AmEx’s adviser woes pyramid

More than a dozen former American Express financial advisers charge that they were misled about their jobs and how they would be paid in what they called a “legalized pyramid scheme.”

The former advisers also claim that the scheme drove them into serious debt before they ultimately left the company. Their clients, however, remained, were divided among the managers and were used to recruit new advisers.

While the complaints come from individuals who worked in four of AmEx’s offices in southern New Jersey and nearby Pennsylvania during the mid- to late-1990s, many of the former advisers believe corporate-level management knew about the hiring practices.

“Without a doubt, management knows about this all the way to the top,” says John Rosenfeld, who worked as an AmEx adviser in New Jersey for two years until 1997.

One adviser called it a “cost-benefit-analysis numbers game” in which only about 20% of new advisers were expected to stay with the company more than a few years.

Many of the managers who oversaw operations are still with the company but were told not to comment for this story.

American Express Financial Advisors in Minneapolis also did not respond to several requests for a corporate-level comment.

Tom Joyce, a spokesman for the unit of American Express Co., says it is in the process of trying to determine exactly what went on.

The former advisers “are all former employees, and by definition a former employee is not going to be a happy employee,” he says.

According to written statements and interviews, tactics employed by managers in the four offices at the very least appear to have violated an employment contract clause that said advisers would get a salary during their first year.

That salary, former advisers say, actually turned out to be a “draw” against commissions. If commissions during a pay period did not meet or exceed the draw, the deficit was carried over, the ex-advisers say.

AmEx overhauled its sales and compensation structure in March and no longer uses the same disclosure document, says Mr. Joyce. But he acknowledges that every adviser who joined the company prior to the change signed the disclosure agreement.

The salary issue is a major sore point with the former advisers, but it is far from being the only issue. They also question the way expenses were deducted from their pay.

They say the expenses were not discussed when they were hired or during the eight-to-12-week training and licensing period.

Most of the advisers discovered their responsibility for expenses only after they received their first paycheck following the training period.

“They lied to us about everything,” says Mr. Rosenfeld, who is organizing former advisers for a possible lawsuit. He’s asking other former advisers to e-mail him at [email protected].

In a letter detailing his experiences, Mr. Rosenfeld wrote, “Many issues are blatantly misrepresented, while other issues are misrepresented through insinuation.”

While the disclosure document describes a portion of the first-year salary as an expense allowance, all of the former advisers say that this was never explained to them in advance of their first paycheck.

And because advisers were being charged for everything from coffee and computer time to phone lines and client leads ($7.50 to $15 each), expenses added up quickly.

The former advisers say it was not uncommon to generate $15,000 or more in annual expenses, which were deducted from a first-year salary that averaged under $32,000.

Some former advisers charge that the expenses, coupled with the salary-draw system, actually enabled the company to profit off the advisers regardless of whether they brought in new clients.

The expenses, which one adviser letter described as “a huge mystery,” were so steep that it was common for advisers to tap into savings and take on debt to keep working.

In a letter detailing his experiences with American Express between May 1996 and June 1997, Anthony Cavalcanto wrote that he had to withdraw $58,000 from his retirement account to support his family.

“Over the course of five months at AEFA, between paying for office rent, phone service, secretarial service, computers and leads, I generated about $13,000 in salary and commissions, of which I had to pay back about $6,000 in expenses that were not disclosed during the hiring process,” he wrote.

Tim Wetherington, who worked as an adviser out of the Voorhees, N.J., office for nearly three years beginning in February 1994, says he was charged between $12,000 and $15,000 annually for expenses.

Mr. Wetherington was in debt when he left the company in early 1998, after draining $30,000 in savings and taking out a $35,000 second mortgage.

“The expenses burned my ass,” he says. “If I had not left American Express, I probably would have lost my home by now.”

Stephen Janetta was appointed as an American Express adviser in December 1996 on the promise of a “$31,600 base salary” but was let go in June 1997 “because I was between $5,000 and $6,000 in the red.”

Mr. Janetta remembers expecting $2,200 in his first paycheck with the company; he received just $260.

“Think of Amway,” Mr. Janetta says. “It’s multilevel marketing where the managers get paid based on the number of people they hire. And they lie a lot.”

Daniel Candura, a veteran American Express adviser in Braintree, Mass., says charging advisers expenses is how the company teaches newcomers to manage a business.

Mr. Candura is not associated with any of the disgruntled advisers.

Whatever the intention behind the expenses, the former advisers claim the system evolved into a “multilevel marketing scheme” that lined the pockets of managers while few new advisers were able to succeed beyond a couple of years.

“Managers are compensated and promoted based on the number of bodies they brought in the door to pull the oars,” says Mr. Wetherington.

And even though turnover was described as constant, the managers were building their own books of business by skimming the best clients from the advisers that left the company. Advisers are prohibited from taking their clients when they leave.

Mr. Wetherington says the clients, as well as the best leads, are used to encourage the first-year advisers to keep working. But after the first year, he says, the leads “dried up.”

“They are always giving you the metaphor of pushing a snowball up a hill, and even though it’s getting heavier, they want you to think you’re almost there,” Mr. Wetherington says.

“There’s a lot of hype, and my thinking is that this is not an isolated incident in southern New Jersey. If I could change something, hell, I’d change the whole industry. But I’d start with American Express.”