Should franchising be more regulated than it is today?

Real estate, insurance and financial services industries all fall into the category of highly regulated and policed industries. In some way, fashion, or form, all involve transactions stemming from individuals’ personal savings and investments.

Licensing, including comprehensive testing, are required for all sales representatives in these industries. Continuing education is also mandatory. Each industry has some type of regulatory board with enforcement powers whose primary focus is to maintain the integrity of the respective industry. Each industry maintains some type of bonding or minimal cash position requirements to ensure economic stability.

If franchising adopted a similar structure, or a portion thereof, what would be the pros and cons? What would the effects be over the next twenty years?

Recent discussions in various franchise groups eluded to the fact that there are too many franchisors and franchise brokers (in some organizations also referred to as coaches and consultants) within franchising today, a result of it being “too easy” to enter franchising. There’s been talk of less than ethical practices by various parties within franchising and poor business practices by others. Of course, most comments focus on franchise sales.

Would tighter controls and stricter requirements strengthen the franchise model and franchising itself? But what about problems caused or driven by franchisors with weak financial positions? Should franchisors be subject to one level of requirements with frontline franchise salespeople subject to another level, yet interdependent much like the relationship between real estate broker and real estate agents?

And are problems occurring because those on the front line with candidates are essentially “invisible” after the fact… meaning, by not being listed in the Franchise Disclosure Document, whether as a broker or franchise salesperson it’s hard to prove who was responsible for illicit financial claims and other misrepresentations that come to light several years into the franchise relationship and with a franchisee failing.

Mind you, before chastising me about all of the above, believing it is my intent to propose more regulation and the requirements that come along with regulation, please understand it is not [yet] my firm position that any of the above be entertained. Instead, I believe issues need to be discussed, problems need to be identified, and solutions need to be implemented to fortify franchising sooner by the industry itself, rather than later when it’s out of our hands.

I look forward to anyone willing to share their perspective on this topic — especially, those on the franchisor side who typically remain quiet while franchisee attorneys speak their minds. To clarify my thoughts, this is a discussion that should be occurring amongst all in franchising, regardless of your position as it relates to the franchise relationship.

Have a great day. Make it happen. Make it count!