Introduction
You mention the acronym MLM scheme in the UK and what comes to mind is the shady business practices, the pyramid schemes and businesses that promise huge profits but usually leave a lot to be desired. Multi-Level Marketing (MLM) is a decades-old business model that is not only been subject to intense criticism by regulators, consumer protection agencies, and financial regulators in the United Kingdom. This article has delved deeper into the subject of MLM schemes and what they are, their operation, the legal stance in the UK, the risks they pose to individuals and how you can avoid them. We will also have government resources that are authoritative to give additional advice.
What is an MLM Scheme?
Multi-Level Marketing scheme is a form of direct selling business model in which members make money by not only selling products but also by recruiting new members to the scheme. There are two sources of earnings:
- Retail sales: Selling products or services to the consumers.
- Recruitment commissions – You get a commission on the sales made by the people you have recruited to the network.
Although there are legal and legitimate MLM firms performing within the law, the business model is also comparable to the pyramid schemes, which are criminalized in the UK. The distinction is in the manner in which money is mainly generated. When the bulk of the money is made through recruiting new members as opposed to legitimate products or services, then it can be regarded as an illegal pyramid scheme.
To be guided in detail by the government, the UK Government advice on pyramid selling and chain letter schemes can be consulted.
The Difference between MLM and Pyramid Scheme.
The key is to realize the difference between MLM schemes and pyramid schemes:
MLM Scheme (Legal provided it is not illegal):
- Uses actual products or services.
- Enables one to make money not only on sales but also recruitment.
- Should act in harmony with laws of consumer protection and trading in the UK.
Pyramid Scheme (Illegal):
- Plays more to recruitment than actual product sales.
- Unsustainable since profits rely on the continuous recruitment.
- Outlawed by the Consumer Protection from Unfair Trading Regulations 2008.
As a matter of fact, most MLM schemes works in a grey zone where the boundary between legal MLM and illegal pyramid schemes is not always clear.
The Legal Position in the UK
UK has good legislations to control the MLMs and pyramid schemes. Enforcement is an important role of authorities like Competition and Markets Authority (CMA) and Trading Standards.
- Consumer Protection against Unfair trading Regulations 2008: outlaws pyramid scheme in the UK.
- Business Protection from Misleading Marketing Regulations 2008: Averts misleading marketing and unfair competition.
- Financial Conduct Authority (FCA): The FCA does not necessarily play a direct role in regulating the work of MLM, but they do oversee the schemes containing financial product features.
Additional information is at GOV.UK consumer advice.
How MLM Schemes Operate
Common MLM programs are structured in the following way:
- Joining Fee: Participants of the programs usually incur a start-up fee on starter-set or training.
- Recruitment: Members are asked to recruit others within the network creating several levels.
- Commission: The sales of recruits are used as a source of income, as well as the recruits of the recruits.
- High Pressure Sales: Intense focus on the personal networks, family and friends.
Certain MLM firms market overpriced products like diet pills, cosmetics or essential oils which might not be comparable to their actual market prices. This poses concerns as to whether the business is really product-driven or recruitment-driven.
Risks of becoming a member of MLM Scheme.
Becoming a member of an MLM scheme comes with its own set of risks especially in the UK where the consumer rights have been taken seriously by the regulators. Some of the key risks include:
- Loss of Finances: A majority of the participants do not make profits, they lose their money. Studies demonstrate that an extremely low number of members make a lot of money.
- Pressure of Recruitment: There is always the push to recruit new members as this may cause strain in personal relationships.
- Unsustainable Business Model: A significant number of MLMs fail due to the decrease in recruitment.
- Legal Risks: In case it is discovered that the scheme is being run in a pyramid form, then the participants are likely to lose their money and may even be taken to court.
To get consumer protection advice, go to Citizens Advice.
Red Flags to Watch Out For
In the UK, before getting involved in any scheme in an MLM, watch out the following red flags:
- The focus on recruitment instead of sales.
- Guarantees of fast and huge profits.
- External pressure towards costly starter packages.
- Little knowledge of actual customer demand.
- Poor attendance of the participants.
The Competition and Markets Authority (CMA) is advising consumers to be vigilant when targeted by schemes that offer unrealistic returns.
MLM and Pyramid schemes are under attack by the government.
The UK government has over the years acted against quite a number of fraudulent MLM schemes. Trading Standards investigates and closes down illegal operations on a regular basis.
For instance:
- The 2008 Regulations have brought prosecutions on pyramid selling.
- MLM models have also been used by directors to mislead participants who have since been disqualified by the Insolvency Service.
Enforcement See the Insolvency Service site.
MLM Schemes in the UK Market
Though not as widespread in the UK as in the United States, some companies are involved in the business of MLMs, especially in such industries as:
- Health supplements
- Skincare and cosmetics
- Cleaning products
- Essential oils
These are companies that tend to adopt direct selling techniques and personal contacts. Some participants are successful, but most of them have difficulties in earning income sustainably.
Alternatives to MLM Schemes
In case you are thinking of enrolling in an MLM scheme to get some supplementary income, you might want to consider other more viable means:
- Freelancing: Providing skills on websites such as Upwork or Fiverr.
- E-commerce: You sell your products through Etsy, eBay or Amazon.
- Part-time working: Accepting part-time jobs in the retail sector, hospitality, or working remotely.
- Government backed self-employment plans: UK supports entrepreneurs and small enterprises.
To do this, see Start a Business on GOV.UK.
How to Protect Yourself
The following are the tips of latest practical conduct in order to escape the clutches of a dangerous MLM scheme:
- Conduct an in-depth research on the company. seek independent reviews and regulatory warnings.
- Check legal status. Make sure that the firm is compliant with the UK consumer protection legislation.
- Ask tough questions. And what is the source of the income- product sales, or recruitment?
- Avoid pressure tactics. Never allow yourself to be moved into signing because of emotional or time bound sales pitches.
- Know your rights. The UK legislation guards against unjust practices on consumers.
Consumer Protection Advice will teach you more about your rights.
FAQs on MLM Schemes in the UK.
Is MLM legal in the UK?
Yes, the MLM programmes are also allowed provided that they are related with real goods or services and do not make recruitment to be the main priority. But pyramid schemes are unlawful according to the UK law.
Will I be sure that an MLM is a pyramid scheme?
When the bulk of the money is earned through the recruitment of new members rather than the sale of the real product, it is probably a pyramid scheme. Contact the CMA in any case.
Is it possible to make money with MLM in UK?
Although possible, the majority of people who join the MLM schemes make little or they lose money. Very little of them earn high income.
What can I do to recover the money that I lost in an MLM scheme?
You are expected to seek the advice of Citizens Advice and perhaps report it to Trading Standards to investigate.
What does the UK government think about MLMs?
The government permits MLMs but puts them under strict regulation. Any arrangement which is similar to pyramidal arrangement is unlawful according to the 2008 Consumer Protection Act.
Conclusion
MLM scheme is one of the controversial business models in the UK. Some are valid and within the laws of the UK; however, many are on the borderline of law, which in most cases results in financial loss to the participants. The UK government is still cracking down on pyramid schemes and guarding the consumer by tight regulation.
When deciding to join an MLM, then it is important to do due research, know the risks and be knowledgeable of your legal rights. Other sources of income are more secure and less risky in the majority of situations.
To confirm or get guidance, official information should always be looked at and reliable sources on consumer matters.
READ MORE: 10 Essential things You Need to Know Before Starting a Business
