How would your franchisees answer this question, “Does your franchisor have integrity?”
Some franchisors appear to believe that when a person asks for the franchisor’s FDD they need not give it.
Why? Here is, slightly edited a franchisor’s broker’s answer, which appeared on a major business social network.
“Because they [franchisor] are not required to provide an FDD upon request.
Here is the excerpt from the FTC 2008 updated ruling:
“Upon reasonable request, franchisors also must furnish a disclosure document to a prospective franchisee earlier in the sales process than 14 calendar days before the franchisee signs or pays.
The failure to comply with a reasonable request for an earlier delivery is an independent violation of the Rule. This does not mean that a franchisor must tender a disclosure document to any person who asks for a copy.
Rather, it applies where the parties have taken steps to begin the sales process.”
The problem is that many franchisors begin a validation process with the prospective franchisee, but believe that they haven’t “taken steps to begin the sales process”.
But, the way I see it, is if a candidate is on a validation call then I think it’s hard to dispute that you’re not knee deep in the sales process!
Some brokers will argue otherwise.
“If I took a lead to many franchisors and after the first call said to the franchisor, “the candidate would like to reasonably request an FDD at this time” most of them WOULD indeed laugh or explain their “sales process” to me where the FDD is provided after the application which comes after the webinars and other phone calls.
I can only think of a handful of times where an FDD was provided after the first call with a franchisor.”
Irrespective of FTC Franchise Rule enforcement, it’s not the candidate’s duty to know that they are entitled to an FDD upon reasonable request, it is the duty of the franchisor to comply with the FTC Rule.
If you as a broker or the franchisor has a bona fide prospect considering a particular franchise you as the broker must communicate an FDD request to the franchisor. The franchisor must fulfill the request and track and record all FDD requests.
Even if the FTC is not watching, it is not okay for franchisors and brokers to break the rule. I recommend taking a look at The Franchise Sellers Handbook. It’s a great resource and most likely will answer a lot of questions that you may have.
Remember, integrity is what you do when nobody is watching!