Imagine writing a $40,000 franchise check based on enthusiastic guidance from an "advisor" who is quietly pocketing $20,000 from the seller for steering you to that exact brand. You would want to know about that payment before you signed — not after. For years in California, nobody had to tell you. Starting July 1, 2027, they will.
California's Senate Bill 919, signed in September 2024, amends the California Franchise Investment Law to regulate franchise brokers and franchise sales organizations for the first time. Brokers will have to register with the state every year and hand you a standardized disclosure document — covering their background, legal history, and, critically, how they get paid — before they pitch you a franchise. If you are thinking about buying a franchise in California, here is what the new regime changes, what to demand from any broker in the meantime, and how to keep your own pre-opening books clean while you vet the opportunity.
What SB 919 Actually Does
SB 919 targets the middlemen of franchise sales: independent brokers, consultants, and franchise sales organizations (FSOs) who match prospective buyers with franchisors and earn a commission when a deal closes. These third parties are typically independent contractors, not employees of the franchisor — which is exactly why they fell through the cracks of a disclosure system built around franchisors.
The law has four pillars:
1. Annual registration with the DFPI
Once operative, a franchise broker must register each year with the California Department of Financial Protection and Innovation (DFPI) before offering or selling any franchise in the state. Offering or selling without an effective registration becomes unlawful, and the DFPI can review registrations and issue stop orders, suspensions, or revocations. In practical terms, "are you registered with the DFPI?" is about to become a yes-or-no question every legitimate California broker can answer.
2. A Uniform Franchise Broker Disclosure Document — delivered before the pitch
This is the centerpiece. Before communicating with you about a specific franchise opportunity, the broker must give you a standardized disclosure document that includes:
- Who the broker is and what services they provide
- Their professional background and experience
- Certain litigation, regulatory, and legal history
- Which franchises and industries they represent
- Compensation, commissions, incentives, and any other economic arrangement that could influence their recommendations
Note the timing: the document comes before the sales conversation, not buried in a closing packet. The point is to fix a specific information gap — regulators concluded that many buyers never understood how their "advisor" was compensated or how that pay structure shaped which brands got recommended.
3. Five-year recordkeeping
Registered brokers must keep books and records on their franchise offer and sale activities for at least five years and make them available for DFPI examination. A paper trail that regulators can audit changes behavior well before anyone files an enforcement action.
4. Real enforcement teeth
The DFPI gets administrative enforcement tools including stop orders and registration suspensions. Violations can also create civil liability exposure for brokers and other participants in the sales process — meaning a buyer harmed by an unregistered or non-disclosing broker has a path to damages.
First, the Date: Why July 2027, Not July 2026
You may see older summaries saying the law takes effect July 1, 2026. That was the earliest possible date. The statute made implementation contingent on the legislature funding the DFPI's administration of the program: the operative date is the later of July 1, 2026 or one year after the appropriation. The funding has now been appropriated, which sets the registration and disclosure requirements to take effect on July 1, 2027. Use the intervening year to prepare — and to hold brokers to the coming standard voluntarily, as described below.
California is not the first state to go after broker transparency — New York and Washington already impose registration-style requirements on third-party franchise sellers — but practitioners widely describe the California framework as the most comprehensive broker-specific regime yet, because it combines registration, up-front disclosure, recordkeeping, and enforcement in one package. Expect other states to borrow from it.
Why This Matters to Your Wallet: Follow the Commission
Here is the conflict the disclosure document is designed to expose. Franchise brokers are generally paid by the franchisor, not by you. When you sign, the franchisor pays the broker a commission commonly calculated as a share of the initial franchise fee — industry sources put typical broker commissions anywhere from around a tenth to roughly half of that fee, with 40 to 50 percent frequently cited for broker-network referrals. On a $50,000 franchise fee, the broker's cut can easily be $20,000 to $25,000.
That structure creates an obvious incentive problem, one the Federal Trade Commission itself flags in its buyer guidance: a broker paid on commission may steer you toward a pricier franchise — or simply toward the brands that pay the network the most — rather than the one that fits your capital, skills, and market. The broker's service costs you nothing out of pocket, but it is not free. The commission comes out of the franchisor's economics, which flow back to you through the franchise fee and the royalty stream you will pay for years.
SB 919 does not ban broker commissions. It forces them into daylight so you can discount the advice accordingly.
How to Vet a Franchise Broker Right Now
You do not have to wait for July 2027 to protect yourself. Treat the coming disclosure document as a checklist and demand equivalent answers today, in writing, before you discuss any specific brand:
Ask who pays them, and exactly how much
Ask for the commission structure in dollars, not adjectives: flat fee or percentage, paid by whom, when, and whether any brand pays them more than others. Get it in an email you keep. A broker who hesitates to put compensation in writing is telling you something important.
Ask how many brands they turned away
The FTC's buyer guidance suggests asking brokers about their selection criteria — and how many franchisors they have recently rejected. A broker who represents whoever pays has no selection criteria. One who can name brands they dropped, and why, is showing you their filter works.
Check their legal and regulatory history yourself
Ask about lawsuits, regulatory actions, and bankruptcies — then verify independently. Search the broker's name and firm, check DFPI materials, and read the franchisor's Franchise Disclosure Document (FDD) for any mention of broker relationships and payments. Starting in 2027 this history arrives in a standardized form; until then, you assemble it yourself.
Talk to existing franchisees — chosen by you, not the broker
Call a random sample of current and former franchisees listed in the FDD, and specifically ask whether they used a broker, what the broker told them, and what surprised them after signing. Former franchisees, in particular, have little reason to sugarcoat the unit economics.
Verify registration once the registry is live
After July 1, 2027, confirm the broker's DFPI registration before engaging — and walk away from anyone operating without one, since unregistered selling will be unlawful. If a broker cannot produce the required disclosure document before the pitch, treat that the way you would treat a franchisor who will not show you an FDD: as a disqualifier.
Keep Your Own Books Clean While You Shop
Franchise due diligence generates a paper trail of its own, and sloppy early recordkeeping creates tax and accounting headaches that survive long after the broker is gone. A few habits worth adopting from day one:
- Track investigation costs separately. Travel to discovery days, attorney review of the FDD, accountant analysis of Item 19 financial representations, market-study fees — log each with dates and purpose. Some pre-opening costs are currently deductible as startup expenses (subject to limits and amortization rules), while others get capitalized into the business. Your tax preparer can only classify what you recorded.
- Amortize the initial franchise fee correctly. The upfront fee you pay the franchisor is generally not a day-one expense; it is typically capitalized and amortized over the franchise term. For the full mechanics of initial fees, royalties, and ad-fund contributions, see Franchise Accounting 101.
- Remember the broker's commission is not your deduction. Because the franchisor pays the broker, that commission never hits your books — but it is embedded in the fee you do pay. Understanding that economics helps you negotiate (everything from development schedules to royalty abatement in early months) with clear eyes about how much margin the franchisor already gave away to acquire you as a buyer.
- Budget working capital, not just the fee. The franchise fee is the headline number; payroll, lease deposits, inventory, and the months before breakeven are the numbers that sink undercapitalized owners. Build a month-by-month cash forecast through at least the first year before you sign, and keep every assumption documented so you can compare forecast to actuals later.
What Franchisors and Brokers Should Do With the Extra Year
The law aims at brokers, but franchisors that sell through third parties are squarely in the blast radius. Firms using brokers, consultants, FSOs, or broker networks should use the run-up to July 2027 to inventory every third party touching their sales process, revisit broker agreements and compensation structures, confirm their brokers can satisfy registration and disclosure duties, build procedures so disclosures go out at the right time, and revisit indemnification and compliance language in broker contracts. Brokers, meanwhile, should be preparing registration materials, assembling the litigation and compensation histories their disclosure documents will require, and setting up the five-year recordkeeping systems the DFPI will be entitled to examine.
The Bottom Line
For decades, the most conflicted voice in the franchise sales process was the least regulated one. SB 919 ends that asymmetry in California: registration you can verify, a disclosure document you receive before the pitch, records the state can audit, and liability when brokers break the rules. The July 1, 2027 start date gives everyone time to comply — and gives you, the prospective buyer, a ready-made vetting standard to enforce on your own starting today. Demand the compensation numbers in writing, check the history, call the franchisees, and keep meticulous records of your own search. The best franchise decision is an informed one, and informed now has a legal definition.
Keep Your Franchise Finances Organized from Day One
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