View more on these topics

Franchise without tears

Phrases can sometimes conjure up, on second reading, a different


impression from the one they made at first sight.


When Allied Dunbar launched its franchising proposition last May, the


announce ment included a statement which said: “In the event of a client&#39s


needs [being] best met by a product other than an Allied Dunbar one, the


adviser can introduce other providers&#39 products through the group&#39s IFA,


Dunbar Independent.”


Well, that&#39s OK then. The client gets the best deal available from a


product provider&#39s independent subsidiary.


But then, Allied Dunbar is also one of those product providers enamoured


of the multi-tie concept and is itself part of a multi-brand organisation.


A combination of franchises (independent busines ses) with multi-ties could


confuse some investors into thinking that they were being offered a choice


comparable with independent advice.


They would, in fact, be being offered a choice from just the brands with


which an adviser chose to tie, hopefully not all part of the same business


group of which that adviser was a franchisee.


But, before going down that road, we should look at what franchises offer.


From Kall Kwik to McDonalds, many familiar high-street names are franchises


– independent businesses selling another business&#39s products or services.


Blending brand strength with small business energy and understanding of


the local market, franchising allows each participant to play to its


strengths.


The arrangement can benefit both franchisers and franchisees. Franchisers


gain a further distribution channel and franchisees have the benefits of an


established name plus marketing, planning and support.


For franchisees, the most important component in the deal is probably the


contract. The British Franchise Association recommends that a solicitor


review this first step.


Potential franchisees should be sure of the terms of the contract and what


will be the arrangements if and when they wish to dispose of the business.


BFA members adhere to a code of conduct which, while not guaranteeing


success, does at least mean that the franchiser has been vetted.


Key inputs that franchisees should expect include training, promotional


support, market research, administration support and initial support in


getting started.


Allied Dunbar and Colonial have launched financial services franchise


operations in the UK, with Colonial having previously operated franchising


in Australia. Although, in both cases, the initial source of franchisees


has been their own direct salesforces, both plan to extend the deal to


other professionals and even IFAs.


However, IFAs are adamant that they will not be able to operate their


independent practice with a franchise.


Here lies the confusion. I have spoken with at least one IFA who believed


that message might not be reaching field management in all cases.


This belief was based on a conversation with a company local manager which


seemed to imply that there would be nothing incompatible in taking a


franchise and remaining owner of an active IFA practice.


Colonial Professional Practice Franchises plans 100 franchisees in the UK


by the end of 2000. It is hoped that the development will create a stronger


relationship than existed between product providers and older-style


appointed representatives who, although in business on their own, often


carried life insurance alongside other products or services.


Equally, it will create a new structure for customers to enjoy the type of


face-to-face relationships that 83 per cent say they prefer.


Colonial franchisees are encouraged and supported in creating


Colonial-branded advice shops on the high street. The company makes no


initial charge to franchisees but charges for services provided to make


starting a franchise less costly than for traditional franchises that sell


for £5,000 to £250,000.


Experts and franchisers agree it is essential that franchisees stick to


the rules and operate to the standards of the whole business.


Allied Dunbar, which runs the biggest franchise system in UK financial ser


vices – Allied Dunbar Franchise Network – has to be certain that its rules


and controls are enforced to support its guarantee to clients.


The company says: “We are committed to ensuring that the plans and


services of the Allied Dunbar and Threadneedle Marketing Group which your


financial adviser recommends will be those best suited to your objectives


at that time, given the information you provided during your financial


review.


If this proves not to have been the case, we guarantee to put it right.”


This contrasts favourably with previous tied agents in which nobody took


responsibility when a client complained.


Since its launch last May, Allied Dunbar&#39s franchise network has grown to


just over 4,000 separate franchises ranging from individuals to big


practices that are substantial businesses in their own right, inc luding


sole traders, partnerships and limited companies.


The Swindon-based business charges an initial fee of £2,000 for the


franchise contract, still reasonable by franchising standards.


Dunbar charges for services from its support network system including


prospect lists, marketing help, loan of an exhibition kit and consultancy


help.


The company will buy back franchises for the market capital value when


franchisees wish to retire. The practice may then be resold.


LIA director of public affairs John Ellis is relaxed about franchising


unless there are developments which are intended to pre-empt discussions


about polarisation, in which case the LIA would want to examine it more


closely.


The important thing from the LIA&#39s point of view is that franchising


should be made to work in the customers&#39, advisers&#39 and product providers&#39


interests while retaining all the proper protections.


There should also be clarity as to the extent of choice offered by a


multi-tied agency and which was responsible for the transaction under the


current regulatory system.


The ABI similarly would have no objection in principle. However, ABI


spokesperson Suzanne Moore says: “Franchises would add another layer to


what can already seem a complex system. So it would be crucial to make sure


that anyone selling products in this way was qualified and competent to do


so.”


FSA spokesperson Sarah Modlock says a move to franchising is largely a


commercial decision by the companies concerned. “As long as they can


demonstrate that they have put in place all the necessary controls and can


demonstrate clarity to the consu mer, the FSA would generally not be


involved,” she says.


Like other successful franchised sectors, financial services might benefit


from sep arating distribution from production while allowing product


providers to retain absol ute control over quality and compliance enshrined


in the franchise agreement.


Franchising could also encourage businesses whose expertise is in managing


local distribution to enter financial ser vices, which might offer food for


thought to traditional outlets.


But there is still that concern that it might be used to leverage a


decision on multi-ties. However, that argument might yet be rendered


academic in the next round of mergers and takeovers that could leave a much


smaller group of product providers on which to base independent advice.


Are franchising and multi-ties parallel developments or two lines of


business converging on the same point and will they lead to confusion? As


always, that will depend on the clarity with which the situation is


described to investors and, as always, that will depend on the person


giving the advice.

Recommended

1

Blood on the trackers

Five years ago, pension tracker funds were only just coming on to employeebenefit consultants’ radar screens. Now, the two biggest trackers dwarftheir actively managed competitors.The BGI and Legal & General tracker funds are each bigger than the 10biggest pooled pension funds on the Caps survey added together.Moreover, indexation has become an assumed part of segregated […]

Interactive Investor in £2m brand boost

Interactive Investor International is running a £2m consumer advertisingcampaign which its says complements professional advice.The campaign will run for a month, predominantly in the South-east,starting from this month.It consists of a brand-building poster campaign in London Undergroundstations plus a more widespread poster campaign focusing on the productareas of pensions, mortgages, insurance and online share dealing.There […]

Broker support team for Cater Allen Bank

Cater Allen Bank is creating an intermediary sales support team in a bidto boost its banking services.CAB says it has assembled the sales team to boost its commission-payingbank account services to intermediaries.Newly appointed regional sales manager Andrew Chalmers has been with CaterAllen since 1998. His role will involve co-ordinating six area salesmanagers.The new managers include […]

Opposition forces Government to back down

The Opposition parties achieved partial success in the Lords yesterday when they forced the Government to agree to consider one of their amendments after heated debate.The FSA will have to consider splitting the roles of chief executive and non-executive chairman in the future. Currently, both positions are occupied by Howard Davies.Both sides in the debate […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment