Who pays your ‘free’ finance broker?
There’s no such thing as a free lunch, but that doesn’t mean you will receive lower levels of service or expertise from a finance broker who doesn’t charge you. It just means that someone else is paying for it. Each business will have its own reasons for its revenue model, and each structure offers different advantages.
Approximately 90 per cent of the more than 10,000 MFAA accredited finance brokers don’t charge a fee for their advice, relying on lender commissions for their income. Others rate their intellectual property as a service worth paying for upfront. As part of the majority, Heath Williams has never once charged a client an engagement fee. Heath says that, while he can understand why some people have introduced a fee-for-service structure to cover costs even when a client takes their business elsewhere, recent survey results reveal that it’s not something borrowers would agree to take on at this stage. “It’s a tricky thing to introduce, but the truth is, buyers do shop around these days and brokers can end up doing a lot of work and not getting paid for it, especially since the introduction of the National Consumer Credit Protection Act 2009 – that prompted a lot of brokers to start charging.
“By not charging the client, it makes me work harder to ensure that I am getting the client a great deal, give them great service and communication along with a loan product that they are going to be very happy with. It also means they are more likely to refer their friends and family to me and also deal with me themselves again in the future.”
Robinson Sewell Partners (RSP) is one company that uses a fee-for-service business model. After several years in business, agribusiness finance specialist RSP recently introduced a fee-for-service model that allowed it to help clients even when it would not make business sense to do so if the only income would be commission. It also allowed RSP to assign a clear value to its services and the experience in its team. “It’s been a learning curve, but we realised that trying to engage clients without charging any fee, and just relying on the back end of success, really undermined how we evaluate our propositions,” says Director, Ian Robinson.
Clients have been increasingly committed to the process because they wanted to guarantee a return on their investment and, the company saw little debate about the new fee structure. “We value our intellectual property very highly. We’ve been in the trenches with the banks for years and we understand the internal mechanics – this is very powerful information to have when we’re operating on the client’s side.”
The main and very obvious advantage of seeing a finance broker who does not charge a fee is that it lowers the cost of procuring finance and, despite public debate, the different commission structures offered by the various lenders do not impact the finance broker’s recommendations. Not only are MFAA accredited finance brokers bound by ethics agreements that demand they do not suggest loan products that are unsuitable for a client, a broker who prioritised commissions over their clients would see their business suffer as clients realised that they would get a better deal elsewhere.
Whether you choose a broker who charges fees or one who relies on commission, MFAA accredited finance brokers are bound by ethical standards requiring them to give you appropriate advice. Find out more about your local finance broker here.
Heath Williams Loan Specialist PH: 0419 472212 Email: firstname.lastname@example.org