Dealers under the microscope
In an episode of the cult television cartoon, The Simpsons, mother Marge buys into a pretzel cart franchise for $500.
In an episode of the cult television cartoon, The Simpsons, mother Marge buys into a pretzel cart franchise for $500.
To her inquiry about training, business procedures, territory and support the franchisor snaps, "What do you expect for $500?", then takes Marge's money and runs.
In true Simpsons style Marge is a huge success despite the desertion.
While franchising in financial services is somewhat more sophisticated, industry consultant David Williams says the level of knowledge needs to be enhanced.
Williams cites the Money Management Top 100 list from late last year in which only six groups considered themselves to be in a franchise arrangement.
There are others, he says, but - for whatever reason - they failed to mention it.
Dealer groups need to look at their adviser licensing agreements for two rea-sons.
The rules for franchise agreements and their disclosure are no longer voluntary and
the Australian Consumer and Competition Commission (ACCC) which administers the regulations is looking towards enforcible undertakings to bring non-complying groups into line.
The onus for ensuring compliance falls not on the adviser but on the dealer. "There are very few responsibilities in this matter for financial planners," says Williams. The code is designed to address imbalances between the franchisee and the franchisor, so most of the requirements are for the dealer groups who act as the latter."
AXA Australia national dealership manager Mark Birrell, who heads up the finan-cial planner network for AXA using a non-franchise relationship, says the same applies to the AXA model.
"The majority of responsibility lies with the dealer group with the remainder based on input from planners in complying with licensing requirements and stan-dards. But we still count on a 50/50 relationship with the planner when it comes to issues dealing with our partnerships.".
AXA is not alone in forgoing the franchise model. Bleakleys and Adviser Invest-ment Services (AIS) are cases in point. Chief executive officer of both groups, Wes McMaster, says that the franchise model does not fit either group - AIS tar-gets non-franchise based planners while Bleakleys deals with accountants in fi-nancial planning.
Both Birrell and McMaster say that this type of arrangement is much more flexi-ble and gives planners more freedom but it also means as a dealer group there is more work involved to maintain planner loyalty.
"The relationship is harder to maintain as there isn't the comfort of an agree-ment to lock people in and there is more of a service focus," McMaster says.
"We fund successions via capital loans or for acquisition for growth. We also take equity positions to help growth and we do these things to generate loyalty but still within an open market."
Birrell believes that concentrating on adding value for the planner via stan-dards avoids regulatory concerns and aids in building the trust within the part-nerships.
"Having a license to operate puts commitments on management. At the same time it creates standards with planners which they want to take to market," Birrell says.
Williams is not convinced by their arguments.
"Many [dealers] probably haven't realised there is a need to conform as no one has gone through the industry asking people to examine the issue," he says.
" The old code was voluntary but under the new code it is not something that can just be declared. There are clear processes available and it is a simple case of falling within the parameters or not."
Does your dealership comply?
While not an exhaustive checklist, the following should provide a guide to whether or not further action may be necessary.
1. Do you have proper authority holders who are not your employees?
If you answered 'Yes' - go on.
If you answered 'No' - stop here. You are probably in the clear.
2. Do you have a written, oral or implied agreement with those proper authority holders who are not employees?
You must have answered 'Yes' to this question because it is really not possible to appoint a proper authority holder and not have such an agreement.
3. Do you assist those proper authority holders by providing a system or a mar-keting plan to help them to supply their services and/or your products?
If you answered 'Yes' - go on.
If you answered 'No' - stop here. You are probably in the clear.
4. Do those proper authority holders market their services and/or your products using your brand name or trade mark?
If you answered 'Yes' - go on.
If you answered 'No' - be thoughtful, because you may not be complying with the Corporations Law let alone the Franchising Code.
5. Do those proper authority holders pay you any money to operate or continue their business (eg fees for signing on, training or research, marketing levy?)
If you answered 'Yes' to all these questions then it is likely that your rela-tionship with your proper authority holders is that of a franchisor and your be-haviour is currently regulated by the Franchising Code, in addition to your re-sponsibilities as a dealer.
Source: David Williams and Peter Townsend
What to do?
Step 1: The first step is to do a detailed compliance check against the require-ments of the Code, known fully as Trade Practices (Industry Codes - Franchising) Regulation 1988. A copy is available on the government website - www.dewrsb.gov.au under the Small Business menu.
Produce a 'gap' report which identifies required actions.
Step 2: The second step is remediation. This can be performed internally using the gap report as a guide or fully outsourced. Williams says in practice many dealers opt for a balance of the two due to levels of expertise and other pres-sures on staff.
Step 3: The third step is a maintenance one. Franchisors are required to regu-larly disclose current information about the franchise to franchisees, and dis-closure documents must be updated annually within three months of the financial year ending. They must also keep up to date on requirements of the Code.
Source: David Williams and Peter Townsend
AUTHOR
Jason Spits
Recommended for you
The strategic partnership with Oaktree Capital and AZ NGA is likely to pave the way for overseas players looking to enter the Australian financial advice market, according to experts.
ASIC has cancelled a Sydney AFSL for failing to pay a $64,000 AFCA determination related to inappropriate advice, which then had to be paid by the CSLR.
Increasing revenue per client is a strategic priority for over half of financial advice businesses, a new report has found, with documented processes being a key way to achieving this.
The education provider has encouraged all financial advisers to avoid a “last-minute scramble” in meeting education requirements prior to the 31 December 2025 deadline.
