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's
needs [being] best met by a product other than an Allied Dunbar one, the
adviser can introduce other providers' products through the group's IFA,
Well, that's OK then. The client gets the best deal available from a
product provider's 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's products or services.
Blending brand strength with small business energy and understanding of
the local market, franchising allows each participant to play to its
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
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
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's 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
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
The important thing from the LIA's point of view is that franchising
should be made to work in the customers', advisers' and product providers'
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
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.