I continue with my seventh and final installment on Observations from the IFA Convention on the Ins and Outs of Financial Performance Representations (“FPRs”).  Again, my thanks to Max Schott of Gray Plant Mooty for co-authoring this summary with me.  This concerns some advice on advertisements and FPRs and Max and my last and final word (we know you can’t wait for that!!).

Copyright:  / 123RF Stock Photo
Copyright: / 123RF Stock Photo

Is it true that a franchisor can put any FPR information it wants in ads as long as it has an FPR in Item 19 of its FDD?  Not quite.  Just because a franchisor has an FPR in its Franchise Disclosure Document (“FDD”) does not mean that it can automatically include any portion of the FPR in an ad.  The information must still be truthful and reasonable, backed by written substantiation at the time made and consistent with the FPR in Item 19.  In addition, the FTC Compliance Guide notes that FPRs in the “general media” (which is meant to be “read broadly to include all forms of advertising”) also must include three specific disclosures.  Given inherent time or space limitations in certain ads, however, these disclosures are often left out without consequence (at least as far as we are aware).  We recommend that these disclosures be included in ads where practical and that, at a minimum, each ad contain a statement that the full FPR, along with its bases and assumptions, is included in Item 19 of the franchisor’s current FDD.  It also is worth noting that Maryland and Minnesota have laws pertaining to franchise advertising that may prohibit the use of FPRs in ads.

And finally…

“In Heart Your of Hearts” Test.  Even if an FPR otherwise meets all the requirements of Item 19, we think it wise to ask whether, in your heart of hearts, you think that a prospective franchisee has a legitimate chance of doing at least as well as the numbers reported in the FPR.  If the answer is “no,” you should strongly consider revising, further qualifying or eliminating your FPR.

If you have been reading this series and have any questions or thoughts, please feel free to reach out to Max or me.