the field. Looking forward, it’s vitally important to have adequate compliance training and to supply distributors with the up-to-date information that they need to make proper income claims. Most importantly, the information needs to be provided in such a way that they any consumer can look at the information and be able to understand the underlying facts so they may make a fully informed decision.