Ethical and Professional Standards in Franchise Sales and Administration
Ethics questions test whether the candidate can apply disclosure duties, honesty, and professional responsibility to realistic sales scenarios. The core duties: full and fair disclosure, no material misstatements or omissions, no high-pressure tactics, no unauthorized earnings claims, no conflicts of interest, and no discrimination in franchise sales.
Key concepts: the broker/salesperson's duty to the prospect and to the DFPI; the prohibition on selling unregistered franchises or selling before the 14-day period; the duty to deliver the FDD and obtain a receipt; the duty to correct prior statements when they become inaccurate; confidentiality of prospect information; and the obligation to escalate suspected violations. Also know the distinction between puffery (permissible) and a material misrepresentation (prohibited), and that "everybody does it" is never a defense.
Traps: rationalizing an omission because the prospect "didn't ask"; relying on a franchisor's oral assurance that a claim is "in the FDD somewhere"; signing a receipt on the prospect's behalf; and backdating documents. Questions often present a pressure scenario-the correct answer is usually to disclose, document, and decline to proceed until compliant.
Rule of thumb: if you would not want the DFPI to read it in the file, do not say it or send it.
Worked example: A salesperson is told by a franchisor to "hold off" delivering the FDD until the prospect is "warmed up." The ethical and legal answer is to deliver the FDD at least 14 days before signing and document delivery-waiting is a violation regardless of sales pressure.