Hi folks
Just a quick point for your opinion. How would you feel about a retail customer focused hedge fund that tried to encourage its clients (say you) to introduce more people with a commission based referral scheme. Say 2.5% commission on the value of the capital introduced.
Further what if they also offered you 2.5% commission for the value of indirect referrals, where your referral also introduced someone new and so on going down 3 steps as in:
You: You refer A (2.5%) - A refers B (2.5%) - B refers C (2.5%)
What if they also offered you a profit share taken from the capital growth of everyone in your network A, B and C. Say 5% of the capital gain.
How would you feel about that proposition and why.
Commission is 2.5% of the value of the capital introduced. In other words: the client is down 2.5% before you even begin. And that’s just if it’s a direct referral. If it’s an indirect referral and just using your A - B - C example: the client is now down 7.5% before you start. And don’t say the company that’s running the fund is going to cover those costs and that such costs are not coming out of client capital. No matter which was you slice it: somebody is out of pocket for those commissions and they have to be recovered from somewhere. Unless of course the clients are informed up front that the commission is to be paid to the introducer(s) and it’s an upfront expense and will be offset against profits made. Don’t see how that could work either as some clients would be paying more than others. Of course if you’re promising huge returns then clients will fall for it. But you do know where that’s all going to end up I’m sure.
Yes, there is a 5% upfront transaction fee which covers the referral commissions. It is designed so that with a 3 - 3 - 3 referrals you recoup your investment assuming you only made the minimum permitted.
Yes some clients will pay more, but this particular share class is for people whom want to build a network to gear up their returns rather than stake more money.
Well based on the fact that I just ripped you on that other thread and was wrong in my assumptions I’ll give you the benefit of the doubt here!!! LOL!!!
Alright. Don’t see a problem there then i.e. if the clients are paying an upfront transaction fee and that’s where the commissions are being paid out of then fair enough I guess. Not quite sure I fully understand but I’m sure you’ve done the math.
But more important (to me anyway) would be what’s going to happen to these investments. When it comes to stuff like this and there’s a lot referrals and people involved: if those investments go pear shaped it can lead to mayhem and total breakdowns of relationships between friends, families, and worse.
Is this your idea and something you’re trying to get started or is this on behalf of somebody else or are you already in this and already earning referral commissions??? Not that I’m trying to pry as to your personal involvement or situation but an answer to those questions would give insight and understanding into your reasons for asking about this is all.
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Thank you for your feedback. You are right in that there is the risk that the underlying investment goes belly up which ruins the show for everyone involved. I suppose the risk is that normally associated with these kinds of things.
To be honest my main concern was that it might be perceived as a ponzi scheme of some sort. Multi-level marketing has been misappropriated/mismanaged like that in the past and who is to say that the original intentions were not good.
Someone I know is building a track record within a fund structure and exploring future marketing possibilities. They asked my opinion and I decided to put it to the forum.
Well let us know how you get on.
It’s only a ponzi scheme (as I’m sure you well know) if new client funds are being used to pay returns and to keep propping up the scheme because no trading is being done or there are losses being covered up. Problem is: how do you prove that’s NOT the case to begin with. And as for it being a true MLM: those things usually require that you have to buy some product or the other and the only way to get your money back is to flog the said product to a whole bunch of new saps and so on and so forth. You’re basically just talking about a network of introducers (call them MLM agents if you like).
One other problem you may run into is regulation i.e. in some countries you can get nailed for client solicitation if you or your MLM agents are not qualified and registered with the applicable authority. For the most part you’d probably get away with it UNLESS the fund goes pear shaped or UNLESS you end up with a dissatisfied client e.g. somebody not happy with their returns or whatever decides to report you or your MLM agents to the regulator type of thing. But as I’ve noted AGAIN this morning on another thread: there are regulators and there are regulators.
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Thanks for your feedback. In this particular case the Fund Vehicle (AIF) itself is domiciled in a jurisdiction friendly to retail focused collective investment schemes. The Investment Manager (AIFM) is in the UK. Together they are regulated by the FCA and MFSA and have a passport to market across the EU.
I am not sure how that applies to referrers, which is a good point that you bring up. Thanks for the feedback. If you have any other thoughts please don’t hesitate to contribute.
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Well on a personal note let me just say this that may be of help (as obvious and as cliched as my input below may be):
The key to any of this is transparency and honesty. Make sure that every single transaction etc. is well documented and strict records are kept of every single thing that happens. You know it’s a funny thing: people know that it’s risky assuming there has been a risk disclosure and they understand the product. If something goes pear shaped and there are losses then people are generally accepting of that. It’s when they’ve been duped into thinking that their money is doing well and is as safe as houses only then to find out that this is not the case and all is not what it seems to be or it’s all gone. That’s where the problems start. Making sure that there’s strict, honest, and reliable and verifiable records kept will make the difference between being sued and maybe even suffering grievous bodily harm and people accepting that it was a bad investment but that you tried but didn’t quite get it right.
Mind you and in just thinking about it: the above would be requirements of the regulator anyway. Maybe what I’m saying is go the extra mile.
Just my few cents worth.
It seems to me that it is unlikely that customers will believe in this scheme.
Unfortunately, multi-level and network marketing was used as a base for fraud schemes. Few people trust it now. This is reminiscent of the financial bubbles or pyramids that were so popular, especially in Europe. I think you should think more about the strategy of your financial offer.
Perhaps over time, you will develop a great idea on how to gain consumers’ trust. For example, my company is now switching to a new management system to increase customer loyalty. Have you ever heard of CRM? In my opinion, this is a big step into the future, which will be implemented thanks to ids.agency. This is a company that helps to switch to a new system smoothly.
Have you ever thought about auditing? Or opening a financial consultation. This is more reliable and profitable.