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H&R Block, Inc. Message Board

  • taxnerd50 taxnerd50 Aug 7, 2012 10:24 PM Flag

    Is there a RICO lawsuit against John Hewitt?

    Anyone know about the RICO lawsuit and how it is playing out?

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    • People, let's put this thread to rest. John Hewitt is very knowledgeable in the tax field. He started not one but two companies (JH and Liberty) to offer others who were interested in tax prep the opportunity to start out with a brand name and business procedures already drawn up. For someone wishing to go out on their own, it's a scary proposition. How much do you charge? How do you get training? Where do you locate? How do you let people know you're there? Joining up with a company that offers help with these logistics seems more secure than just hanging out your shingle and hoping clients come.

      With any franchisor, money is made by getting new franchisees to invest in return for an upfront fee (often substantial) and an ongoing share of revenues. In return the zee gets the advantage of the brand, advertising, and multiple forms of support (like training and software, and presumably help when clients aren't coming). All franchisors try to hype their models to gain attention (just like the salespeople who offer free dinners for potential buyers of time-shares or living trusts). With both of Hewitt's businesses, lots of money was made was through selling territories, with more made through his cut of franchisee revenues. If the zees did well, he got a decent return; if they didn't he didn't get as much, so of course he had an interest in their success.

      I think the most contentious question is whether he was more interested in selling territories than in supporting the investors once they opened offices and in supporting the brand name. Annie's results were so extraordinary should he have questioned her methods when he decided to use her to attract new investors and encourage existing ones to stick it out? Does he care whether those operating under his brand name are honest and professional?

      It's not easy to control individual franchisees in the tax field. For McDonalds or Subway, for example, you get their training and do things their way or you lose your business. Tax prep is a profession and calls for more flexibility. Some of those who invested in Hewitt's businesses were tax pros who wanted to go out on their own but decided to do so under a brand name because they thought it would be helpful. Others were investors who knew nothing about tax and just wanted to make money on their investments. Kind of hard to control what goes on in your tax offices when you know nothing about tax.

      At the very least, I think Hewitt has to care about his existing franchisees as much as he cares about attracting more to the fold. He doesn't need to go as far as Block does with its own offices, micromanaging to the point of telling you how much toilet paper you can buy and how you have to cut your most productive preparers' hours to save money. Maybe he can find a middle ground.

    • Everyone at Liberty knows that John Hewitt makes nearly EVERY decision within the Liberty organization! I would go as far to say that very few people can make a decision without his approval. Did Anne spend ALOT, of time at the "beach house?"

    • First, disingenuous and dishonest are two different words...the do not mean the same thing.

      "Frankly, it has never occurred to me that charges could be collected from a RAL client up front." Yet in your previous post you stated unequivocally that it was impossible to report a lower to fee to Republic than was collected. In fact you repeated yourself…"the only way".

      "An individual franchisee does not have that luxury. They want the best results as quicly as possible" That is not a "market dynamic"; this is a business model and it is the model that Liberty has chosen and is promoting. There is nothing wrong with that. Wal-Mart has done quite well, but doesn't pretend to be Nordstrom.

      "In organization of 2000 franchisees it is a little different, but Liberty did identify and remove the problem. I guess you are quibbling over how long that should have taken" Quibbling? Let's see, a high school graduate with no tax experience suddenly "set the standard" for Liberty Tax and it takes four years to realize that something might be amiss? If you're going to anoint a superstar a little research would be appropriate.

      "Annie set the standard for the best first year tax office ever in the Liberty Tax Service operating system during our ten year history with over 1600 returns prepared,” said John Hewitt, CEO and Founder of Liberty Tax Service."

      "By Tax Day, April 17th 2007, Annie’s first-year Liberty Tax office in Newberry finished #1 in the entire Liberty Tax Service operating system for first-year stores with a company record of 1658 returns prepared. She was first in the system for second year offices in 2008."

      "bias gets so distorted and untruthful" Could you point out the distortion and untruth? Or do you prefer to use those words in your "respectful discussion."

    • I hope we can have a mutually respectful discussion without the nonsense of accusing me of being intentionally diingenuous. I've been participating on this board for more than eight years now. You don't have to disagree with me, but I don't take kindly to being accused of dishonesty without evidence.

      Frankly, it has never occurred to me that charges could be collected from a RAL client up front. It is theoretically possible, and I had not considered it. Never heard of it. In my experience, a RAL customer does not have two nickels to rub together when they come in to do their tax return.

      Now, Liberty has certainly been around for 15 years. New franchisees buying new territories still have to decide where to buy and where to locate. Putting a new tax office in an upper-middle class area yields less success for any new tax office, HRB included. HRB can invest in an office for five years waiting for profits to catch up in the long run. An individual franchisee does not have that luxury. They want the best results as quicly as possible, and that will happen if they locate in an area with less brand loyalty to another brand. In time, the low hanging fruit will be gone and new Liberty territories are already beginning to develop in higher income areas. My analysis for why this is true of all brands, not just Liberty, is still valid. There's no "excuse" to it, it's merely recognizing a natural market dynamic.

      In my office I have less than a dozen people to monitor, so I would catch dishonesty fairly quickly. In organization of 2000 franchisees it is a little different, but Liberty did identify and remove the problem. I guess you are quibbling over how long that should have taken, and I'm sure criticism can be laid on that count, but it's hardly the "hair on fire" running in circles issue people have made it out to be on this board. Of course I never expect discussions on this board to be unbiased, but I'm always happy to comment when the bias gets so distorted and untruthful.

    • I'n not sure if you're being intentionally disingenuous or simply parroting the Liberty party line.

      "Can you elaborate on how such a thing is possible, since Repubolic Bank receives the refunds and then remits the fees? Under what possible scenario could the fees be hidden. The only way to get the average fee below what Republic Bank deems to be a reasonable charge is to charge less." It's quite simple. The client pays a portion of the fee upfront and the remainder is paid by Republic. The fee that Republic sees is lower.

      "...but unlike HRB's business model, Liberty and JH business model is built predominately on the early filer." You equate early filer with RAL. Early filers usually are the simplest, often W-2 only, returns whether they opt for RAL or not. This carries forward to your next point.

      "Liberty will sell you a franchise in any type of territory but their most successful stores are in highly populated, low income areas."

      This will be true of any new tax office of any brand because lowern income people also tend to be younger, and both categories tend to be less brand loyal. It is harder to get a 50 year old upper middle income person to switch to a new office than it is to attract a 26 year old of modest means. That's a market dynamic, and even a person opening an independent tax office would do well to understand it. It is not a "business model", it is a market dynamic. I'm surprised you did not study your business more and understand this."

      Liberty has been around for 15 years so by now so the "new tax office" excuse should be long gone. Google Liberty Tax locations for any area you know well and it will be clear that low income area is the business model and upper middle class is the exception. If the business model was to attract middle and upper class clients you open an office in that area and expect it to grow more slowly, but you still open the office. But you couldn't tout 1650 returns in the first year.

      "blinded by the lightening fast success of one franchisee and then hired her to teach others how to repeat her results before they realized how she was doing it. ***You only know what you know***" As I said before the "I know nothing" defense may work in court, but when you're the CEO and founder it's your job to know. How long would it take you to determine that someone in your office might be unethical?

    • "It's been a while since I was involved with Liberty but your right Liberty dosen't include free returns in it's average net fee. However, Republic Bank does monitor tax prep. fees under it's tax office review program. So it is possible that John and Danny provided some advise to franchisees on how to charge their fees in such away as to avoid being scrutinized by Republic Bank. "

      Now we are getting somewhere. This is why the "free return" nonsense that has been alleged is just that - nonsense. You say it is "possible" that the Hewitts advised franchises how to charge fees in a way to avoid Republic Bank's detection. Can you elaborate on how such a thing is possible, since Repubolic Bank receives the refunds and then remits the fees? Under what possible scenario could the fees be hidden. The only way to get the average fee below what Republic Bank deems to be a reasonable charge is to charge less. The only way, and that applies to Liberty and to Jackson Hewitt since they were both serviced by the same bank.

      "...but unlike HRB's business model, Liberty and JH business model is built predominately on the early filer. "

      In fact, in an analysis published internally at Liberty based on HRB and JH public disclosures, the percentage of customers that chose a RAL has traditionally been lower at Liberty than at the two larger competitors. That has changed after Block lost its source of RALs, but the numbers used to be something like 18% for Liberty, 22% for Block and 32% at JH. That's just from memory, and I don't have any source for them now, but that's what I recall. It is consistent with what I see in my own business, at least. RAC/ERC customers have gone up while RALs have gone down.

      "Liberty will sell you a franchise in any type of territory but their most successful stores are in highly populated, low income areas."

      This will be true of any new tax office of any brand because lowern income people also tend to be younger, and both categories tend to be less brand loyal. It is harder to get a 50 year old upper middle income person to switch to a new office than it is to attract a 26 year old of modest means. That's a market dynamic, and even a person opening an independent tax office would do well to understand it. It is not a "business model", it is a market dynamic. I'm surprised you did not study your business more and understand this.

      The one criticism might have validity, that they were blinded by the lightening fast success of one franchisee and then hired her to teach others how to repeat her results before they realized how she was doing it. You only know what you know. She certainly talked a good game, and she never publicly recommended the techniques shes seems to have employed to achieve her falsely positive results. She was smart, and she knew there were too many ethical people in her audience to give out those secrets. She fooled many. No question about that.

    • It's been a while since I was involved with Liberty but your right Liberty dosen't include free returns in it's average net fee. However, Republic Bank does monitor tax prep. fees under it's tax office review program. So it is possible that John and Danny provided some advise to franchisees on how to charge their fees in such away as to avoid being scrutinized by Republic Bank.

      I didn't mean to hit a "nerve" when I said exploit. I was simply presenting the facts as they are. Yes HRB, Jackson Hewitt and Liberty all charge higher fees on the early filers but unlike HRB's business model, Liberty and JH business model is built predominately on the early filer. Liberty will sell you a franchise in any type of territory but their most successful stores are in highly populated, low income areas.

      The single bad franchisee was also the company's touted top gun and put on the company payroll to train franchisee's on how to market. So while it was good that they rooted her out, it would have been better had they been more selective in who they offered franchises to. Of course if your too selective you won't get to be known as the fastest growing income tax service.

    • If Block really enjoys such a huge competitive advantage, why have they never achieved more than about 22% of the paid tax preparer tax return market?

    • "Block used to have lots of franchisees, but as I recall a few years ago they bought many of them back or didn't renew contracts, bringing those offices back into the fold so corporate got to keep all the profits."

      This policy changed a few years ago when HRB began selling off company stores to franchisees. A company-owned district I worked in took over an adjacent franchise when their contract expired. Latter they sold the original company stores to a franchisee and kept the former franchise stores.

    • All offices of all 3 tax services comes down to staff, staff, and staff.
      Those with the most knowledgeable staff will come out winners every time, as the relationship between preparer and client remains #1 on the priority list.
      That includes off season staff as well, plus hours of operation.
      There is nothing worst than a client driving to an office all upset with an IRS letter to find the store closed. They want answers at the exact minute, not driving across town to some far away office. They want reasonable hours to pop in and get a copy when they need it (IRS charges $57), and most can't read a transcript.
      I know during my years at Block, they have bought up a lot of Mom & Pop type stores that don't seem to last long after the HRB sign goes up. Many of the older clients were too disappointed their own preparer no longer worked there.
      I remember one class I taught, a JH manager switched over to Block, and his remark will always stay with me: "What a class-act" he said after training. He was amazed with the amount of not only training, but with how much training Block gave. AND, that's the difference between the 3. Block has the tax courses to make the most knowledgeale staff and only charges their priors $20 for as many classes as they want to take. Liberty is starting to do a catch up, but isn't near the volume, so outside classes at $300-400 are needed, and few take more than one or two.
      Block has the brand name & the training, and if they ever discover a way to keep their staff, it's the most winning combination I can think of.

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