Madoff, Joystar, Your Host Agency and the Need for Greater Transparency

Do you know if your host agency is financially solvent? Do they have cash reserves to survive the downturn? Do they play the float by slow payment of their agents and their suppliers?  These basic questions have taken a new urgency with the prospects of an extended economic downturn.

Travel agents are constantly advised to know the suppliers they deal with, including their financial status, to avoid bankruptcies and passenger stranding. But few host agencies, including many of the best-managed are candid about their financial condition: a reality that should concern agents.

This lack of transparency – candor and honesty may be better words - lies at the heart of the problems of Joystar/Travelstar who faces bankruptcy and YTB Inc. who has greeted legal action by the attorneys generals of California and Illinois with silence.

While YTB is publicly traded and subject to SEC regulation, so too was Joystar/Travelstar. Yet agents have had to go to a federal bankruptcy court to get a basic accounting of the assets, if any, that Joystar/Travelstar has.

Recent Congressional hearings on the SEC’s oversight powers and competency have underscored the weakness in SEC regulatory powers and procedures. Many observers see the SEC as ineffectual. The alleged Ponzi scheme sponsor Bernie Madoff, who is reported to have bilked the public of $50 billion, underscored this. Madoff was on the board of the National Association of Securities Dealers (NASD) a major securities industry group.

Most certainly, the multilevel and network marketing firms that make online offers of lucrative careers in travel sales should be held accountable with greater transparency and accurate, understandable and verifiable statements of financial conditions.

For the responsible, professional home-based independent agent, the financial integrity of their host is a critical issue. Will commissions due be paid promptly?  What is prompt? Daily, weekly, monthly or longer? Are agents advised of delays? What is excessive? Can they deliver the services promised?

Two major associations – the United Sates Tour Operations Association (USTOA) and the National Tour Association (NTA) have bedrock programs to assure the solvency of tour operator members. Membership is expensive to be sure. But it gives the agent/seller of travel and consumers reasonable and needed assurances.

Financial stability also impacts the host’s ability to invest in marketing, technology and training essential to independent agents and to the host’s ability to deliver quality services. A solid reference point for home based independent agents and hosts is the Professional Association of Travel Hosts (PATH).

A host agency’s financial integrity should not be an after thought but at the heart of its agent recruitment and retention program. One of the few benefits of the current economic crisis may be encouraging greater candor and transparency in financial reporting in an industry where trust and integrity is paramount.

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