FTC New Guidelines for Network Marketing and What They Mean to You

Thank you for forwarding this information Brad Young, via Gordon Hester.  Appreciate you and all you are.

Click on the following link to review these new guidelines:

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http://www.gordonhester.com/resources/ftc-guidelines-12-28-09.asp

I know that many of my subscribers are leaders and successful distributors in the Direct Selling/Network Marketing industry.  For years this industry has been going through an increased regulatory movement.  In April 2006, the Federal Trade Commission (FTC) released a sweeping proposed change in its FTC Business Opportunity Rule.  This was a major concern to the Network Marketing industry because the proposed changes would have had a significant negative impact on this industry.  During the following two year period, the FTC received more than 17,000 comments on its proposed rule with the majority coming from companies, representatives and distributors in the Network Marketing business.  The end result was that on March 18, 2008, the FTC responded favorably to the voice of the Network Marketing industry and modified the Proposed Business Opportunity Rule to exempt Network Marketing Companies.

Despite the victory outlined above, the FTC did change its Guidelines on Testimonials and Endorsements effective December 1, 2009.  I have attached a copy of an article from the recent Direct Selling News that was written by Jeremy D. Tunis who is the Direct Selling Association attorney and Manager of Global Regulatory Affairs.  The basics changes are as follows:

1.       The FTC essentially requires that any claim or representation that is different than “what the average consumer  should expect” should have a disclaimer.

2.       The FTC directs companies to have competent and reliable scientific evidence to substantiate any advertising or endorsement that claims a product is effective for a particular purpose.

3.       The FTC tightened the rules as it relates to endorser’s (which I believe includes distributors) where the endorser and company can be held liable for statements made by endorsers.

There was also an interesting section of this article that discussed “earnings claims”.  The DSA and regulators seem to share a similar position on this matter – if you are making an earnings claim or earnings potential claim that does not represent results that are “typical and average”, you need to include a disclaimer to state that fact.  For those of you who generate incomes with your company that is over the average, or utilize testimonials of other leaders whose income story does not represent the “average distributor”, you might want to consider including a disclaimer along with those stories.  Please note that the issue is NOT whether the income story/testimonial is true.  It is about whether the income story/testimonial represents the norm.

So what does all this mean to me?  First, I think this adds legitimacy to the Network Marketing industry.  It shows that the FTC recognizes the industry as a legitimate business model and that it continues to make efforts to improve the industry on a regulatory front.  Second, it gives us a basic picture of where the industry is going in the future from a regulatory front.  The industry wants consumers to have information that (1) creates realistic expectations, and (2) allows them to have the appropriate information to determine if a product, service or opportunity in the Network Marketing business model is right for the consumer.  In essence, the regulatory environment is moving toward taking salesmanship and misrepresentation out of the Network Marketing industry and moving toward providing accurate information to consumers so they can make good choices.  I think this type of a movement is critical to “clean up” the image of the Network Marketing business model, so I see any movement in that direction as a positive.  Finally, I think the regulatory climate is moving toward requiring scientific proof for product claims with a general principle of “science over salesmanship”.  While this might create challenges for companies and distributors who don’t have scientific research to support their products (regardless of the reason), it is going to REWARD those companies and distributor that have PROVED that their product has merit to the end consumer.

In closing, I see these types of guidelines and changes as a major positive.  I have always felt that the biggest downfall of the Network Marketing industry is “over promise, under deliver”.  While many companies do not represent that statement, I find too often they are the exception vs. the norm for this industry.  I do believe the regulatory bodies, DSA, and Network Marketing companies share a similar belief that these types of changes are positive for this industry.  They will help to clean up the image of Network Marketing and provide long-term stability to this business model.

Wishing you all a happy and prosperous 2010!

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