The Changing FDD in Registration States

Article by: Jereme Lane Shelton

Are you seeing the new 2020 regulations for state registrations clearly? In May of 2019 the North American Securities Administrators Association (NASAA) released their newly adopted guidelines for the Franchise Disclosure Document (FDD) on how the State Cover Page and State Effective Dates Page should be formatted. The changes regulate how information is displayed and shared and even dictate the font and size of the text printed on the pages. If you have received an FDD in 2020 and you reside in a registration state, you may have come into contact with these new changes already. All of these changes have become effective since January 1, 2020.
One of the more notable changes that occurred is the requirement to include a new section titled “How to Use This Franchise Disclosure Document” which includes many frequently asked questions that franchisees have been posing for quite some time. These questions range from “How much will I need to invest?” to “What is it like to be a [Brand] Franchisee?”. The page was designed with the intention of it to be used as a roadmap or a guide to the FDD. It provides key sections to review with a small summary of what to expect once a prospect reviews what to expect once they reach it.
Following these FAQ’s there is another new document titled “What You Need to Know About Franchising Generally”. The items on this page take the prospect through some very generic information about franchising. These answers range in the information they provide which includes the prospect that the business model may change, they may have to buy from approved suppliers, they have to operate the business according to the Franchise Agreement’s term, their agreement may not have an option for renewal, and they will face competition from competing brands and businesses in the same industry or from the franchisor directly.
The “Special Risks to Consider About This Franchise” page follows and has replaced the previous “Risk Factors” page. This page informs a prospect what method of dispute resolution the franchisor elects to use and where it will take place, whether their spouse will sign a consent form, if the franchise system they are interested in is a relatively new system, if there’s a minimum sales requirement to be met while a part of the system of interest, and finally where to find State Specific Addenda in the document for any registration state.
Traditionally, “The State Effective Dates” page would follow; however, they have now been banished to an exhibit near the end of the FDD. They now appear with the list of State Administrators for each of the different registration states. Not much has changed with how the information in the table is presented, other than being required to appear right after the list of administrators.
As a prospect, these pages are bursting at the seems with information, but they are not the only areas affected by the new guidelines. There are various items and exhibits that have been tweaked overall as a ripple effect of the new guidelines. With the help of the new pages, these changes will be more readily accessible and prospect’s will be able to navigate through the FDD smoother than before.