On July 15, 2016 the Federal Trade Commission released a brief statement on their website indicating Herbalife will remain open. At first, I thought they made the right decision because the alternative would be to close the company down and wait to see what effect it would have on the world economy. The company does employ almost 8,000 employees worldwide, and is part of the New York Stock Exchange (here). But, forcing everyone else to follow the mold seems to be more of a benefit to the company. I will explain more about that later. I have been writing about Advocare for a long time, and believe they should be concerned. Please do not get me wrong. I am not looking to close Advocare’s doors. But if you take the time to read the FTC vs. Herbalife case, and you are involved in Advocare, you should be concerned. You should also take the time to read the stipulations of the agreement made between the FTC and Herbalife.
Did you read the case? To be honest with you I could not make out the difference between Advocare and the Herbalife business model. The similarities are mind blowing. Yes, their compensation plans are setup differently but the end results are the same. Unfortunately, the agreement between the FTC and Herbalife will have little to no effect on Herbalife, and is a joke. The changes made to Herbalife’s policies will only be effective in the United States, and the other 89 countries will probably continue as usual. Knowing that only 20% of the company has to apply the new changes, I see the new rules as a slap on the hand (Article). They could have closed the company down in the United States and still survived. Advocare on the other hand might not be as lucky as they appear to only do business in the United States. Does that not raise a red flag for anyone involved in Advocare? If you read the statement by Herbalife you will see that they believe the changes will be felt throughout the industry similar to the Amway case. As a matter of fact, they are probably counting on it and could explain why stocks went up after the announcement. Can Advocare survive?
Once a rule is applied, it seems intuitive that the rule would apply across the board, especially in the legal field or within government agencies such as the FTC. I have written before about stare decisis, which essentially means to stand by decided matters in the court of law. Although the FTC did not come out and say Herbalife business structure is congruent with a pyramid scheme, the changes being applied say otherwise. The company used advertising that has and will continue to mislead prospective distributors. The FTC is forcing the company to acknowledge that the majority of the people that participate make little to no money. With that, the changes being made can be, and most likely will be destructive to other MLM companies that do business only in the United States. I mean, it is simple math. If you are doing 100% of your business in the United States, it can potentially do a lot of damage, say 100%. Well, there is only one way we can come to such a conclusion and that is to take a look at the changes that are being forced on Herbalife. I was hesitant to use the term “forced” as the company did seem eager to agree. So let’s take a look at the changes shall we?
Trust me, this is not going to be as easy as it sounds, but I will try my best to simplify it. The first thing you will need to do is read the agreement between the FTC and Herbalife. You will notice that the language is not really that clear and very difficult to comprehend at times. I mean, the compensation that can be earned from recruiting is still intact. But here is a list of changes I believe are apparent or should be concerning to Advocare.
1. No money can be earned just from recruiting.
2. All sales have to have a first and last name, sales receipt, price paid, method of payment, contact information and must be to a customer, not a wholesale distributor.
3. Personal purchases that are rewardable have to be designated as such at the time of purchase, and are limited.
4. There are no auto-ship or standing orders (ordering $3000 dollars to qualify for Advisor and have the recruiting distributor earn commission seems unlikely with this rule)
5. Customers signing on for a discount shall be separate from Distributors that are in it for the business opportunity.
6. All distributors will have to take a training course that will focus on purchasing product you intend to sell in the “near” future, how to document sales, and prohibited behavior. I do not think success school will count.
7. Prohibited from misrepresenting or aiding others in misrepresenting. That also includes providing material that has the means to do so. Company must refrain from expressly or implicating that someone will earn a significant income, the amount of income a person earned or will likely earn, refrain from saying a person did not succeed because they failed to apply sufficient effort or failed to follow the business strategy.
8. Any statements indicating you could quit your job, realize unlimited income, or show pictures of big houses, cars, boats is forbidden.
9. Basically they are prohibited from material omission and unsubstantiated income claims.
I believe that covers most of what Advocare should be concerned about. Now, if you recruit, you should not be earning a profit from the purchase of the membership or distributorship kit. The member would have to be a legit wholesale customer that cannot sell the product. Sales will have to be to end users that are customers, and recruited distributors do not count. The distributor will be required to keep a well-documented collection of sales receipts. The distributor would have to be trained prior to recruiting anyone into the business, and that does not include the “bullet proof shield” used by Advocare to sidestep hard questions. Basically Advocare cannot use the .05% to encourage others to join because that would be a violation of the order. Testimonials cannot be included in the distributor kits or online website. Testimonials from the 1% will not be allowed especially with them standing around their luxurious homes. I know what you are thinking; Advocare would never think to do something like that would they. None of the testimonials found here makes claims of leaving a job, having more time with the kids, and claims of substantial income, right? What about this young lady that claims she is going to make more money the following year?
Now, if we turn to the McDaniel family, we might be able to touch base on some of the other prohibited conduct. In this video he tells the viewer that people are unsuccessful in Advocare because they do not attend training. Remember this video where Danny tells the viewer that selling the product is not the best way to make it to advisor. In this video he wants the viewer to invest in the business by purchasing a $2100 package. I am not so sure that purchase would be acceptable under the new rules. Commission can only be made from sales, not purchases or distributor recruiting. How is Advocare going to monitor bulk orders and ensure that those products make it to the end user (customer)? The new rules do not seem to allow sales to business owners (distributors). All sales have to be to end users. I get it, they can still count some of their own purchases, and commissions are still going to be made from purchases unless something changes. What that change is I have no idea. I am not so sure it really matters. What is luring people into the business? I mean really luring them in. Is it the product? Or is it the misleading income statements and misleading advertising. Will Advocare be able to continue using their income disclosure statement although it contains intentional omissions of fact and includes only income made by 5% or less of the distributors participating in the business? I believe only time will tell. This is the problem I see.
The FTC clearly has busted down on misleading statements and the utilization of intentional omission of facts. As well as misleading statements that insinuate people can actually make a living from selling MLM products. Watch this video of Daniel Peeble talking at one of Advocare’s big events. At 6:13 he starts talking about how “there are way too many people robbing Peter to pay Paul, and Advocare is a vehicle that can get you out of that cycle of living paycheck to paycheck”. People rely on this information, and want to believe in what these people are saying. The surprising truth is many of these people are educators, doctors, coaches, and pastors of a church. I find it really hard to believe that the people claiming to be religious are true to their belief. Being part of such a deceptive company is hardly congruent with any religion that I know of. Will Advocare survive the rule changes? If the FTC were to truly implement the rules across the board I believe it would be difficult for them. I am certain there will be an increase in civil suits against Advocare. There will be more people pursuing a similar settlement if and when the FTC finally brings a lawsuit against Advocare. I guess we will all have to wait and see what happens. But you do not have to take my word for it. You can watch the FTC press conference so you will have a better understanding of what is the FTC’s intent behind the agreement.
You will notice that the speaker specifically said commission will be based on verifiable sales, not recruiting. What does that mean? That means that the person that you recruit will have to sell those products before you will receive a commission. Advocare will most likely have to create a true wholesale customer that is clearly identifiable. Also, 80% of the company’s revenue has to be from sales to end users and not distributors. Well, I think I have covered just about everything so please share your thoughts either here, or on Advocare Review Facebook. Other than that, we will have wait to see the results. This is an unedited article and was written really fast, so go easy if you see any grammatical errors.