Transcription
Is World Financial Group, also known as WFG, a scam or legit? In this video, you're going to find out.
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Hey, what's going on? My name is Chris Louu and I'm the creator of wealthome.com, one of Canada's leading personal finance blogs. So, if you're watching this video, chances are you've either been approached to buy a WFG product or to start working for WFG as a financial adviser. You might be curious, but may also be wondering, is World Financial Group a scam?
I've been approached over a dozen times by WFG advisors throughout my lifetime. And you've probably heard whispers or rumors that, you know, from me, maybe your friends or your colleagues warning you that WFG might be a scam, which I believe happens pretty often in the finance industry where I worked for over a decade. WFG doesn't get a lot of respect amongst its peers, but as of 2019, WFG has over 42,000 associates working for them. And in 2018, WFG paid out over $792 million in commission to its associates, and it has billions of dollars of products that they've sold. Say what you want about the company, but there's no denying that it's a huge global force and one that requires close examination. Let's go over this World Financial Group review to see if we can figure out if it's a scam or if it's legit.
Let's start off by explaining what is World Financial Group. WFG is a company that sells financial planning services. It sells savings, insurance, and retirement products through its associates who have to pass a licensing exam for the country that they live in. The company was launched in 2001 and in 2008 another insurance company called Transamerica purchased WFG and the company operates in three different countries: Canada, the US and Puerto Rico.
So, is WFG a scheme, a pyramid scheme, or a scam? I want to answer this question right off the bat. In the literal sense of the word, no. World Financial Group is not a scam. The company will not take your money as a customer and give you nothing in return. That's what a pyramid scheme is. And WFG is not that. If you join the company as an agent, you'll have the chance to earn an income and need to be licensed in order to directly sell any of these products. WFG is approved and regulated by the financial governing bodies of the countries that it operates in. It wouldn't have lasted this long if it was running something illegal because the finance industry is one of the most heavily regulated industries in the world.
However, all that being said, where many people are turned off of WFG and wonder if it's a scam is due to its sales tactics in acquiring its customers and its multi-level marketing or MLM methods of hiring agents to work for them.
So, how does WFG hire associates? Because it's an important part of explaining WFG's story. So WFG employs a multi-level marketing or MLM business model for its associates. The way it works is after you get hired onto WFG and pass all the licensing exams, you'll have to recruit new associates. After you join WFG, you'll be encouraged to get off to what's called a "fast start" where you're supposed to recruit three new members and sit in on three training sales within the first 30 days of the company. This aggressive approach to recruiting new members sets off alarm bells in my head. Getting these new recruits and associates is another type of sales tactic and it's a very effective one because any product that these associates either buy themselves or sell to other people, you'll get a percentage of the commission. A lot of WFG sales come from its associates themselves. It's a classic MLM business model and one that should be a huge red flag in choosing to work for WFG. So, as you can see from this image, their own website shows the multi-level shape of their business model in recruiting. So, it's nothing that they're trying to hide or that's illegal.
So, how much money can you earn at WFG as a salesperson or adviser? So, you'll receive money on commission if you sell something at WFG or if those associates you recruit under you buy or sell WFG products. There's no base salary, so it's all commission-based. Even ignoring all the negative connotations that come with MLM companies, I'll give you an example why WFG probably is not the most profitable place to work at. Let's take a look at the WFG contract levels, which is the amount of commissions you can earn for selling something like life insurance. So, if you have a contract level of 100%, you will earn 100% of the first-year commissions as part of your commissions. When I first started as a life insurance broker, I had an 80% contract level to start and it increased to 100% by the end of it. According to this report, a WFG associate contract level is a measly 36%, and a senior marketing director contract level is only 64%. So that's much less than what I was making even after only one year as an insurance broker. So that tells me that there are other better and more reputable brokers out there. If you're willing to get licensed, they can also train you and support you better than WFG and give you a larger payout.
So how does WFG get its customers? WFG relies on its associates in two ways to get customers. First, any of the products, as I mentioned, the associates themselves purchase. They get to keep a commission and essentially that turns them into customers. All these new associates will be immersed in WFG products and culture and probably end up buying a lot of the products themselves. Then they are forced to aggressively try to get more associates, spreading the WFG product line and sales almost like a virus as it multiplies down the levels. As an associate, you're expected to make a list of all your friends and family and approach them to sell your financial products or to recruit them as an associate for WFG. But that's very typical of MLM companies, all of them really. And I don't want to knock on WFG specifically. They aren't doing anything illegal. But I just don't think it's a very good business model for both the customers and the associates. And there are so many better products and career options out there. But that being said, it obviously works as WFG has a ton of sales. If anything, this just shows the power of warm leads and buying from people that you know and trust. As a former sales guy, I think that WFG must have an extremely effective pitch for new members because it obviously works and is getting results. But as an investor or insurance purchaser, I would never hire a WFG associate or buy any of their products.
I get it though. Investing in insurance can be intimidating. If you've never worked with numbers or cared about it before, the whole process can be daunting. But I firmly believe that if you put some time in and learn how to start investing and take control of your own finances, you don't have to rely on a WFG adviser. But if you do need to hire an adviser, try to find a properly trained fee-based one and one that won't just try to charge you an annual fee on your investments and never speak to you again. Try to look for someone with a CFP designation, which is the golden standard for financial planners.
Is WFG a legitimate company for customers? So, yes, as I mentioned before, WFG is a legit company. If you purchase one of their insurance or investment products, you'll receive the product. However, there are a limited number of companies, so your product selection will be limited. Also, you might be pressured into purchasing expensive products that may not be the best for you, such as permanent life insurance or segregated funds that cost a lot but will earn the associate selling it a big commission, but might not be the best product for you. Often the associate you're dealing with may not have very much experience also and will likely try to recruit you to become an associate as well. I've actually sat in on a couple of WFG meetings and I've asked them some very basic questions like, what is a TSX index or why should you invest in fixed income more as you get older? And a lot of them couldn't even answer that.
As a former life insurance agent and financial adviser, I can understand the success of WFG. The secret to WFG is, as I mentioned before, using warm leads. You're much more likely to buy or trust someone that you know. Multi-level marketing companies rely on this, and you'll see it applied to many different businesses. The most successful one probably being Amway.
So, should you become a WFG associate? MLM or multi-level marketing, in my opinion, is very difficult to make money with this business model. Sure, there are some success stories and in its marketing materials, there'll be descriptions of people getting rich at WFG. However, it will be a very tiny fraction of the overall recruits. Sure, if you're willing to hustle your butt off, contact all your friends and family, and aggressively pursue new sales prospects, then yes, you might be able to find success with WFG. But if you're this much of a go-getter, why would you stick with a company like WFG that gives such small payouts? You'll also risk damage to your reputation and maybe even your personal relationships. WFG almost has the same negative stigma as Amway does. You can become known as the "pyramid scheme guy" behind your back and to be avoided in social situations.
So, as you can tell, I personally don't like MLMs. Some reasons that I hate it are: Number one, MLM pitches are annoying and misleading and always sell the same kind of story: "Recruit three other people and they'll recruit three more, then you'll have hundreds of people working for you eventually, all while you can make money on whatever they sell." Number two reason why I hate it is if someone I know pitches me an MLM business idea, it makes me think less of the person and makes me want to avoid them in the future. So, it makes for some awkward social interactions. Number three, while selling something like smoothie drinks is relatively harmless, having this business model for something so vital as investment products could have a direct harmful impact on customers by not having properly trained advisers that have your best interest at heart. And number four, it's very difficult to climb to the top of an MLM company and actually start to make really good money. And lastly, any business model that places a huge emphasis on recruiting new members rather than customer needs in order to make money is one that I'm wary of.
So, here are some World Financial Group alternatives. If you're an employee, instead of working at WFG, you can get licensed on your own to sell investment and insurance products and start working for either an insurance or investment brokerage. I mentioned before that I worked for an insurance broker in Canada that had way higher commission payouts than WFG has. A plus side is you don't have to worry about the bad reputation that WFG seems to have among some customers, and you'll also get trained up at these brokerages. As a consumer, there are countless other options. If you want to invest your money, you can look at robo-advisors if you need a little bit of advice or discount brokerages if you want to learn and construct your own portfolio. If you need an adviser, try to find a fee-based adviser that's not incentivized to push you towards a certain product. For insurance, I would recommend trying to find first an online quote from multiple companies, then find an insurance broker that has access to these companies. You can check out policyme.com. I put a link in the description below. It's a great online way to get insurance quotes.
While WFG may not be a scam, I would never work or buy any products from them, nor would I recommend any of my friends or family to either. I believe there are so many other better options in terms of choosing either a career or buying a financial product. So overall, I give it a score of 1.5 out of five for WFG. There are some good sides about it. The marketing sales system is probably very effective, as well as the training, as WFG has solid sales numbers and you'll get training on their tactics. The cons of it are plenty. MLM strategies are seen as a pyramid scheme to many and can be difficult to overcome when you're trying to close sales. There's higher pressure to recruit other associates to work under you. It's very difficult to make a lot of money using MLM with only a small fraction of members finding long-term success. And you could become a social outcast if you aggressively sell to your friends and family. As a consumer, you'll only have access to a small handful of products, and there could be a conflict of interest with what the WFG associate might be trying to sell you versus what they could get a high commission for.
All right, guys. If you enjoyed the video, make sure you like and subscribe to the channel. I'll be putting out content every week. Also, be sure to check out the blog wealthome.com. It's one of Canada's leading personal finance blogs. It goes into this topic in way more detail and also has many other topics for Canadians if you're interested in them. And as always, thanks for listening.