Pyramid schemes; they often sound like a profitable investment idea but are almost always too good to be true.
Why are pyramid schemes so tempting?
Pyramid schemes promise instant wealth. More often than not, these schemes look extremely appealing to people who are looking for a quick way to make money.
The reality is different, though – instant wealth is an illusion.
Pyramid schemes are dangerous and ineffective.
There are a few warning signs that can help you identify pyramid schemes to protect your assets. But first, let’s find out the truth about pyramid schemes.
The truth about pyramid schemes
A pyramid scheme is a business model that recruits members by promising payments or services for enrolling others. You may notice they don’t supply investments, products or services but instead rely solely on recruiting new members.
Sometimes, to make the scheme look more legitimate, the pyramid members sell products or services. Usually, however, these products are inflated compared to similar products or services on the market.
The main source of income for pyramid models lies in the recruitment of members rather than the sale of products or services. Most of them suggest you sell their products (and recruit) to people you know well (friends, family).
The truth about pyramid schemes is that they tend to reward those at the top of the pyramid, at the expense of everyone below. Therefore, the need to constantly add new members is high. New members keep the scheme alive.
[ctt template=”7″ link=”Go9_2″ via=”no” ]The truth about pyramid schemes is they tend to reward those at the top of the pyramid, at the expense of everyone below.[/ctt]
Advice: Pyramid schemes are not only an unrealistic business model but also an illegal one.
Did you know…? According to the Australian Consumer Law, participating in or promoting a pyramid scheme is illegal. The fines for individuals can be as high as $220,000 and for corporations up to $1.1 million.
The Australian Competition and Consumer Commission (ACCC) received approximately 300 complaints in 2015 alone.
So how can you protect yourself and your family’s assets from such dangerous schemes?
Watch out for these warning signs
Here is how you can identify a pyramid scheme:
- They present the scheme as a “business opportunity”.
- You need to join a group where you make money by recruiting new members.
- The promoter insists the business opportunity is not a pyramid scheme.
- They promise instant wealth or a new type of earning, different from traditional ways of earning money.
- There is a large up-front fee to join the group.
- Training costs can disguise the income from recruiting. They expect you to buy costly sales aids or attend expensive training seminars. They may charge you a commission if you want to sell training down the line to new members.
- They might sell goods or services to make it look legitimate. Analyse the real value of these products or services. They are, most of the time, way above the market price. Plus, there is no real consumer demand for the products or services offered.
- They discourage you from asking questions.
How can you protect yourself and others from pyramid schemes?
The simple checklist above is great to immediately identify a pyramid scheme. However, by far the best way to protect yourself, your family and friends is to get informed even further.
Here are a few ways you can do this:
- Browse the internet. Search for any complaints or further information about the business. Consult your state fair trading or consumer affairs agency. They often have a list of businesses that have had a complaint made against them and/or had a court ruling identify them as pyramid schemes.
- Ask your friends and family for their opinion (except if they are already involved, as they may be swayed towards the need to recruit new members).
- Seek professional advice.
Advice: Protect yourself and others from pyramid schemes. If you think you have been asked to join a pyramid scheme, you can contact The ACCC’s Scamwatch and report the scam.
Remember, if a business opportunity sounds too good to be true, it probably is.
The wealth specialists at Shuriken can provide expert advice and personalised services to keep your wealth safe from pyramid schemes. Get in touch with one of your specialised team members today.
