A Singapore-based MLM recently held a dinner for its 26,000 employees and distributors in Taiwan that supposedly cost S$4.35m. I actually attended a “concert” in 2018 by the same company with a couple of my friends as they had free tickets. The first two hours are actually used to celebrate the achievements of the top sales with only the last hour being considered a concert. Never again.
We then had a meal with the party (we refused the treat and transferred our portion of the meal back) that provided the free tickets and the distributor actually invited us to visit their HQ to take a look if we were free.
You or the people around you might have been invited to join or buy from these MLMs. In this post, I will share what I have researched on Singapore MLMs and what to look out for if you are approached by a representative to buy stuff or to join them.
Disclaimer: I believe I barely scratched the surface as I don’t have inside information about how these MLMs operate. This is based on my personal experience and what I have researched online. If you have any additional insights you would like to share, do drop a comment or email me at consumelesslife@gmail.com.
What Is An MLM?
Multi-Level Marketing (MLM) is a compensation structure that rewards individuals based on sales and their toplines (e.g. team leader) based on the sales of their downlines. Individuals are recruited by the company or by another individual already in the company to sell a product to earn commissions.
These companies can be direct-selling companies with an MLM compensation structure but we tend to just call them MLMs. In this article, I will continue to refer to them as MLMs.
The MLM company structure can look something like this.
| Multi-Level Marketing |
| 1 Company |
| 3 Regional Leaders |
| 9 Distributors |
| 27 Team Leaders |
| 81 Sales Representatives |
Downlines are people under your while toplines are people who are above you in the organisation structure. If we look at the structure, the Team Leaders are downlines of the Distributors while being the topline of the sales representatives.
On the other end of the spectrum, we have Single-Level Marketing where there is only the company and the sales representative with no one in between. An example would be affiliate marketing where the marketer gets compensated for goals met (e.g. sales, sign-ups). My Trust Bank referral code article is an example of Single-Level Marketing.
Examples of MLMs in Singapore include the direct-selling companies many of us are familiar with selling supplements, skin care and water filters. However, do you know that insurance companies, real estate agencies and master franchising like food chains also use an MLM compensation structure? However, in this post, we will focus on direct-selling companies.
Making Money In A Legal MLM – Direct Sales
Price of product = Cost of product + Sales commission
The difference between the sales price and the cost is the sales commission. The more you sell, the more you earn. If you hit certain sales targets, you might also get cash and other non-monetary rewards.
If you and your team are able to move a high volume of products, you might get promoted to the next level and also get cash rewards.
Making Money In A Legal MLM – Overriding Commissions
This sales commission is then split between the actual individual that sold the product and their recruiter (aka topline). This split can go even higher (split with recruiter’s recruiter etc) depending on the business model of these MLMs. These are called overriding commissions. They can come in both monetary and non-monetary benefits.
This split can be done before and/or after the sale. This commission split can come from the commissions, where the commission earned after the sale is split with the topline. Alternatively, the higher toplines can get a bigger discount when procuring products and when they sell it to their downline, they will be able to earn the difference.
Making Money In An Illegal MLM – Recruitment
All money made must be based on a transaction involving a commodity. It is illegal to make money by just recruiting people. Making money via recruitment is one of the reasons why people dislike MLMs. In order to join these illegal MLMs, a high amount of money might be required just to enter. Instead of an actual sale of an actual product, this recruitment fee will become the sale, and getting people to join will become your KPI. If the business model is mainly recruitment, it turns a potentially legitimate MLM scheme into an illegal pyramid scheme.
People will try to get their friends and families to join the MLM under them without considering how their friends and families will make back their money.
Why Share Commissions With The Topline
One potential reason for sharing the commissions with their topline is because of any logistics, administrative, marketing and other expenses incurred by the topline contributing directly and indirectly to the sale. The downlines usually only concern themselves with sales while the topline is also involved with the running of the company besides doing sales.
Another reason for sharing the commissions is that the topline has put in resources to train the individual and they would like a return to cover the amount they spent. This sounds reasonable but it can get really unreasonable when it gets excessive.
Additionally, this sharing of the commissions also helps fund the various rewards (vacations, cash prizes) that top salespeople can make, which encourages individuals to achieve higher sales.
DSAS And MLMs In Singapore
For completeness’ sake, I would like to mention the existence of a Direct Selling Association of Singapore (DSAS). They are a group made up by the various MLMs in Singapore to represent the interests of legitimate MLMs. Members of these MLMs will need to follow their code of ethics and conducts which is there to protect consumers and sales reps. This association has existed since 1976 but we still hear horror stories about MLMs so we should still be careful when dealing with MLMs.
Why Do People Hate MLMs?
There are 4 main points why people hate MLMs that make MLMs seem like a scam. The law on MLM has clauses to attempt to combat these points.
- Aggressive Recruitment
- False Claims About Products
- Exaggerated Earnings Potential
- Pushy Selling Tactics
MLM, Direct Selling, Pyramid, Ponzi Scheme – What’s The Difference?
We sometimes use these terms interchangeably but they are actually different terms. There is no official definition so I will try to put down what I think they all mean.
MLM
As mentioned above, MLM is a compensation structure where a commission is earned by an individual after selling a product and the topline also gets a cut of the sale a downline makes. It is also sometimes referred to as network marketing. An MLM can either be good or can be bad.
Direct Selling
Direct selling is a method of selling goods and/or services directly from salesperson to customer. They usually do not have a physical retail outlet or website where you can directly purchase a product. You have to go through a distributor/representative/agent to make a purchase. A direct-selling company can either be good or can be bad.
Ponzi Scheme
A Ponzi scheme is an investment scam, usually promising high returns, where the funds of new investors are used to pay older investors. There is usually no actual investing involved in this scheme. The music stops when there are no fresh funds to continue paying the existing investors. This term is not relevant to our discussion today. A Ponzi scheme is confirm bad.
Pyramid Scheme
A pyramid scheme is a scam where participants make the majority of money from recruitment (membership fees) instead of selling products. The difference between a Ponzi scheme and a pyramid scheme is that a Ponzi scheme usually involves the company directly engaging the investors while a pyramid scheme has multiple layers of members recruiting members. A pyramid scheme is confirm bad.
The Confusion
The confusion comes in as the compensation structure of MLMs looks like a pyramid. Additionally, some of us have had bad experiences when dealing with MLMs so we just bunch all of these terms together. The naming of the pyramid scheme is unfortunate. The MLMs that we are familiar with are direct-selling companies with an MLM payment structure.
Take note that how people refer to these different terms might be different but the takeaway is that you need to look at the underlying business model to determine whether it is legitimate or not.
Are MLMs Illegal In Singapore?
Aren’t MLM supposed to be “illegal”? Or are they not? Well, it depends.
According to the Multi-Level Marketing And Pyramid Selling (Prohibition) Act, any promotion or participation in an MLM scheme is unlawful. The penalty would be a fine not exceeding S$200,000 or a jail term not exceeding 5 years.
These laws were enacted to better protect consumers and sales representatives by attempting to remove the bad parts of MLMs (e.g. false claims about product and earnings potential)
However, in 2000, the Parliament excluded some business schemes from this law if they meet certain criteria as not all MLM marketing techniques are bad. There are two main business models excluded and a sub-paragraph covering all other business models. Please read the actual statutes if you want 100% accuracy of what the law states.
| Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order |
| Insurance or Financial advisory |
| Master Franchise |
| Others |
Exclusion 1 – Insurance & Financial Advisory
The first business model excluded is the insurance and financial advisory business. They will need to follow the rules under the Financial Advisers Act or the Insurance Act accordingly. According to MAS notice 306 on the Market Conduct Standards for Life Insurers Providing Financial Advisory Services, there is a maximum 3-tier structure (Manager, Supervisor, Representative) where overriding benefits are involved. The policy intent is not specifically mentioned but I speculate that they think that too many tiers will be to the detriment of the consumer as a higher percentage will go towards the agents instead of funding the policy. Additionally, too many tiers might result in fewer comms for the actual sales rep, leading them to focus more on quantity instead of quality sales to the detriment of the consumer.
Exclusion 2 – Master Franchise
The next business model excluded is the Master Franchise. They don’t have a specific law per se. But they should follow clauses 2,3,4 and 6 under the “Others” category.
Exclusion 3 – Others
All other schemes with MLM-like compensation plans will fall under the “Others” category.
Direct selling is not directly mentioned in this piece of exclusion but it will fall under “Others”. These schemes will need to satisfy all of the 8 following conditions. These conditions are there to protect both consumers and the people who are recruited as representatives.
| 1) No payment required to join MLM |
| 2) Benefits must be based on a transaction of a product |
| 3) No benefits can be based on just recruitment |
| 4) No statements to be made that benefits can be made outside a sale or overriding commissions |
| 5) Fair and accurate records of benefits made by participants must be maintained |
| 6) No illegal or unethical selling and recruitment tactics |
| 7) There must be a refund policy for downlines |
| 8) Refund policy must be given in writing |
Clause 1
No payment is required in order to participate except for sales demonstration materials which should be sold at or below cost and cannot be resold. No commissions should be paid for the sales of these materials.
CLL: This clause is there to make sure new participants do not need to pay high amounts of money to purchase inventory at inflated prices to join the MLM. If these expensive inventories cannot be sold, this will be the same as a joining fee, which is not allowed.
Clause 2
Benefits (monetary and non-monetary) must be a result of a sale, lease, license or other distribution of a commodity or as an overriding commission as a result of a sale, lease, license or other distribution of a commodity.
CLL: As mentioned, money can be made via direct sales or via an overriding commission when a topline makes a cut of a sale their downline makes. This clause makes sure that there is some product or service involved and not just an arbitrary recruitment fee for joining an MLM.
Clause 3
No benefits (monetary and non-monetary) are to be paid as a result of pure recruitment to join the MLM.
CLL: There should not be any rewards for plain recruiting as all benefits should ultimately be resulting from a sale as mentioned in clause 2. For example, if you get a person to join, no commissions are to be paid if no sale has occurred yet.
Clause 4
Any promoter of the scheme should not make any statements stating that benefits can be earned outside a direct sale or overriding commissions (which have to be the result of a transaction involving an actual product).
CLL: This clause is to prevent any topline from using benefits outside clause 2 (direct sales and overriding commissions) to attract people to join.
Clause 5
The promoter should maintain fair and accurate records of maximum, minimum, average, median(what the 50th percentile makes) and mode (what most people make) benefits for promotors and participants. These records have to be audited by an auditor every financial year. Any representations of how much one can earn should be backed by these stats.
CLL: I believe promotors are toplines and participants are downlines. Although any representations should be backed by accurate statistics, the promoter does not have to publish the actual stats. I believe the income distribution should be disclosed, easily accessed and read for all “legal” MLMs. In the US, their Federal Trading Commission requires MLMs to provide income disclosures if they want to make any claims about benefits. On top of the quantum, they should include other data points like
- Time spent to make such income
- Split of direct sales and overriding income
- Split income by ranks
Clause 6
There are 4 subclauses in clause 6 cover the sales and recruitment tactics of MLMs. The promoter will need to take reasonable steps to make sure participants in the MLM do not
- Knowingly make or allow a false or misleading claim to be made regarding the MLM scheme (e.g. benefits scheme) and the product
- Knowingly omit or allow any significant detail to be omitted about the MLM scheme and the product
- Knowingly participate in any action or allow any conduct that is misleading regarding the MLM scheme and the product
- Use or allow any fraud, coercion, harassment, morally wrong (might not be illegal per se) or unlawful actions to occur within the MLM scheme in recruiting or selling products
CLL: MLMs might employ certain marketing tactics to persuade one to join or buy from them. Essentially all claims regarding the MLM scheme and product should be truthful and important details should not be left out. No exaggerated claims like cancer-curing should be made. I believe the third point is the catch-all for all other conduct that misleads about the MLM or product that is outside subclauses 1 and 2. Hard selling should also not be used although they are not technically illegal.
Clause 7
Products and services sold should have a full refund policy for MLM participants within at least 60 days.
CLL: This clause is to allow downlines to get back their money if they are unable to sell their products. Take note that this clause does not apply to ordinary consumers that did not join the MLM as a representative. However, the MLM could have a separate refund policy for ordinary consumers.
Clause 8
The refund policy should be given in writing to the downline. The participant should know this refund policy exists and how the refund can be performed.
CLL: This is to let the participant know that such a refund policy exists and how they can get back their money. If they do not know such a refund policy exists, it might be too late for them to get their refund if they cannot sell their products. The refund policy should not be buried deep inside some terms and conditions document for the downline to discover for themselves.
Illegal MLMs Vs Legal MLMs
Those MLMs in Singapore that breach any of the clauses are illegal. Here are some differences between illegal MLMs and legal MLMs.
| Illegal MLM | Legal MLM | |
| Payment to participate | Need to pay upfront cost to join MLM | Need to pay upfront cost to join MLM except demonstration materials that cannot be resold |
| Earning via recruitment | Can make money just by recruiting, without any sales | Can make overriding commissions from downline but must be backed by a sale |
| Earning potential | Overstate with unsupported promises | Upfront and truthful, supported by statistics |
| Product benefits | Mislead about product benefits, without scientific evidence | Truthful about benefits, supported by scientific evidence |
| Refund policy | No refund policy for excess inventory bought | Refund policy available |
It doesn’t mean that all points will apply to the illegal MLMs because these MLMs are illegal as long as they breach one clause. This is just to illustrate the difference between illegal and legal MLMs. Of course, it might not be as straightforward as 1 and 0s. Policies can be formulated to skirt the laws or make it such that it is not obvious that it has broken the law. For example, a refund policy might be available but the company can make it really difficult for a refund to be made. Or how expensive will the starter/demonstration kit be, even if they can justify the cost?
What Should You Look Out For As A Consumer?
In order to protect yourself as a consumer, you should look out for the following points.
Dubious Product Claims
Some MLMs might like to target vulnerable individuals who are looking for a solution. The result is that they might inflate the benefits of the products. I was at a relative’s house and I heard the distributor of the water filter say that drinking their water can allow you to give birth to a boy. If they claim to cure some incurable disease or perform some exaggerated medical feat, it is most definitely not true. They might use anecdotal stories to claim it cures one of their client’s illnesses like cancer. These products typically won’t be harmful to you but at the same time, they won’t cure your incurable disease. When you are desperate, you might be willing to try anything. Do some research about their claims and if it sounds too good to be true, it probably is.
High Price Of Product
Even if the claims are true, do check if there are cheaper alternatives out there. The prices of MLM products might be inflated due to the many overriding commission level and information asymmetry. If you are unable to compare it with other comparable products on the market, you might not know what is a reasonable market price.
High-Pressure Selling
When made to make a purchase decision on the spot, you might not be able to make an informed decision on whether the product’s claims are legitimate or if it is at a reasonable price. Being alone with a sales rep can make it difficult to reject them, especially if you are in an area they control e.g. their offices. Additionally, they might employ FOMO to make you make a purchase decision right then and there by offering steep discounts, where the original prices might be inflated in the first place).
If possible, you should do research before the meeting to see if the product claims are legitimate and if the prices are reasonable when compared to alternatives on the market. I understand that it might not be possible to do research before meeting the sales rep as they might only give you information during the meeting. In this case, be prepared to walk away if the product’s claims and prices are not to your liking. It can be also good to bring a neutral friend who is not interested in the products along so that they can keep you grounded and as a source of support in case you need to leave the space. If you feel that they are forcing you to make a decision on the spot, it will be in your best interest to leave.
Lack Of Refund Policy
You should ask about their refund policy. A legitimate MLM should have a refund policy. If you were unable to leave and fall into the hard-selling tactics, regretting your purchases after that, you should be able to get a refund. On top of having a refund policy, you should also enquire if the ease of product returns. If you have to jump through multiple hoops to get back your refund, the refund policy might as well be non-existent.
Reputation Of MLM
Look out for both good and bad reviews of the company that you will be dealing with. Look at the experience of other consumers to see if there are any pitfalls that you might not have thought of. Are there any lawsuits against the MLM? If the MLM has a bad reputation, it can be difficult to trust its claims. When one operates in bad faith, all of their promises mean nothing.
What Should You Look Out For If Asked To Join An MLM?
Besides being approached as a consumer, you might also be approached to join their MLM at the same time.
Presence Of Upfront Costs
You should not need to pay to join an MLM. The exception given in the law is demonstration starter kits that have to be sold at or below cost, cannot be resold and no commissions can be made on these materials. They are also not allowed to make you buy any inventory just to participate.
Lack Of Refund Policy
While not directly linked to joining, you might be encouraged to buy the inventory to start your journey to “financial freedom”. Make sure that there is a refund policy and understand how it works (in what condition, how many days). You might not be able to sell the inventory so you should know how the refund policy work to return your inventory on time to get back your money.
Unethical Product Claims And Sales Training Materials
Are the product claims legitimate or misleading to make them attractive to your customers? Not only is it illegal to give misleading claims about the products you sell, but it is also extremely ethical especially if it preys on vulnerable people that are looking for any solution to solve their problem (e.g. cancer). While it might get you sales, think again if you want to participate in such predatory schemes.
Do they teach you to use questionable sales techniques like high-pressure selling methods to close a sale? Legitimate businesses should not need to employ such methods to make a sale.
Be Your Own Boss Or Salesman?
Some MLMs might dangle the opportunity of being your own boss/entrepreneur or starting your “own” business as an incentive to join an MLM. Many of us are employees that want to escape the rat race and MLMs might be touted as the solution to your problems by having free time and the potential to earn more money. You can also form your own “team” in your “business”. It might sound attractive to be your own boss where you can control your working hours and your results are directly linked to your efforts.
However, we ourselves might downplay the effort and time required to make money in an MLM as we don’t have experience being a salesman based on pure comms and we don’t want to break the fantasy of getting out of the rat race. If you don’t manage to make any sales, you won’t have any income. While there is a possibility of making more money legitimately as compared to your normal job, we tend to underestimate the effort required to do so.
Additionally, you won’t have much control over the products you have to sell unlike starting your own business. You have to sell their products and follow their protocol when making a sale. You are more like an independent contractor that helps a company sell their product instead of being your own boss or entrepreneur.
Paid To Recruit Or Sell?
Joining a legal MLM will definitely entail selling. On top of selling, do you have to recruit people to join your MLM? It is illegal to receive any benefits from recruiting people when they do not make any purchases. The fundamental business should be sales and not recruiting as the sales of products and services should be the backbone of any business. The market is also limited. When you get too many sales reps into the business, there is a small piece of the pie for everybody.
Exaggerated Earnings Potential
While large sums of money can be made via MLM legitimately, what are the odds that you can make a fortune via an MLM? There are also those that are unable to make enough sales to make enough money. Ask the recruiter for the statistics on the earnings of the different levels (bottom, median, top). Ground your expectations and look at the reality of what others are making.
They might argue that if you work hard, you will earn more. While this is true, you might think that you can be in the top 10% just by working hard, but the reality is that you might also be in the bottom 10% even if you work hard. Sales might not be directly correlated to the effort.
They might also show examples of your potential earnings if you bring in X number of downlines and if your downlines bring in Y number of downlines, tying in the previous point of recruitment. The numbers might look fantastic but they are extremely unrealistic.
Ask for the commission rate and the number of products you need to sell. In addition, ask about the overriding commissions the different levels take from the sales you made. Are these overriding commissions reasonable for the value they provide to you (e.g. resources, training, admin) as a sales rep? Are you being compensated fairly? These are quite subjective, but you should at least know what is the breakdown before making the commitment.
Topline Flaunting Wealth
Does the recruiter flaunt their wealth by driving luxury cars or wearing expensive watches while recruiting you? While they didn’t explicitly mention that they made bank with the MLM, they might give off the impression that they have achieved financial success and if you join them, you might one day be like them. Look at the hard facts and make your decisions instead of relying on what they want you to see.
Reputation Of MLM
Similar to buying from an MLM, you should also search for the reputation of the MLM if you are looking to join them as a sale representative. Are there any lawsuits against the MLM? If the reputation is bad, you might find it hard to make a sale even if the products themselves are legitimate. Find out the experience of other representatives and use it to make your decision.
Reporting Illegal MLMs
If you encounter any MLMs breaching any of the laws under the Multi-Level Marketing And Pyramid Selling (Prohibition) Act mentioned above, you should contact the Commercial Affairs Department. Examples would include but not limited to
- Aggressive Recruitment
- False Claims About Products
- Exaggerated Earnings Potential
- Pushy Selling Tactics
Via Police IWitness: https://www.police.gov.sg/I-Witness
Via Phone: +65 6325 0000
In Person: 391 New Bridge Road #06-701 Police Cantonment Complex Block D Singapore 088762
TL, DR
MLMs are illegal unless they can meet certain criteria. One can make money from a legal MLM either from sales or overriding commissions from a downline. However, all income should be backed by a sale and not just by recruiting. Whether buying as a consumer or joining as a sales rep, there are some points to look out for.
| What To Look Out For As A Consumer | |
| Dubious Product Claims | High Price Of Product |
| High-Pressure Selling | Lack Of Refund Policy |
| Reputation Of MLM | |
| What To Look Out For If Asked To Join | |
| Upfront Costs | Lack Of Refund Policy |
| Unethical Product Claims
& Selling Tactics |
Boss Or Salesman? |
| Recruiting Or Selling? | Exaggerated Earnings Potential |
| Topline Flaunting Wealth | Reputation Of MLM |
If you encounter any MLM operating in Singapore that breaches any of the clauses, do contact the Commercial Affairs Department.
If you have any stories regarding MLMs to share, do write to consumelesslife@gmail.com or leave a comment.
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