Will broker-to-broker deal
sharing really work? Fred
Crawley weights up the pros and cons.
In a job market virtually dead
for the best part of a year, it is notable that two recruitment
consultancies last month told Leasing Life that they had recently
seen an increase in brokers seeking contact with other brokers.
Go deeper with GlobalData
“They fall into two camps”, said one
recruiter. “Sole traders and smaller outfits looking for larger
brokers with active funding lines, and brokers with active funding
lines looking tentatively for more business, without committing to
the overheads involved in raising headcount.”
The situation is all too familiar. Banks have
chosen the introducers they want to work with, and cut loose
relationships – usually with smaller brokers – in which
incoming business volume could not be seen to justify the overheads
involved in sustaining the link.
Those brokers with funding lines intact are
now seeing enough confidence from funders to start looking for
extra business volume. Establishing informal arrangements with
frustrated sole traders looking to place a backlog of deals may be
the solution.
Looking for solutions
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataPrue Heron of recruitment firm
Commercial Finance People elaborated: ¡°Some ¡®main¡¯ brokers are
seeking an upfront fee to ensure commitment from the smaller
broker, and to encourage them to remain loyal once the upturn
arrives.
“Exclusivity is also required. In return, as
well as a funding line, the smaller broker can operate under the
name of an established firm and receive back office support in what
is a difficult market.”
This recent enthusiasm has also spread to the
broker committee of the BVRLA, which has in the last few weeks been
discussing ways for those vehicle finance brokers left out in the
cold to get a piece of the pie again through broker-to-broker
business.
The committee, representing the association’s
172 broker members, has posited the idea that broker members in
need of funding (Group A), could team up with BVRLA brokers sitting
on good credit lines (Group B), to place deals with the latter¡¯s
funders.
But will funders be happy to take on this sort
of business?
“Funders have traditionally rejected the
broker-to-broker model as they believe the lack of transparency
leads to a greater incidence of fraud”, said Nikki Cann,
spokesperson for the NACFB. “They are not able to carry out their
own due diligence on the originating broker, and this makes them
understandably nervous”.
The BVRLA, however, insists that drumming up
broker-to-broker deals would not cause less transparency in the
route between funder and customer.
Group B partners, it says, would carry out due
diligence on Group A¡¯s deals, with their BVRLA membership on the
line should the introduced business turn out to be less than
honourably sold. With some large funders such as Lex Autolease only
taking vehicle business through BVRLA brokers, the certification is
demonstrably important.
The due diligence requirement would fall into
the hands of Group B brokers, and presumably cost them the
overheads the banks wanted to avoid in the first place.
Taking into account the fact that commission
on the deals would most likely be split with the Group A
introducers anyway, and you have a pressure on margins that demands
a much higher price on the dealer forecourt. Group A brokers would
be subject to forensic analysis to their broker compatriots.
Historically, broker-to-broker business has
taken place in order to share specialisms. For example, a broker
which specialises in fleets might get a customer wishing for a
crane to be part of the deal, and would contact a plant finance
specialist to get involved in order for this to happen.
Worth the cost?
But in the BVRLA’s membership,
the idea would see desperate firms putting business through direct
competitors in the vehicle finance market.
Such an arrangement might well throw
struggling brokers a lifeline for the duration of the liquidity
drought, but could put them at a notable disadvantage to their
erstwhile saviours when the cash begins to flow again.
As one broker commented on the subject: “I’m
not sure it wouldn’t be preferable just to go out of business
instead.”
So, until some new ideas on business sharing
come to light, the truth of the matter may be that brokers who have
made it this far into the recession alone may be best advised to
keep their business to themselves.
