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An expert on financial literacy told how not to fall into a financial pyramid

Although this industry is several decades old, there is a lot of speculation regarding the industry among the inhabitants. Associate Professor at the Higher School of Economics and financial literacy expert Anton Tabakh tells how to distinguish a financial pyramid from a legitimate network business.

Direct sales originated in the United States, where the development of trade and services is at the highest level. The representative of a network company in this country is one of the most popular and widespread professions. In Europe and Asia the situation is different. Compared to America, it can be considered that here the network marketing industry is at the initial stages of development. Therefore, not everyone understands how to distinguish a direct sales company from an organization operating on a fraudulent scheme.

Anton Tabakhwho has been studying financial pyramids for more than a quarter of a century, has identified several criteria by which scammers can be calculated.

“Legitimate companies exist for a long time. The financial pyramid has emerged recently or recently appeared on hearing. The normal life span of a pyramid is from a few months to a year and a half. If a company has existed for five, ten, twenty years, then this is not a pyramid, – notes Tabah.

For example, the networking company Avon was born more than 130 years ago, Mary Kay is more than 55 years old, and QNET recently celebrated its 23rd anniversary.

Exhibition of products in Novosibirsk.

Exhibition of products in Novosibirsk.

Another important factor in the company’s integrity is the way it works with distributors. Network companies are open for cooperation to absolutely everyone, there is no discrimination based on gender or race, social status or education. Someone, having joined the ranks of independent representatives, gets a chance to change their life, a direct sales company plays the role of a kind of social lift here, and investing time and effort in business, achieves success, and someone sees an opportunity to get easy money in the network business, which are rarely associated with conscientious work.

“It is important to keep track of whether the company has a code of ethics, whether it is a member of industry associations,” says the expert.

For example, each independent representative of QNET is required to build their work in accordance with the code of ethics, and its European branch is a member of the direct selling associations of France and Spain. The company carefully and scrupulously monitors the conscientiousness of representatives. Those who violate ethics and the law are parted. So, some time ago, more than 400 entrepreneurs lost this status, in whose work violations were noticed.

Another important sign of a network company is the availability of manufactured goods for sale, certificates confirming the quality of products. As a rule, through direct sales they offer bioadditives, products for a healthy lifestyle, dishes, cosmetics, household appliances. The first place in terms of popularity among the products sold by distributors is cosmetics, the second is dietary supplements and health products. QNET’s bestsellers are exclusive Swiss watches and QVI Club services.

Ksenia Melnik, development manager at the company's exhibition.

Ksenia Melnik, development manager at the company’s exhibition.

It is worth noting that the pyramids almost never engage in training. Network companies develop mentoring, when the leader of the structure devotes part of his working time to the development of the team, improving the business and personal qualities of each of its members. QNET, for example, has a QNETPro training program that every Independent Representative must complete before starting sales and business development. This helps him to better understand the principles of the network company and, of course, increase his chances of success. On an ongoing basis, free seminars and master classes are held, as well as educational projects are organized for people who need support. Thus, in March of this year, the company launched the project “From Dreams to Reality” to help graduates of orphanages who were able to study in their chosen specialties.

Business is a tricky business. Direct selling is such an entrepreneurial activity that there is always a risk of failure. And there will always be a category of people who tend to blame others for their problems. However, distributors have many advantages over entrepreneurs in traditional businesses. Companies provide them with a starter kit, making it easier for the entrepreneur to operate. But in any case, only hard work leads to success. This is the main difference from the pyramid, where money is received from the air.

“Sales are not given to everyone, – summarizes financial literacy expert Anton Tabakh. “But those who are willing to work will most likely succeed in this network business and will not say that direct selling is a pyramid scheme.”

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