Before you buy any franchise in the United States, you receive a Franchise Disclosure Document, or FDD. It is the most important document in the process and, for many candidates, the least read. This guide explains what the FDD is, the rules around it and how to read it with an independent insurance agency in mind.
What the FDD is and when you get it
The FDD is required by the Federal Trade Commission's Franchise Rule, 16 CFR Part 436. It must contain 23 specific disclosure items, and the franchisor must furnish it at least 14 calendar days before you sign a binding agreement or make any payment to the franchisor or an affiliate.
If the franchisor unilaterally and materially changes the franchise agreement after giving you the FDD, it must deliver the revised agreement at least 7 calendar days before you sign.
The items that matter most for an insurance agency
| Item | Topic | What to look for |
|---|---|---|
| 5 | Initial fees | The franchise fee, what it covers and whether any part is refundable. |
| 6 | Other fees | Royalties, technology fees, marketing contributions and how each is calculated. Ask how fees apply to commission revenue. |
| 7 | Estimated initial investment | The full range to open and operate through the initial period, including working capital. |
| 8 | Restrictions on sources | Required vendors, software and insurance coverages. |
| 11 | Franchisor assistance and training | What support you get before and after opening, and the training curriculum and hours. |
| 12 | Territory | Whether you receive any protected territory and what the franchisor may do inside it. |
| 17 | Renewal, termination, transfer | Term length, what happens to your book of business and carrier relationships on termination, and how you can sell. |
| 19 | Financial performance representations | Whether the franchisor makes earnings claims, and the basis for any it makes. |
| 20 | Outlets and franchisee information | Openings, transfers and closures over three years, plus contact lists of current and former franchisees. |
| 21 | Financial statements | The franchisor's audited financials and its ability to support the system. |
Item 17 and your book of business
For an insurance agency, Item 17 is where the most important long-term question gets answered: who controls the client relationships and renewals if you leave, sell or the agreement ends? Read it alongside the franchise agreement itself and any carrier or producer agreements. If the answer is unclear, ask in writing.
Item 19 and earnings claims
The FTC's consumer guidance is direct: any claims a franchisor makes about sales, income or profits must be in Item 19. If a franchisor makes a financial performance representation, it must have a reasonable basis and written substantiation. If it makes none, Item 19 says so. Treat any revenue number shared in a sales conversation, ad or social post that does not appear in Item 19 as a red flag, and ask for the substantiation behind any Item 19 figures.
Recent FTC guidance worth knowing
In July 2024 the FTC issued a policy statement saying that contract clauses which prevent franchisees from reporting concerns to government agencies are unlawful, along with staff guidance that franchisors may not impose fees that were not disclosed in the FDD. Both are useful context as you review Items 6 and 17.
Florida-specific notes
Florida does not require franchise registration in the way some states do. Franchisors selling in Florida generally file an annual exemption notice with the Florida Department of Agriculture and Consumer Services under section 559.802, Florida Statutes. Separately, section 817.416 prohibits misrepresenting the prospects of success or the total investment involved in a franchise.
How to review an FDD well
- Read it twice. Once for the big picture, once with a pen and a list of questions.
- Call franchisees. Use the Item 20 lists. Ask about support, carrier access, real startup costs and how long it took to reach their goals.
- Build your own budget. Use Item 7 as a starting point, then add licensing, living expenses and a cushion. Our cost guide walks through the line items.
- Hire a franchise attorney. A few hours of review is inexpensive compared with the commitment.
- Ask about carriers. Get clarity on which carriers you will access, how appointments work and what happens to them if you leave.
At Insurance Warehouses, the FDD is shared after an initial conversation with qualified prospects, and franchises are offered only in jurisdictions where required filings are complete. Learn about the opportunity or request information.
