The Pyramid Scheme aspect of Primerica Financial Services
I ran across a blog that did a series examining Primerica Financial Services, a multi-level marketing company that purports to sell financial products. While the company does offer life insurance, investments, and other financial products, like a typical MLM… they’re really out there selling the opportunity. The name of the game is endless recruiting.
The Financial Blogger did several nice posts about the company, but this explanation of the pyramid scheme aspect of Primerica was exceptional:
Is it a pyramidal scheme? In legal terms, the answer is no. However, it does not mean that because it is legal that the company’ structure is not shape like a pyramid. Everybody is making a cut on the people below them; it goes up to four level. I think this is clear that the guy on the top makes the big bucks. They will answer that every company is like that as the President and the VP’s are in the driver’ seat and the other employees are left with nothing. It is right also.
However, they do not explain why they are able to give a commission to four people for the same sale. The answer is pretty easy: they have to cut down the commission compared to the regular industry. As an example, if a life insurance of 100K would provide another agent with $1,500 in commission, a Primerica advisor at the lowest level will earn $900, then his recruiter will receive $300, the recruiter’s recruiter will get $200 and finally the guy who put all of them together will earn $100.
So for those who are in to sell, Primerica is definitely not the right place to be. “Yeah, but you could build a team and create your own business”, I guess they forgot that the best sellers on earth are not necessarily interested in building a team compared to earning the big bucks right away. The main problem I see with this approach is that you have to convince individual to work hard for less that they could earn only because they have the option of building a team a earn extra commission on somebody else’s work. In fact, if everybody concentrates on recruiting individuals, who will make the sales? You may have a hundred people below you, if nobody sales, it still makes 0$ in your pocket.
Check out the blogger’s whole series on Primerica.
Primerica is not a scam by definition, but it is not a very good “opportunity” either. I am going to explain the half-truths, lies, and misleading statements that are used by the Primerica reps to coax people into believing that Primerica is actually a good opportunity for them to become multi-zillionaires. I am also going to compare it to other opportunities in the industry to show how you get screwed by becoming a Primerica rep. DISCLOSURE STATEMENT: I am experienced enough to analyze this topic with a MBA in Economics, series 7, 63, 65 securities license, and 12 years experience in the financial services industry with Wachovia, Morgan Stanley, and AXA Advisors. I have never worked for Primerica. I declined the offer after doing thorough independent research, analyzing their own sales/marketing material, and speaking with actual participants.
1)”If you join Primerica, you will be in business for yourself; therefore you must pay for all of the cost of your business (i.e. licensing, training, and office)” $99 to start then $25 monthly for Primerica online (additional fees will come for training and investment licensing, later.) First off, you are not in business for yourself; you are an independent distributor of Primerica/Citibank products and a select group of mutual fund companies. If you read the IBA’s small print….Any assets or client accounts you bring into Primerica belong to Primerica and you must sign (not 1 but 3) 2 year non-compete contracts (1 investment, 1 mortgage, 1 Insurance). This is the way that Primerica/Citibank push their cost of sales off on their sales force. Reputable investment/insurance companies once hired will take you through a training program and pay for your licensing along with a higher commission payout and the clients are yours.
2)”You can build a team of reps and get overrides so Recruit, Recruit, Recruit.” I equate this to the equivalent of an “Insurance Salesman Mill.” You have heard of a puppy mill….well Primerica’s average rep makes 2.5 sales per year so the only way to keep new business coming in the door is to recruit new people, have the RVP work their warm market during “training” and have the new rep hopefully repeat the process, so that you have more people writing less business as opposed to properly training their reps to sell through seminars, networking, or acceptable referral selling practices. This is the ponzi scheme aspect of their business model. If they do not recruit, recruit, recruit the scheme breaks down b/c they are not replacing the 99% of reps that just left the company. The FTC has on several occasions analyzed this model due to the tremendous amount of complaints and concluded that they were not a ponzi scheme because they actually sold a product, but that does not change the fact that the business model is ponziesque in nature. There is not one insurance company in the world that would disallow you the opportunity to build a team of agents under you and the payouts would be much higher, so do not waste your time splitting your commissions with people who do absolutely nothing for your business.
3)”Buy Term Invest the Difference is the only retirement strategy to use.” I do not disagree with BTID for most low/middle-class investors. It is not a cure-all strategy. People who make over 100k per year need permanent insurance, people with complex estate tax situations need permanent insurance, some people who have built up cash value would be crazy to switch from an investment vehicle that grows tax deferred vs. taxable mutual funds. Also the term insurance product that Primerica offers is overpriced when compared with other like-kind carriers with exactly the same features. They must price it that way to accommodate their tiered commission schedule which is well below industry average and pays 4 levels above to people that do absolutely nothing to help you grow your business. (will discuss later).
4) Product line Analysis: 1) The term insurance is way over priced compared to other leaders in the industry. 2) The SMART LOAN product is 100-150 basis points (1%-1.5%) higher with higher closing cost than most other bank equity loan products. They try to sell this by putting the client on a bi-monthly payment plan and illustrate how they can pay it off in fewer years showing the interest savings but its fuzzy math. You can pay bi-monthly on a 30 year fixed or pay an extra amount per year and accomplish more savings with the lower rate so do not buy it. Do your homework and make sure you are comparing apples with apples on the amortization calculation.
5) “Pay the Eagles and starve the Turkeys” This is an expression that has been used in the insurance industry for years. Basically this strategy is worse at Primerica than any other company I have analyzed or been a part of throughout my career. By recruiting, recruiting, recruiting….. the reps at RVP level keep new business coming in the door because they tell new recruits that part of their “training” will be to offer sales leads from their warm market. The new reps set the appts with people they know (friends, family, co-workers) and the recruiter and recruited go on the sales call as a training session. Because the new rep is not insurance licensed yet, any business that is sold goes under the Recruiter’s rep code (usually RVP) with promises of being paid back later. wink, wink. Also any investment 12b-1 fees that would normally go to the sales person is not paid to reps unless you are RVP level which does not happen at other companies. If you sell a mutual fund as a rep at Wachovia, Morgan Stanley or any other investment house you receive the annual management fee not the person that recruited you. Also the payouts at Primerica start at a paltry 25% where most other companies start out at 45-50% and go up to as high as 90%. If you analyze the income earners in Primerica….you will find that the +/-5 people making over 5 million per year and the +/-43 people making over 1 million per year are all a part of the original founders of the company who are on top of the pyramid. As long as the rank and file keep recruiting, recruiting, recruiting and washing out of the business in 6-8 months, the orphaned accounts that are left keep rolling up to their book of business. Also, if you are one of the naive 1/10 of 1% that get to 100k per year after 10 years and overcome your upline in income you are duly rewarded by him taking your best downline. So in reality they could care less if you grow a successful business because the top 5% get the business either way, either by washing out of the business and they get the orphaned clients or build a successful business and they take your best downline. Primerica’s tag line should be “We sell false hope and a misleading, lackluster opportunity.” So the bottom line is…..If you want to sell overpriced, non-competitive products for a lower commission than you could get elsewhere, sign a 2 year non-compete to do that and also pay the insurance company for the right to do it, then Primerica is the company for you. My Advice: Work for a reputable insurance carrier that does not have to recruit people like “The Primerica Debate Team” to go to online blogs and write positive things about the company to counter act all of the negative real-life experiences from people who endured the ordeal.
Tracy, let me begin by saying that in no way shape or form am I trying to be rude to you. Now, since you said “Is it a pyramidal scheme? In legal terms, the answer is no.” It either is or it is isn’t and obviously the answer is no you even agreed. So, there is no if, but, or however about the question. The answer is no. Primerica reminds me much of the restaurant corporate business. Host make the least, busers and servers get more with tips, the assistant manager makes a little less than the General manager, then the regional manager makes even more than the general manager and so on. Explained that way, one can argue that the restaurant business is a LIKE a pyramidal scheme, but it’s not. Every company runs their business different. Many individuals may disagree on the different methods, but if the government says its okay, whether it might be right or it may be wrong, it is allowed. Some people will succeed and some people will struggle with it just like any other business.
By mistake I landed on your page again. And I read the post for the guy with the MBA that worked with great and known companies such as Morgan Stanley and Wachovia(I think they asked for the goverment money A.K.A. tax payers money A.K.A my money, your money, etc…) My question for that guy: do you have something better to do? leave alone Primerica and other companies, if Primerica it is not for you, who cares about what you think? Be concern about you and your family. I bet you: you are unemployed right now and if not, you will be if you work for those corporations or if you have a boss. Let me tell you about corporate behavior: If a person coming out of college has not experience they wont hire you, if you have experience but no degree they wont hire you, if you are not a family member or friend they wont hire you. You need to work your _ss hard to get promoted and beg a century for a rise. My point here is the big corporations are crooked because they have billions of dollars in profits but they prefer use a big part of this to lobby congress to minimize the minimum wage, create bellow minimum wage jobs and receive tax credits for this “job creations” I think Tracy shoul Investigate the frauds of all this companies or is she scare?. My last but not least point, Primerica is a legitimate company with a legitimate business and if anyone accepts this independent agent agreement let them do it (dont talk bad about the company, because you are attempting againts the dreams of other people that may be succesful at this business and if you tell them not to do it, you are cutting opportunities for them and their families, also, if a person talks bad about other is tha correct? show some respect!)And if they joined is because someone told them they can be somebody, no matter what race, or education, social status, religion, or any other barrier, they only have to work and be rewarded with money, promotions, money, vacation trips, money, friendship and the satisfaction of doing what is corrrect for the client(by the way a client can be myself-I want to invest, I need Insurance, I need a LTC program, etc/my immediate family mom, dad, uncle, cousin, my best friend, my other best friend, recomendations for what I did for my best friend, etc…) not for the corporation. I have said! Take care of you and your family. God be with You.
p.s. if I have any writing mistake forgiveme I am 100% mexican!
Yes, we have nothing better to do than to warn consumers about a crappy company with a crappy “opportunity” and expensive products. There are much better products out there for consumers, and they’re better off with real jobs with rel paychecks than participating in the pyramid scheme called Primerica!
Tracy,
This is an awesome website. You are really providing a great service exposing some of these companies. I personally have license for life and health and can offer some great term policy rates. I don’t have all my facts but have been told by others how expensive Primerica’s term product is. I have been approached by Primerica and ran the other way. Have no intention of ever joining them.
In regard to the negative response from the MBA, I will state one fact.
AXA Insurance of New York is rated by the neutral A.M. Best rating firm as A –
Primerica is rated A +
Enough said. Everyone look it up. http://www.ambest.com
u guys r retarded… primerica has made me bank… Eventually the oppurtunity will come and go and you will all still be complaining
Primerica offers opportunity. Each individual has to take advantage of such opportunities and make the best of them. Primerica is not for everyone. If it is for you, it can change your life for the better.
Regarding Leo comment:
I do agree 100% of your comment about Primerica. It is not for everyone but if you like what you do keep doing it. My only problem with Primerica is that most of their Reps alway “saying” bads thing about their companys.