by Paul Niquette
Copyright ©1996 Sophisticated:The Magazine. All rights reserved


Let's talk about TV trays. Other products would do, but for illustrative purposes, let's just suppose you need some TV trays.
    You go to the store. Pick a brand. Maybe you clipped a coupon from the paper. You shop around, find a discount. One way or another, you go ahead and buy some TV trays. The point is, there are several alternatives for you to choose from.
Unless you happen to be a member of FundAmerica. As a member of FundAmerica, you buy TV trays from a designated 'provider.' Same for most other products and various services.
  • You get a good price -- not necessarily the best price but not the worst either.
  • You don't have to shop around.
  • You may even get the TV trays you want.
  • You get something else, too.
You get some of the money you pay for the TV trays put into a trust account for your retirement. No kidding.{Background}

Buy a barbecue by mail-order, same thing. New pillowcases and other household items: figure 10% goes into your trust account. Necessities such as health care and gasoline are not covered under the plan; however, from your monthly phone bill, FundAmerica's long-distance provider applies 20% to your nest-egg. Book an airplane trip through a particular travel agent and get 5%; stay in certain hotels and resorts, send flowers and champagne, chocolate and teddy bears -- these are all things you're going to purchase anyway, right? -- go ahead and salt the money away.

    "Spend your way to a better retirement," they tell you.
What could be wrong with that?

If you don't like to find your own bargains, fine. However, next chance you get, take a look at any page in your newspaper. Look at all those percent signs -- each preceded by a two-digit number: "25% off," "50% off," whatever.

As a member, though, you are urged to "think FundAmerica first." Accordingly, you might pass up "GIANT SAVINGS" elsewhere. 'Discounts' not 'rebates' -- but real savings just the same. {Rebate}

Why, you could set up your own 'trust account' and take all your unspent discounts straight to the bank. You probably won't, though. If you need somebody to do that for you -- to take some of your money away from you so that you cannot spend it -- then FundAmerica may be just the ticket.

    "Out of pocket out of mind," one might say.
Nevertheless, if you want them to, FundAmerica will send you a check every three months for your accumulated savings so that you can -- well, spend them. For a better retirement, presumably.

Still, as an alternative, you could simply have more money withheld from your paycheck and sent to the IRS. That way, you don't even see it -- until next spring. Which brings to mind the t-word. And the title for this article. Members are in effect taxed by FundAmerica for each purchase. As we shall see, there are plenty of places for those 'taxes' to go other than into trust accounts. {TaxPayer}

By the way, one FundAmerica provider offers a biweekly service to members who do not like to use scissors. For a moderate fee, you receive coupons sent to you in the mail automatically. Not quite automatically: you do have to send in marked up lists of the products you want. Later, maybe they'll come up with a service that does the marking for you. For a fee.

Which brings up fees in general. The person who recruits you gets a percentage of the money you spend for the TV trays. So does another person -- the person who recruited the person who recruited you. In fact, as many as five members get a percentage of the money you spend for those same TV trays. That's because FundAmerica uses one of those 'multi-level marketing' (MLM) programs. Like NuSkin, like Herbalife, and like the grandaddy of them all, AmWay.

In all these MLM programs, each "independent representative"...

  • recruits, trains, and manages independent representatives, each of whom
  • recruits, trains, and manages independent representatives, each of whom
  • recruits, trains, and manages independent representatives, each of whom
  • recruits, trains, and manages independent representatives up to five 'levels' (the L in MLM).
Moreover, each "independent representative"...
  • collects a 'commission' from direct sales and
  • collects an 'override' from the sales of all other levels.{Override}
Tthere are two whopping differences between FunAmerica and other MLMs, and as I like to say: Differences are more important than similarities.
  1. Members of FundAmerica do not sell products to non-members. The 'providers' sell the products -- to members of FundAmerica.
  2. Members of FundAmerica do sell something: financial services -- to other members.
The promoters of FundAmerica emphasized these differences.
  1. "You don't have to fill up your garage with a whole inventory of TV trays and other stuff," they said in their promotional video.
  2. Oops, that second difference turned out to be a killer...but I'm getting ahead of my story.
Promotional material for FundAmerica featured a ringing endorsement by Ronald Reagan's star economic advisor Arthur Laffer (right, the Laffer-curve guy, remember?)
    "I've looked at plenty of such plans," Laffer exults into the camera. "This one is real."
Judging from the video tape, sales representatives for FundAmerica, with their multi-level overrides and bonuses, do exceptionally well. They number in the thousands, and some are getting rich. Or were getting rich, until...did it again, sorry.

Viewed from the top of the 'down-line,' there is plenty of money to be made. {Numbers}. Which raises a question: Where does all that money come from?

According to officials of FundAmerica, some of the price of TV trays ordinarily goes into advertisements and such. Inasmuch as FundAmerica delivers a captive customer base to the provider of the TV trays, they can presumably save on promotional expenses. However, the same can be said of any club-like enterprise, so there must be more to the formula. Both "eliminate the middleman," too.

"Group buying power" would doubtless produce economies of scale, to be passed along to FundAmerica members, similar to "quantity purchasing power" enjoyed by low-overhead warehouse operations. There are also what might be called 'economies of limited selection.'

Yet, it's some kind of an amazement that FundAmerica can pump cash into trust accounts while paying all those overrides -- and still give you a good price for TV trays.

Oh yes, and there is just this one other thing.

You would not expect membership to be free. FundAmerica costs $100 per year, and it costs you $140 to join FundAmerica, which is OK. Part of that fee goes to the person who 'sponsors' you ($20, if I remember correctly). That's OK, too.

Maybe. An exclamation point belongs right there -- even more so at the end of the next sentence. Part of your $140 fee goes to the person who sponsored the person who sponsored you. That's not OK.{Pyramid}

People went to jail, I think. FundAmerica went out of business years ago. {Epilog}



In the summer of 1990, an associate of mine (guess I'd better give him the name 'Robert' here) became deeply involved with FundAmerica.

Robert had come under the influence of the famous Newsletterist, Howard Ruff, who stoked up his followers to join FundAmerica in great numbers. I still have the video that Robert gave me, somewhere. It's an infommercial featuring Arthur Laffer -- Mr. Trickle-Down himself.

Robert, misty-eyed with expectations, began devoting his not inconsiderable energies to recruiting a 'down-line' of his own by bringing aboard friends and family. I expressed skepticism to Robert, but he would have none of it.

My advice was based primarily on numerical realities. Robert rejected it, and so did any number of editors who turned down TaxAmerica (originally drafted on July 24, 1990). My review of another MLM scheme -- NuSkin -- entitled "Pig in a Python" suffered the same consequence. For both articles, I prepared graphs and diagrams to go with the numbers. To no avail. {Return}


There's a difference between 'rebate' and 'discount': You have to pay sales taxes on the purchase price of those TV trays -- including the amount which FundAmerica rebates into your trust account.

    A $100 purchase with a 10% rebate means you pay the local board of equalization 6%, say, of $10 or 60 cents for what is put into your trust fund.
Not a big penalty, to be sure, but it does represent an increment of cash you would not have to pay on conventionally discounted prices if you shopped around or clipped a coupon.
    Not only that, but, since the IRS will surely treat that $10 as income, you might owe the Feds another 20%, say, or $2.00 for that danged rebate.
If so, the 10% rebate may really amount to only 7.4% in your retirement account. {Return}


Sometime during the nineties, while I was not paying attention, I lost my citizenship in the most wonderful country in the world. Apparently, I became merely a 'taxpayer.'

That's all that seems to matter. To politicians, to journalists, to cocktail party goers. It was without doubt the consequence of a general angst about Government and spending and waste and debt.

Accordingly, Americans were demoted to taxpayerhood. Not only that but it's only 'hard-earned' money that most of us pay our taxes with. One might expect that 'easy-earned' money, as from trust funds or interest or capital gains, would call for a different outlook -- less resentment, less consciousness of the taxicity and more of the greatness of the country, as evidenced by what achievements we as citizens somehow find the resources to do. Not so. Easier the money, louder the complaint.

All I know is, I'd rather be regarded as...

  • a theater-goer than a ticket-buyer,
  • a patient more than a bill-payer,
  • a customer more than a purchaser, and
  • a citizen more than a tax-payer.
Thus, from a purely semantical point of view, how far would an MLM program named 'TaxAmerica' get? {Return}


Most of us find the verb form to be respectively insensitive, mean-spirited, cruel, peremptory, arbitrary.

    override v.t. 1. To ride over. 2. To trample upon. 3. To ride a horse too hard. 4. To prevail over, conquer. 5. To declare null and void; set aside.
As a noun, however, the term has a neutral and specific meaning in business.
    override n. A sales commission collected by an executive, in addition to the commission received by the salesperson (also 'overrider').
Inasmuch as members of FundAmerica do not sell products, the term 'commission' does not apply only 'override' -- with one exception: memberships. {Return}


Let's start out with the number five:

  • five percent discount,
  • five percent rebate,
  • five percent override,
  • five recruits per member, and
  • five levels of marketing.
Suppose a member of FundAmerica (call him or her M5) buys a hundred dollars worth of TV trays.
    They're a real bargain, great gifts for friends and family -- those who are not yet members, of course. Besides the SuperBowl is coming, and... but I digress.
Under our assumptions, those TV trays would have been priced at $105.26, but members of FundAmerica pay five percent less or $100.00.
  1. That member, M5, gets five percent of $100.000 or $5.00 deposited into the M5 trust account.
  2. The member who sponsored M5 is M4, and FundAmerica deposits five percent of $95.00 or $4.75 into the M4 trust account.
  3. The person who sponsored M4 is M3, and FundAmerica deposits five percent of $90.25 or $4.51 into the M3 trust account.
  4. The person who sponsored M3 is M2, and FundAmerica deposits five percent of $85.74 or $4.29 into the M2 trust account.
  5. The person who sponsored M2 is M1, and FundAmerica deposits five percent of $81.45 or $4.07 into the M1 trust account.
That leaves $77.38 for the 'provider' of the TV trays, a total 'discount' of 26.5%.
    Cheap Shot Alert: If M5 had waited until after the SuperBowl, he or she might have found TV trays on sale someplace at a 25% discount off the purchase price of $105.26, paying $78.95 and putting $21.05 of his $100.00 in the bank instead of just $5.00 as computed above.
Now, suppose that all of the M5s in M1's 'downline' happen to order $100 worth of TV trays that same day. That would mean that M1 would receive $4.07 from each one, for a total of... Hey, how many of those M5s are there?
    Well, M1 recruited 5 M2s; the 5 M2s in turn recruited 25 M3s, 125 M4s, and 625 M5s.
Thus, FundAmerica will deposit $2,543.75 in the M1 account -- just on behalf of the 625 M5s, assuming that the M2s, M3s, and M4s don't order anything that day. Meanwhile, the M2s each get $536.25, the M3s $113.15, the M4s $23.75 -- all from those same 625 M5s.

Sure pays to be an M1. Of the total overrides collected from the 625 M5s, $11,011.50, M1 gets 23%. Meanwhile, 155 other members divide up $8,478.75, for an average of only $54.70 each. Of course, all those M2s, M3s, M4s, and M5s are out there recruiting to beat hell, each striving to become an M1.

But wait: Suppose that M1 recruited not 5 but 10 M2s; same for members at all the other levels. Holy moly, M1's down-line would comprise 11,110 members. That's $1 million dollars worth of TV trays, and M1 collects $40,070.00, the others divide up $5,243.90, for an average of only $4.72 each.

    If averages mean anything, you will observe a paradox here: That with a recruitment ratio of 5 produces a payoffs 1.7 times higher than a ratio of 10, ceteris paribus. Sophisticated readers will expect that for several reasons, monetary incentives will decline with growth .
Limiting the number of levels to five protects the margins of the 'providers.' At ten levels, for example, $100 worh of TV trays would have to be supplied for only $59.87 instead of the $77.38 calculated above for five levels.

Only one of 781 members (1 + 5 + 25 + 125 + 625) gets to be an M1 under the assumption of a recruitment ratio of 5. A more sophisticated model would take into account the fact that the recruitment rate will decline with market penetration, starting out greater than five, perhaps and become less than five later on. A shallow 8-7-6-5 sequence would produce a total of 2,080 in each M1's 'down-line.' Under that assumption, if all the households in the U.S. became members of FundAmerica, there might be no more than 50,000 M1s. Better get in early. {Return}


As computed by persons far more sophisticated than I am, MLM programs classifed as discount buyer's services cannot work. Beyond that impracticabiliy, FundAmerica got into legal trouble.

If I remember correctly, criminal prosecution resulted from FundAmerica's policy whereby part of each sign-up fee from new members was deposited into the accounts of old members -- not as a 'commission' to one solitary member but as overrides -- channeling funds through the multi-level down-line structure. That created a 'pyramid'...

    pyramid v.t. To speculate by making a series of buying|borrowing and selling|repaying transations in which paper profits are used as margin for buying|borrowing more stock|money.
...of a type most commonly known as a...
    Ponzi scheme [Charles A. Ponzi d. 1949 Am. (Ital.-born) swindler] (1973): an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks {Return}


FundAmerica has been out of business for years. A much more interesting article than "TaxAmerica" would be one that reports the magnitude of financial impacts upon hopeful people like my friend Robert.

As a superficialist, I thought I knew something about MLM programs, but the FundAmerica story has been long dead. I was about to delete my 'fundamer.doc' file, then...

Just for the hell of it, I clicked up Yahoo and typed "fundamerica." I was surprised to get a hit: -- a most informative special report by Newsletterist Leonard W. Clements 2001, 2003Leonard W. Clements, entitled "Anti-MLM Zealots Do They Have a Point?"  Earlier articles list under the category "Discount Buyer's Services" the following MLM programs that are all defunct:

  • Advantage
  • American Benefits Plus
  • Consumer's Buyline
  • FundAmerica
  • Life Plan Corporation
  • Mainstreet Alliance
  • Personal Wealth Systems
  • Success America
  • United Buyer's Service
Clements in one of his newsletters expressed his wonderment at the repetitions of these hopelessly flawed enterprises in the form of an analogy: People sitting around a campfire watching one another get burned, each observing the consequences of putting one's hand into the fire -- but none learning from the painful experiences of the others.

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