Income Disclosure Statements & Compliance For MLM Companies
The Income Disclosure Statement is prepared after a company has been in business for at least 9-months to a year. Using the Income Disclosure Statement allows Distributors to make income claims; however, at the least, an Income Disclaimer should be used as the minimum when the IDS is pending or if there is no existing IDS.
The direct selling expert attorney and/or special consultant assists the company’s CFO in preparing the IDS. Omission of the IDS will raise red flags, especially if the Distributors are making any income claims. The IDS takes a considerable amount of time to compile in most cases because it is considered a legal document that is well worth the extensive development time; it must be done correctly in order for it to be utilized effectively. Creating the IDS requires strong Financial analysis skill and possibly sophisticated software to avoid any ambiguity and or mistakes.
Kevin Thompson is one of the premier attorneys in the direct sales industry. Founding member of Thompson Burton PLLC.; Kevin specializes in helping clients navigate regulatory complexities related to FTC compliance, government investigations, and litigation.
Kevin Thompson, MLM Expert Attorney, and Thompson Burton PLLC., contributed the following about the IDS:
“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 independent business owner’s 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.”
Kevin further explains that at a minimum, an Income Disclosure Statement 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.
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 any consumer can look at the information and be able to understand the underlying facts so they may make a fully informed decision.
Income Claims & Compliance For MLM Companies
In the event that the company has not reached a year old, there may not be enough data available to complete a comprehensive Income Disclosure Statement. Whenever any income projection or representation is made publicly, it must be backed up by either the required Income Disclaimer or Income Disclosure Statement. Income projections or any representation of money requires the following robust Income Disclaimer (or very similar).
Income representations by Distributors are also represented by images; displaying large piles of money, fancy cars, expensive houses, and flashing big checks. Disclaimers must be clear and conspicuous as indicated in FTC 2013.com Disclosures - How to Make Effective Disclosures in Digital Advertising!
Income Disclaimer Example:
“There are no guarantees regarding income in the (company name) opportunity. The success or failure of each Independent Distributor, as in any other business, depends upon each Distributor’s skills and personal effort. Earning levels for a (company’s name) Independent Distributor that appear are just examples and should not be construed as typical or average. Income level achievements are dependent upon the individual distributor’s business skills, personal ambition, time, commitment, activity, and demographic factors.”
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