An Employment Scam in the Financial Services Industry
A Warning for New Grads and Others New to the Financial Services Industry

[Financial Scam Home]



How The Scam Works

Fighting Back

Contact Author



Avoiding The Scam

A NOTE TO THOSE RESEARCHING JOBS, CAREERS, MLMs (multi-level marketing organizations, direct sellers, network marketers, viral marketers, consumer direct marketers, dual marketers, etc.) , SCAMS, FRAUDS, OR PYRAMID SCHEMES: If you stumbled onto this site during your research, you might as well read it in its entirety. Many of the points apply to you as well. At a bare minimum read this page and the MLM section on the Links page. I admit to being quite anti-MLM. There is plenty of reason to be wary of any company utilizing MLM-type practices.

Below is a summary of what you can do to avoid being a victim of a scammer.


Most reputable companies hire for a single position, expect the employee to remain in that capacity or advance only minimally (you shouldn't encroach on your superior's job!), and pay in line with the employee's education and experience. It would be nice if a job hunter inexperienced in the financial services industry could find an employer/savior who would recognize vague characteristics like his "potential, ambition, motivation, drive, persistence," etc. (instead of simply his education/experience) and train him straight up to management, but it isn't realistic for the vast majority by far. Not everyone within an organization can be a "manager," and each person who cannot advance because the oversaturated job market is unable to handle any more of his product will eventually drop out, threatening collapse of the pyramid.

Obviously, you should be suspicious of any call out of the blue claiming that you look like a great fit for an exciting new job opportunity. It's likely a rep who found your resume on a job search site and is being offered incentives by his firm to recruit (review the "Training" page).

Job ads can still be deceiving. Even if the company offers benefits, you may still find yourself paying for them 100%!

Beware job representations and ads that include these phrases and characteristics:

  • Ads recruiting for "Financial consultants, finance management trainees/associates, financial services sales professionals, financial executives, investment executives, financial planners, investment advisors, financial advisors, branch managers, etc. -- Will Train, New Grads Welcome, Six-Figure (or Unlimited) Income Potential." If it sounds to good to be true, it usually is. The six-figure hook needn't be blatant; it may simply offer an income that is unusual for the target market sought and save the "hook" for the interview or even employment stage.
  • "Unlimited Advancement Opportunities / Upward Mobility." See above.
  • Vague experience requirements, such as "self-starter, has potential, ambition, motivation, drive, persistence, etc." If the firm isn't seeking experienced reps with multiple years in the industry, ask yourself why.
  • "Promotion from within." While it may seem to indicate a commitment to training and promoting you, it may also indicate that recruiting is focused on inexperienced and unsophisticated targets, and avoidance of experienced personnel who might see through a scam.
  • "Equal opportunity for advancement," "become a branch manager." If everybody's target position is a single class of positions, watch out. A branch manager position may be a legitimate job as a full-time employee, or it may be a business opportunity (independent contractor -- NOT an employee). Review the difference in the "Independent Contractor" section of this site.
  • "Be your own boss, set your own hours (flexible work schedule), work from home." See above.
  • "No telemarketing." It may be legit, but it may be a clever way of saying that the marketing program will not involve cold-calling -- you'll be marketing to your friends and family. Review the "Prospecting" section of this site.
  • "No sales." Great, then what DOES the position entail?! I guarantee it isn't simply "advising."
  • "Outside sales." Position is usually full commission.
  • "Salary plus commission." Might be legit, but "salary" (base) may be a draw (loan against your future earnings) that you'll have to repay. Draw + commission is essentially full commission, and is NOT a FULL-TIME EMPLOYEE position. If you see "salary", keep in mind that salaries are paid to employees, not independent contractors, and it may be advertising deceptively and misclassifying employees.
  • No salary range indicated. If the firm is unwilling to advertise a salary range, they may be avoiding litigation based on false advertising. Chances are the only salary range you'll ever hear will be verbal, and you'll never achieve it. Might as well avoid these.
  • "Salary commensurate with experience." Might be a full-time employee position, or might be a full-commisison independent contractor position masquerading as one.
  • Compensation advertised is too good to be true for target market's education and experience.
  • "Paid training." Are they providing a real salary, or is it full commission? (Draw + commission is full commission.)
  • Enticements such as trips to exotic places. Scammers often hold out trips to exotic locales as rewards for sales goals, but these trips are often group excursions to sales conferences, paid for by the reps - plus the reps will pay taxes on these!
  • A sense of urgency in an ad, as if it is a limited opportunity that cannot be missed.
  • Phrases indicating explosive or aggressive expansion in your area. The firm may simply be seeking to exhaust the trainee market in your area before the market wises up.
  • The same company that advertises for new recruits every single month, year after year. They may mine college campus career fairs in particular. The firm may explain away continual hiring as due to growth, but you should take care. There is always the possibility that they're lying about growth and are just replacing those reps that drop out.

Still interested in the position? KEEP THE ORIGINAL AD, because there's one more:

  • Sales positions or business opportunity positions listed in "Employment" sections of newspapers or other job search media. Commission-only and independent contractor positions should be confined to the sales and business opportunity sections, since they are not hiring employees. Scammers often deliberately advertise under the guise that the job is a stable position as an employee. Report ads that misrepresent business opportunities as legitimate jobs to the medium where you found them! If a scammer can't recruit, his scam will be forced to end! You may also need the original ad in the event you need to sue for false advertising and misrepresentation, particularly if the position advertises the position as a full time employee position with a salary (not base) and an income range that you don't meet. Base + commission usually means draw + commission, which is A FULL COMMISSION POSITION with no salary. Be aware that if they advertise a salary, you should most likely be classified as an employee and not an independent contractor.


If possible, try to get everything below addressed over the phone so you don't waste your time at an interview for a job you really don't want. If you find yourself serious about the opportunity, GET EVERYTHING YOU CAN IN WRITING! If it isn't in writing, do NOT consider it in making your decision to accept the job.

Here are a few things to learn about as quickly as possible:

1. EMPLOYMENT STATUS. Might as well start here first: Will you be an employee or independent contractor?

Most reputable firms will hire you as an employee. Some scammers may not be direct in your first interview about your status and what it entails; if they don't offer this information, ASK. If you're told you'll be an independent contractor (IC) or direct seller, take great care and be sure you understand and are prepared for the costs you will incur, which may include but are not confined to:

  • Business & professional licenses, bonding.
  • Health, dental, unemployment, worker's compensation and life insurances; 401(k) & pension plans. Some scammers intimate that benefits are provided but later inform you that although they are provided, you will pay every cent! Additionally, they may be contingent upon sales goals that few reps (if any) meet.
  • E&O (Errors & Omissions) insurance.
  • Trade show booths & seminars.
  • Taxes (income, self-employment). Note that prizes, awards, & gifts are taxable if you are classified by the IRS as a direct seller.
  • Office space, furniture, equipment, and maintenance.
  • Phones and phone bills.
  • Photocopies.
  • Postage.
  • Sales literature and printing.
  • Advertising.
  • Travel expenses.
  • Legal expenses. (Yes, you assume liability as an IC!)

A direct seller is similar to an independent contractor for tax purposes; both are considered self-employed. Different regulatory agencies determine your classification, not your "employer" -- even if you agreed to such an employment relationship in your contract. Review the "Independent Contractor" section of this site!

2. PAY. If you're to be considered an employee, you are probably safe. If you're to be considered an independent contractor, forget the old adage about not asking about pay at your first interview! You need to know what sort of income to expect. If the firm tries early on to sell an inexperienced new grad a "six-figure income", BEWARE (and probably RUN).

Is the pay full commission or base + commission? If it's full commission, be prepared for the risks. If there is a base, find out what it is. It should be standard. If the firm tries to tell you that the base is built around what you previously earned, RUN. Make sure you understand whether the base is a salary paid by the firm or a draw against your own future commissions (loan).

Ask for the firm's published sales targets and figures for AVERAGE NET (not gross) second-year income and even five-year income and determine if you can reasonably make do on that. Published sales targets are important because they may be only $12,000/year gross for an average rep while the firm verbally promotes average incomes of $50K/year (likely much more). If the published version says $12k, it's a good bet that that's what you'll expect, and that's gross before your expenses are taken out of it. Remember, the firm is not likely to lie on official literature, since this literature is often their defense in court. Past average net income figures are important because you need to see what an average rep (not just the top earners) really made over time. Take these documents home and file them; you may need them later if you're hitting the published sales targets and still aren't earning the average income you've been led to expect (much less that magical income figure they promoted).

Ask what the firm intends to do to help you reach published sales targets. Will it be providing qualified leads? If you're told you will be using "friends and family" as your "practice leads", BEWARE! If you are required to turn over your own leads ("friends and family") as necessary to your employment, BEWARE! Review the section on "Prospecting." Will it aid reps in running trade shows to generate leads? Does it advertise? Will the firm permit you to advertise locally and approve and print a campaign you suggest for your own use? Will it permit you to hold seminars for prospective clients? Keep in mind that all materials must be approved by the compliance department lest you and the firm eat a big fine.

3. LICENSING & TRAINING. You will need the securities and insurance licenses at a minimum to survive financially. If they advise you to "learn the basics" first before earning an insurance license, BEWARE. If the firm advertises free training, make sure that training is really free and not masked as costs of licensing or criminal background checks. If the firm asks you to pay anything up front, beware -- even if the firm promises to reimburse you upon completion of some goal. Most reputable firms will pay up front any expenses associated with hiring you. You may ask the firm to sponsor you for free while you self-study. If the firm does expect you to pay for licensing, check FINRA's rates for licenses you need and don't overpay. If the training is to cost you, take care to examine how this training has benefited their current work force. The training can't be worth much if the turnover is high. (More on this in #B4, Turnover.) Make sure you know how long to expect to complete an unpaid training program and subsequent licensing and whether you can survive financially during that time. Don't accept an answer of "it all depends on you"; ask how long reps average in completing the program and getting licensed.

4. TURNOVER. Get in writing how many reps actually achieved their goals during the previous years and have thus stayed a year or more versus how many quit. Listen for excuses such as "it's a tough business that few excel at." That's rubbish. You and the other recruits supposedly heard all the risks and are prepared, so there's no reason to fail. Liars will lie, but you need this figure in front of you in the event you need to sue over that lie. There isn't a lot more you can do to protect yourself on this one during the interview process.

5. COMPANY REPUTATION. Homework time. Do not rely on what the firm represents to you. Many reps are "captive" to the firm and have severe restrictions on them during their tenure, so leaving won't be easy. Since your failure at this firm could leave you broke and even heavily in debt, it is to your great advantage to know how it conducts its business, both with consumers and employees.

See the "Research Your Company" section of the "Links and Resources" page for some good ways to research your company's reputation.

6. EMPLOYMENT CONTRACT. They're generally standard, but if you can get all points you are concerned about outlined in a custom contract, it's much better for you. Otherwise, realize that the contract is usually pretty one-sided and note the following:

  • Your employment status should be included in the contract; be sure it matches up with all you were told verbally. You're agreeing to it!
  • If on a base and/or commission, your base and commission percentages should be stated in the contract. The base's status as salary or a draw (loan) should be there too.
  • Any upfront fees (licensing, training, background check, etc.) and who is paying for them should be covered. If you are to be reimbursed contingent on some goal, check to see if that goal is included. Also check for any clause stating that you'll be expected to repay training/education fees or the like if you leave the firm.
  • If your contract includes a non-compete agreement (or non-solicitation agreement), carefully inspect it to see if you are guaranteed the commission trails on your sales if you leave. If the firm is to require you do your own marketing ("Friends & Family 100 List" included), you will find those leads and make those sales, and you're entitled to those trails for that year or whatnot after you leave. Be sure you understand whether it's you or the firm who will be cultivating leads and decide what's acceptable.
  • Look for an arbitration or mediation clause as well. By agreeing to mediation or arbitration, you may be giving up the right to pursue the matter through the courts, which may severely impact your chances at recovery. Read the fine print! More info on mediation/arbitration here.

Make sure you get a copy of the contract and that everything written matches up with what you were told verbally! If it doesn't, show yourself the door.


1. TURNOVER (AGAIN). Watch the turnover and burnout rate. They are invariably very high at scammer firms. Don't automatically fall into the trap of assuming the reps who leave "just couldn't hack it." Remember, they learned "all" of the pitfalls during interviews/orientation just like you and were prepared, so why should they fail? Chances are you're no better than they are, so don't get arrogant. Find out why they left from them, not their supervisors. Get phone numbers and keep up with EVERYONE. You just might need those numbers if you can't afford to sue alone.

2. PAY (AGAIN). You saved the literature, right? If you're hitting your sales targets and still earning well below what was represented to you, ask your manager about the discrepancy and how it can be "cured." If you notice him skimping on aiding you in favor of focusing energies on new recruits, BEWARE. Don't share commissions with your manager -- he'll be compensated in overrides.


At this point, if you did all you were supposed to do and are still forced to leave the firm due to a lack of income, you might as well go right on to the next section, "Prosecution & Legislation." You've been defrauded, and it's time to fight back.

Back Next