DS Edge Goes Country!

    Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

    DS Edge - Nashville | MLM Startup
    I’m incredibly excited to announce the location of the next DS Edge conference: my city, Nashville, Tennessee! It’s the home of country music and for two days in September, its neighbor (Franklin, TN) will be the home of direct selling.

    Come to Tennessee to learn how to start and grow your party plan or network marketing company at the Direct Selling Edge Conference on Thursday and Friday, September 26 and 27, 2013.

    This two-day educational conference is the best for new and young direct selling companies because the quality of the content presented is excellent. It is pure education.

    Students Deserve Vacations

    After two full days of learning, as a student you’ll deserve a vacation, too.

    We’ve got plans to take you an optional excursion to visit some of the most famous honky tonks in downtown Nashville after the first day of the conference. Stay the weekend if you’d like to enjoy all that Franklin and Nashville have to offer. In your free time, you can visit the Grand Ole Opry, the Country Music Hall of Fame, The Parthenon, and RCA Studio B in Nashville, but don’t miss the historic sites of Franklin, too.

    What will you learn at this conference?

    You’ll learn…

    • how direct selling is different from other business models
    • the differences and similarities between network marketing and party plan companies
    • what recent Federal Trade Commission decisions means for you
    • best practices and step-by-step instructions for creating an ethical and effective presence in the social media landscape
    • the legal limits for raising capital and the legal rights inherent with stock ownership
    • the differences between different types of compensation plans and how to assess which plan type is best for you
    • the ABC’s of successful recruiting
    • how to teach others how to sell
    • the key behaviors we need to movivate in, and the building blocks of, compensation plans
    • the science behind compensation plan design
    • how Founder Programs work and why have one
    • how to select the right MLM software
    • why you need to have a distributor compliance system for your network marketing or party plan company
    • all about sales tax, 1099′s, unclaimed property reporting, and state income taxes
    • why one merchant account is not enough
    • simple methods to keep your MLM or party plan company safe from federal and state regulators
    • how the options of pilot programs, soft launches and hard launches can be used to ignite your growth
    • common mistakes of startup companies
    • 20 secrets of successful companies

    and more!

    Our 8 speakers will educate you in 16 sessions, plus there are 4 round table discussions that you will fill you with even more knowledge to give you the edge you need to be successful.

    Personal Appointments

    At the end of each day, from 5 until 7 pm, you’ll have the opportunity to meet with conference speakers for 20 minute appointments at no additional cost! Add the four hours up and you’re easily walking away with over $1,000 worth of consultation.

    Where is the conference?

    The Direct Selling Edge Conference will be held in Franklin, Tennessee (just 20 miles from Nashville) at the Drury Plaza Hotel Franklin on Thursday and Friday, September 26 and 27, 2013.

    Built in 2012, the new 338-room hotel offers a daily free hot breakfast, free soda and popcorn, free food at 5:30pm, free local and long distance calls, free parking, and a microwave and refrigerator in every room.

    We’ve negotiated excellent rates for you. Only $119.95 per night.

    Where Do You Register?

    Registration is fast and easy. For tickets, go to http://www.directsellingedge.com.

    For lodging, go to https://wwws.druryhotels.com/Reservations.aspx?groupno=2181246

    Questions? Call Jay or Victoria at Sylvina Consulting or email [email protected].

    What is the Direct Selling Edge Experience?

    Here is what you’ll get…



    Our agenda is loaded with information specifically chosen to advance your business.

    Reserve Your Seat

    At $199 for your ticket and only $100 for each of your companions, this educational conference is a great value. Contact me to obtain a promo code to obtain a discount. Ignorance is more expensive than education. Information is the only asset separating you from your competitors. We guarantee you’ll get the edge you need. If you’re not satisfied with the program, we’re offering a 100% refund, no questions asked.

    It’s easy to get to Nashville and the Direct Selling Edge Conference. Conference tickets are available now.

    See You In Tennessee

    Join me,+Kevin Thompson, and many of the top direct selling professionals at the Direct Selling Edge Conference. We hope to meet you there!

    FTC Business Opportunity Summary – MLM

      Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

      This is a guest post from top MLM consultant, Jay Leisner. Jay is the President of Sylvina Consulting. Compensation plan design, business performance reviews, and software consulting are three of Sylvina’s specialties. Jay is also a partner with me for the Direct Selling Edge conference for MLM startups. While Jay is not a lawyer, I have yet to see a better summary of the Business Opportunity regulation than this one. I could not have written a better summary than the one prepared below.

      There’s a lot of uncertainty surrounding this new business opportunity regulation. In my opinion, 99% of the traditional MLMs out there have nothing to worry about. However, with the newer internet based companies that rely heavily on lead generation, the regulation poses a significant challenge. I hope you find this article informative.


      This month, I attended the 2012 Global Regulatory Summit held by the Direct Selling Association in Washington, DC. It is an annual event attended primarily by lawyers and employees of direct selling companies who are responsible for legal compliance.

      In March 2012, the Federal Trade Commission or FTC promulgated a significant new Business Opportunity Rule known as Rule 16 C. F.R. Part 437 (click here to download a full copy of the regulation). Direct selling companies are not specifically or explicitly excluded from this rule.

      If your company is subject to this rule, potential buyers of your business opportunity must be given a one-page disclosure statement at least seven calendar days before the prospective buyer signs an agreement or pays any amount of money for the business opportunity.

      If you have a direct selling company with independent representatives who recruit others to sell and recruit, anything that slows down the recruiting process isn’t good for recruiters or your company because during the waiting period, some new recruits will change their minds and opt not to enroll! Fortunately, there are things you can do to not be subject to this new rule.

      Before explaining these things, I’d like to tell you about the one-page disclosure statement referenced above. It must include full disclosure of any civil or criminal legal actions that the company or any of its key personnel have been the subject of within the last 10 years (regardless of the outcomes). This means that if your company was sued by an independent representative and you were the prevailing party, you would still need to disclosure this legal action. The disclosure statement must also include the names and telephone numbers of at least 10 people who have purchased this business opportunity from the seller. If the seller has sold the business opportunity to less than 10 people, then all of them must be listed. In addition, the person receiving the disclosure statement is notified that if he or she purchases the business opportunity, that person’s identity may be disclosed to future prospective business opportunity purchasers.

      Rule 16 C.F.R. Part 437 defines a business opportunity as a commercial arrangement in which:

      1. A seller solicits a prospective purchaser to enter into a new business; and
      2. The prospective purchaser makes a required payment; and
      3. The seller, expressly or by implication, orally or in writing, represents that the seller or one or more designated persons will
        1. Provide locations for the use of operation of equipment, displays, vending machines, or similar devices, owned, leased, controlled, or paid for by the purchaser; or
        2. Provide outlets, accounts or customers, including but not limited to, Internet outlets, accounts, or customers, for the purchaser’s goods or services; or
        3. Buy back any or all of the goods and services that the purchaser makes, produces, fabricates, grows, breeds, modifies, or provides, including but not limited to payment for such services as, for example, stuffing envelopes from the purchaser’s home.

      A new business means a business in which the prospective purchaser is not currently engaged, or a new line or type of business.

      A required payment is all consideration that the purchaser must pay to the seller or an affiliate, either by contract or by practical necessity, as a condition of obtaining or commencing operation of the business opportunity. Such payment may be made directly or indirectly through a third party. A required payment does not include payments for the purchase of reasonable amounts of inventory at bona fide wholesale prices for resale or lease.

      Providing locations, outlets, accounts, or customers means furnishing the prospective purchaser with existing or potential locations, outlets, accounts, or customers; requiring, recommending or suggesting one or more locations or lead generating companies; providing a list of locator or lead generating companies; collecting a fee on behalf of one or more locators or lead generating companies; offering to furnish a list of locations; or otherwise assiting the prospective purchaser in obtaining his or her own locations, outlets, accounts, or customers, provided, however, that advertising and general advice about business development and training shall not be considered as “providing locations, outlets, accounts, or customers.”

      The first two elements of a business opportunity as defined above clearly apply to you as your direct selling company offers a new business for which a required payment is made. It is the third element that may or may not be relevant, that is, whether your company suggests or provides customers or lead generating companies to the purchasers of your business opportunity.

      Some direct selling companies provide leads to their representatives or suggest the use of lead generation companies. If a company refers prospective customers or representatives to existing representatives, will this practice cause a direct selling company to be subject to this new business opportunity rule? If a company has a relationship with a lead generation company and encourages its representatives to buy leads from this third party, will this similarly be a problem? Does it matter whether these practices are disclosed by your company to new representatives at the time they join? Does the number of leads provided as compared to the total number of new customers or representatives enrolled have any relevance? If leads are given only to representatives who have achieved a specific rank or higher in your compensation plan, does that matter?

      Party plan representatives may offer a hostess who signs up on the night of the party to be a consultant the opportunity to be credited with this party as her own, that is to say, she may offer the party and its customers and sales to the joining consultant as an incentive to purchase the business opportunity. Could this practice cause the party plan company to be subject to the new business opportunity rule? If a company doesn’t encourage this practice, does that make this practice irrelevant to the business opportunity rule?

      I wish I could tell you the answers to these questions, but I can’t because the rule is new and we just don’t know exactly how it will be interpreted and enforced. With this information, you can choose to change nothing and just wait and see what happens, or you can take steps now to respond to the new rule in town. The most conservative approach would be to (a) not recommend the use of lead generating companies, (b) not provide leads or customers to representatives, and (c) not suggest that representatives “gift” a party to a hostess. All of these steps are achievable, although they may be a change to how you’re doing business today.

      End article

      See below for the FTC’s short summary of the regulation.

      Living the Island Life and 7 Traits of Successful Companies

        Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

        IMG 3404I had the privilege of speaking at the Island Life launch party in Cocoa Beach, Florida. It was an exciting trip! I packed up the family and made a little vacation out of it. Buca and I have been friends for a couple of years and I was excited to hear the news about he and his partner starting their own company. Buca will tell you straight up, the Island Life culture is not for everyone. When the first item on the itinerary was a BBQ with an ocean view and the last item was a karaoke costume party, it was pretty apparent that Buca was injecting his signature in the DNA of the business. Because he’s so focused on a unique distributor experience, it just might work.

        I also had the pleasure of hanging out with Doug Wead, networking great and Senior Advisor to the Ron Paul campaign.

        At the event, I gave a talk about the seven traits successful companies have in common. I threw together the video below to serve as the highlights. It’s not the best production quality but I think you’ll enjoy the content. I’ll package this in a more professional manner in the future and re-ship. But for now, catch a glimpse. The seven traits are also listed below. Take care, for now.

        1) Leadership
        2) Product
        3) Design
        4) Systems
        5) Compliance
        6) Capital
        7) Field

        33 Reasons NOT to Start a MLM

          Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

          Photo by @i am marlon

          I was speaking with a prospective client the other day about his MLM Startup and on his first question, he asked, “Are there any reasons why I should NOT start a network marketing business.”  I thought it was a neat exercise.  He was clearly testing me to see if I could be objective.  After all, the MLM model is not a great fit for everyone.  See below for 33 reasons why the model might not be the best for YOU as a means of distributing your product or service.  It’s ok to launch with some of these challenges.  But if the list stacks up high, exercise caution.  And of course, it all depends on the complexity of your business.


          1) Your margins are too low.  It’s hard to run a legal compensation plan with anemic margins.

          2) Your product is already a commodity. There’s an equivalent in the marketplace with mass distribution and lower price points. If the main driver leading people to buy your product is the financial opportunity, it’ll lead to trouble.

          3) You’re solving a problem in the marketplace that you’re not personally experiencing. While you might think it’s a cool product, you don’t really understand your target audience.

          4) Your business is a “Meatball Sundae.”  Just because you like meatballs and you like ice cream, it’s not a good idea to put the two together.  While your product is interesting and the MLM component is interesting, it might not be a great idea to combine the two.

          5) Your product is dangerous.  The ingredients are so cutting edge, you have no idea of the long term consequences. After taking your pill, customers can’t feel their fingers for three days.

          6) Your product story is uninspiring. Unless your product has unique properties with unique benefits, your distributors will choose to stay home instead of building their business.

          7) You don’t own any proprietary rights to your product, leaving you vulnerable for rapid value erosion.  If a competitor can knock off your product and sell an equivalent at half the price, it places your distributors in a bad situation to make sales.

          8: You’ve got a nifty pay plan with no product to sell. In this scenario, since you’re not really passionate selling a particular product, the focus will clearly be on the pay plan.  It takes more than a token product to make a program legitimate.

          9) You’re inventing a new definition for “customer sale.”  Instead of requiring that your distributors purchase inventory they can either use or sell to customers in a month, you’re going to require that they purchase product and give it all away and conveniently count those “gifts” as customer sales.


          10) You have not agreed on equity terms with your partners. Your partner thinks he’s getting 50% while you think he’s only worth 1%.  Get on the same page early.

          11) You’re an army of one. You need help!  Do you really plan on handling compliance, product development, marketing, customer support, media inquiries, logistics and accounting? There are easier ways to kill yourself.

          12) You gave your younger brother an executive role in the company, despite the fact that he’s been unemployed for over five years and lives with mom.

          12) You and your partners lack a good understanding of the MLM industry.  While you’re intrigued with the concept, you’ve never worked at an MLM and/or built a sales force with an MLM pay plan.  If you all are not part of the tribe, it’s going to be hard to attract top talent.  The old adage is true: “Dig your well before you’re thirsty.”

          13) Your executive team is not “all in.”  They’re still working their day jobs, making it very difficult to do the massive work necessary to build a large company.  This can be cured with adequate funding to account for small salaries.

          14) You don’t want to be the “face” of the business.  You want to be the “person behind the curtain,” creating the system and sipping on fruit drinks in Costa Rica while your distributors do the work.  The field needs more than a product to sell, they need a leader to follow. It’s got to be you.

          15) You cut a deal with a distributor that promised to deliver 5,000 new enrollees in the first 90 days of the business. He got equity before the launch with no vesting schedule and no restrictions. On day 91, he brought in 3 people, including himself. He still owns a piece of your business…forever.  This can cause problems in future rounds of fundraising.

          16) You always wanted to be a world traveler.  Instead of stabilizing your business operations in North America, you’re flipping the switch and opening up shop in all countries before honoring the formalities of doing business in those regions.  This leads to a substantial increase in risk.


          16) You lack adequate funding. You’ve saved just enough to cover legal, software and pay plan consulting services. What happens when the skeleton is built, the money is gone and you’ve got another several months until you’re profitable?

          17) You have no capital allocated for compliance.

          18) You have no capital allocated for intellectual property protection i.e. trademarks, trade secrets, patents, copyrights, etc.

          19) You have no capital allocated for marketing.  While the field is responsible to tell the product story and closing sales, you’ve got to take the time to craft a brand worth sharing.

          20) Where’s your logo?  The name of your company in 16 point “Helvetica Bold” font is not considered a logo. If you’re not working with a graphic designer, I like 99 Designs for this.


          21) You’re cutting corners on your software.  Just because you “know a guy” doesn’t mean that you should hire him.  Programmers that are unfamiliar with the industry usually take the money up front, build something reminiscent of the 1994 dial-up days and disappear after the site implodes on day 3.  Understandably, the software can theoretically be built from scratch.  But is it worth the risk?

          22) Due to the high-risk nature of your business, you’ve been approved by only one merchant account processor for credit cards.  If it goes down, you’re out of business.

          23) Congratulations.  After facing several rejections from reputable banks and merchant account processors, you’ve been approved.  Sadly, the processor wants you to deposit $250,000 into a “reserve” account in their bank in Nigeria.  They sent you the following message: “Pleese snd mony too r addrsses with Western Union.”

          24) You’ve setup your merchant account with PayPal because they make it easy and “people trust them.”  Since PayPal has terminated all accounts associated with network marketing companies for violation of PayPal’s Acceptable Use Policy, I strongly disagree that your business will be an exception.

          Pay Plan

          25) You just copied MonaVie’s plan…and you didn’t even bother changing the words.  I suspect you’ll get a letter in the mail after you highlight your new “Hawaiian Blue Diamond” qualifiers.

          26) People are required to join your business as distributors before purchasing product.  There’s no customer option.

          27) You’re offering training bonuses.  In order to advance in the pay plan, your people need to be “certified” by paying a substantial fee. While your distributors are strongly insisting for this sort of bonus, it’s not a good idea.

          28) You did your own pay plan and you really lack the experience to craft a plan that’s appealing for distributors and easily shareable.  Your plan for a 110% payout is really not a good idea.

          29) You’re not allocating enough revenue for operational costs.  While it’s good to offer a generous payout, it’s important to maintain enough cash to run solid operations.

          30) Your pay plan is not generous enough. By a combination of weak margins and a flimsy math model, leaders will be more attracted to companies with a better ROE (Return on Effort). While they love your $5 widgets, they’ve got to sell a ton of those items before they can reap a decent return.

          31) In order for your distributors to remain eligible for bonuses, they’re required to purchase a requisite amount of product each month…this amount grossly exceeds what a reasonable person can sell and/or use in a given month. It’s clearly a program that relies on inventory loading, which is indicative of a pyramid scheme.

          32) Fast Start Bonuses are a big piece of your pay plan. And the money collected from the $300 enrollment fee is being used to fuel those bonuses. If you remove the FSB, the pay plan falls apart. And paying a bonus with enrollment dollars is illegal, which puts you in a tough spot.


          I hope you found this article informative and somewhat entertaining.  The goal is to get you thinking through some of the details.  It’s great to have an idea, but it takes more than an idea to build a great company.   You’re definitely encouraged to share your own reasons.  Speaking of reasons…there’s one more reason why you should NOT start a MLM…

          33) Passion.  There’s got to be more to your mission than just making money.  Unless you truly care about impacting lives in a positive direction, it’s going to be near impossible to create the emotional connections necessary with the right people.  At the end of the day, it’s about inspiring people to change their habits, thereby changing their lives.  If your PURPOSE is not in line with your BUSINESS objectives, save your money.


          Chickens, eggs, leaders and products

            Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

            I’m not fond of the “chicken or the egg” riddle.  It’s a trick question with no right answer. One can’t exist without the other.  In the multilevel marketing industry, there’s a similar riddle: Which one comes first, leaders or product?

            In network marketing, there’s a growing divide between MLM distributors and companies.  There’s more litigation against distributors, more angst and more finger-pointing.  The speed of innovation is making it challenging for companies to provide leaders with competitively priced items, long term. And distributors are more transient than ever looking for shinier lures.  It’s tough out there now, there’s no doubt about it.

            Back to the riddle…  Leaders first or products first?  Distributors will say “Without us, nobody would buy your stuff.  We’re independent contractors, not employees!”  Companies say, “Without us, you’d never have a network. I dare you to try building a following with a business that stinks!”

            The answer

            They’re both right.

            Suppose a leader enrolled in a business that sold $1,000 rolls of paper towels.  We’ll call this business “BRAWNEE WANABE.”  There’s nothing special about the paper towels, they’re just the kind that can…..you know…..wipe up spills and stuff.  On sale for $1,000 per roll.  And suppose the BRAWNEE WANABE website is awful.  The checks rarely arrive on time and when they do arrive, they sometimes bounce.  And there’s no street address for the company, the company owners are anonymous and there’s not a shred of support for the field.  Suppose Dexter Yager, one of the most prolific networkers in history, decides to hang up his Amway business and join BRAWNEE WANABE.  Do you think he’d maintain his downline for long?

            The product matters.  The company matters.

            “But I own the downline! I worked hard to build it!”  This is what distributors argue, and it’s a good one.  But did that downline develop solely because of their leadership?  Or….did it develop with their leadership PLUS with the branding and support provided by the company?

            The Truth

            In reality, the relationship between a leader and company is a tightly knit partnership.  It’s like a goldfish in a tank partnership.  The goldfish grows to the size of the tank (I’ve heard).  If the tank is small, the goldfish stays small.  If the company is awful, the leaders will never be able to build a sustainable downline regardless of talent.

            On the flip side of the coin, the companies absolutely NEED leaders. Without leaders, there’s no product sales.  Leaders build up the value of the brand in conjunction with the company.  They’re vital.

            So which one is more important, leaders or companies?  It’s a loaded question.  They each rely on the other for their existence.  Yes, companies can get new leaders and leaders can get new companies.  But for a program to really work, companies need to provide cutting edge value daily and leaders need to remain committed, even during the rough patches.

            Edge Conference!

              Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

              Edge Conference

              Get ready for the Direct Selling Edge conference!

              It’s official! If you’re someone thinking about launching an MLM and you’re intimidated with the countless details, we’re hosting the Direct Selling Edge conference designed to provide as MUCH information as possible. Professionals from multiple disciplines in the industry are coming together to educate soon-to-be MLM and Party Plan business owners. Attendees are set to receive over 20 hours of education from top notch industry professionals. After adding up the hourly rates, attendees are walking away with well over $5,000 worth of consultation. The cost of a ticket: $199. And if someone feels they were ripped off, they get their money back, no questions asked. There’s too much money at stake to leave anything to chance. If you’re going to do it, do it right. Details are below! And to learn more about our speakers, visit our hub at: www.directsellingedge.com. Spread the word. +1 us, “Like” us, tweet about us, share us, email about us, post this on facebook and, more importantly, get your seat.

              Revised FTC Endorsement Guidelines: Part 1 (Master Distributors)

                Kevin Thompson is an MLM attorney, proud husband, father of four and a founding member of Thompson Burton PLLC. Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience to help entrepreneurs launch their businesses on secure legal footing. Recently featured on Bloomberg TV and several national publications, Thompson is a thought-leader in the industry.

                Endorsements and Testimonials GuidelinesAs I was reviewing the revised FTC endorsement guidelines, I ran across several provisions that would impact the direct sales industry. When people read the word “impact,” I think they naturally assume it’s a negative thing. Undoubtedly, the revised FTC guidelines calls for more disclosures from network marketing companies. In a multi part series, I’m going to hash out the provisions that network marketing companies need to pay special attention to.

                I recently wrote an article about “Master Distributors” and explained the pros and cons of cutting special deals with top networkers. In the end, I see nothing wrong with businesses cutting favorable deals with top performers. HOWEVER, I think it’s important for companies that cut these deals to disclose the relationship to the public. There’s a provision in the guidelines that’s directly on point:

                § 255.5 Disclosure of material connections

                When there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed. . . . Additional guidance, including guidance concerning endorsements made through other media, is provided by the examples below.
                . . .
                Example 4: An ad for an anti-snoring product features a physician who says that he has seen dozens of products come on the market over the years and, in his opinion, this is the best ever. Consumers would expect the physician to be reasonably compensated for his appearance in the ad. Consumers are unlikely, however, to expect that the physician receives a percentage of gross product sales or that he owns part of the company, and either of these facts would likely materially affect the credibility that consumers attach to the endorsement. Accordingly, the advertisement should clearly and conspicuously disclose such a connection between the company and the physician.
                End Quote


                With master distributors, assuming a special deal has been cut, there’s certainly a material connection that would not be expected by the audience. In this case, as stated by the guidelines, the connection would need to be disclosed because absent a disclosure, regulators will perceive the endorsement as deceptive or misleading. In example 4 above, the endorsing physician was earning a cut of gross sales of the product. In that context, the guidelines clearly state that his relationship with the company should have been disclosed.

                Let’s play around with the characters in the example 4 hypothetical. Instead of an anti-snoring product, let’s say it’s a water filtration system sold via network marketing. And instead of a physician, let’s say she’ a distributor. We’ll call her Susan. Additionally, as with the physician in the above example, let’s say Susan is receiving a percentage on the gross revenue of her downline volume. Since Susan is getting a special deal that’s not available to the public (again, there’s nothing wrong with this), let’s call her a master distributor.

                Now that the scene is set, let’s play around with some facts. Susan is at a convention talking about the incredible benefits of the walter filters and about how they zap salmonella and chlorine. She also talks about the incredible financial opportunity referencing the unique binary/two-up/matrix/unilevel hybridization, patent pending, copyrighted pay plan. Since Susan is the recipient of a lucrative deal (percentage on gross revenue), it could be perceived as a fact that would “materially affect the credibility that consumers attach to the endorsement.” If consumers knew about Susan’s deal, they would be in a better position to weigh in on the veracity of the endorsement being made. Consumers might think to themselves “Of course this is the opportunity of a lifetime…for her!” Or, if Susan and the company handle it well, Susan can build trust with her organization from a position of full disclosure whereby her endorsement would still merit attention.

                When companies and distributors do not disclose these deals, it’s my opinion that’s it’s an abuse of goodwill accrued by the distributor. Clearly, their opinion means something or else they’d be unable to draw over the hundreds and thousands of new participants. People trust their leaders and that measure of trust has value for companies looking to beef up their sales. If new participants were aware of a special deal, they would at least be operating with all of the facts. And in most cases, the participants would still follow their leader.

                What do you think about this FTC provision? Do you think companies should disclose their deals with master distributors?