Franchise Discussion, Documents, Links: NASAA Proposed S.O.P.

5 thoughts on “Franchise Discussion, Documents, Links: NASAA Proposed S.O.P.”

• From: Jeffrey Johnson
  Sent: Wednesday, January 5, 2022 2:01 PM
  To: NASAAComments@nasaa.org
  Cc: Andrea.Seidt@com.state.oh.us; dcantone@oag.state.md.us
  Subject: My comment – POLICY REGARDING THE USE OF FRANCHISE QUESTIONNAIRES

  High-quality franchise organizations do not need any “sleight of hand” to have others say things that they cannot/will not state publicly themselves. This leaves franchise companies, that are not top-tier, to feel like they must use franchisee survey results and clever PR campaigns masquerading as news stories to make claims that the franchisors themselves are not legally or willing to say (such as a financial performance representation).

  All this, in order to sell more and more franchises to unsuspecting franchisee candidates. If certain activities are prohibited for franchisors to do/say themselves (not included in the FDD), why should it be acceptable for them to hire others to do/say the same?

  Furthermore, the franchise community should not give a pass that allows franchise companies to use advance Questionnaires and Acknowledgments to skirt the rules!

  Sincerely,

  Jeff Johnson
  Founder & CEO
  Franchise Research Institute

• Jeff I am sure that unscrupulous franchise systems exist although we attempt to never work with them and help create them in the first place, whenever possible.

  However, doing away with the questionnaires and acknowledgements in a format that is customary, seems like throwing out the baby with the bath water!

  As an attorney that also often speaks to franchisee prospects and assists them in reviewing FDD’s, I can tell you that we still see a very large portion that admit to not reading the Franchise Agreement or even attempt to understand it until we force them to review it with us, and ask questions. Sad but true.

  I am in favor or keeping them for the protection of the franchisor, even if it only had 3 questions,
  1) What was the date you received the FDD that contained a Franchise Agreement exactly like the one you are being requested to sign, except for your personal, filled in information?
  2) I have read or had full opportunity to read and have other advisors read the Franchise Agreement before I signed it, and
  3) I am not relying on any information provided by the Franchisor or its salesperson that is not contained in the FDD.

  With a follow-up subquestion, if they can not answer true to question 3, they should be required to list what information they are relying on, so that if it is misinformation, the franchisor has the opportunity to not countersign the Agreement until the misinformation is cured. This would keep both parties in the best light.

  I also think however that if it is a 3rd party sales team that has provided the misinformation, that all penalties and costs should be placed firmly on those individuals and companies, not the franchisors. We do have a lot of sharks in this industry that are not on a franchisor’s W-2 payroll, and if they were held accountable, maybe we would get rid of them.

• Lynne:

  Thank you very much for sharing your views.

  Perhaps those questionnaires could be used for the reasons stated, but not as part of the legal agreement or as a disclaimer.

  Franchisees, at the moment of signing, do not have the information or experience to know if they have been provided with earnings claims since those who make their living selling false credibility to the undeserving are very good at what they do. As a recovering franchise marketer, I share the secrets of Trojan Earnings claims here: https://www.unhappyfranchisee.com/trojan-earnings-claim/

  While I don’t agree with keeping questionnaires and acknowledgements as part of the FDD, I think you raise a good point here:

  “I also think however that if it is a 3rd party sales team that has provided the misinformation, that all penalties and costs should be placed firmly on those individuals and companies, not the franchisors. We do have a lot of sharks in this industry that are not on a franchisor’s W-2 payroll, and if they were held accountable, maybe we would get rid of them.”

  I don’t believe most franchisors want to deal with the headaches brought by franchisees with the wrong expectations. Perhaps it would be more appropriate to have the salespeople, brokers and anyone commissionable on the sale fill out such a questionnaire (preferably under a bright light).

  Personally, I would like to see franchisors fill out a questionnaire about the authenticity and honesty of their lead generation, PR, and marketing claims. Did they publish earnings claims through Franchise Business Review (FBR), 1851 Magazine, BizCom publications, John Haye’s books or other pay-for-praise publications? What awards, rankings and endorsements did they publicize, such as VetFran, FBR, and all the Top This and Best That rankings, without disclosing that they were paid announcements?

  Honest & legit franchisors should realize they are losing valuable franchise prospects to those who do not let such things get in the way of a quick commission.

  Thanks again for your comment!

  Sean

• Undoubtedly, as with any law firm that primarily represents franchisors, you’ll get the opinion as indicated by Lynn Shelton. In order to protect the perspective of a firm that works on behalf of franchisors, they couldn’t possibly do the right thing that might actually be in favor of a prospective Franchisee. Of course, I can appreciate a diverse and different opinion but my expectations for those coming from franchisor allied firms will almost always fall into the same category…one that is anti-Franchisee. None the less it’s good to see them post.

• Lynne,
  Can you please read my comment, look at the actual scenario I wrote about at the end, and then tell me how your proposal will prevent this situation from happening again?

  https://www.unhappyfranchisee.com/brandon-moore-nasaa/

  Thanks,
  Brandon Moore