What does your broker really do?

What does your broker really do?
2nd May 2024 CSF Marketing

What does your broker really do?

On the odd occasion that I have been invited to a dinner party and been placed next to someone I don’t know, the conversation inevitably comes around to “ and what do you do for a living?” It is  a question I know will always come, alongside “how do you know the host” and “are you local?” as it forms part of the standard format of getting to know the person you didn’t ask to sit next to!

I am inevitably faced with declaring that I work in the finance or motor industry, both of which unfairly have the reputation of being a conversation killer at social gatherings. If I suggested I work in motorsport (which we consistently do)  the direction of the conversation would, without doubt, invite far more interest and often the reaction of “oh, I love motorsport, is it Formula 1?”

Even after so long in the industry, it is a question I find myself having to navigate carefully to portray the real value of what our business is and what the team does. The use of the word broker or intermediary for car finance doesn’t inspire much interest and is a very shallow description of the work we actually do. In an attempt to at least gain a puzzled frown, I often suggest that “I lend money to rich people!” This delivery usually buys me at least a few seconds to gauge their reaction and weigh up the interest of their engagement. If I then add “to raise capital for high value assets such as classic and supercars and even race cars” I have generally got a conversation that will see me through to a second helping of dessert.

It is such a valid question though and often makes me look inwardly at what our business is and actually does well. We could just be a Finance Broker or Finance Intermediary like so many others in our sector who try to match a customer to a lender as quickly as possible to get to the commission. But we don’t, it is in fact a great deal more complex than that.

The key elements as I see them –

What is a broker / intermediary?

In essence, a broker is reselling the product of a supplier and being paid an element of the margin, acting essentially as the suppliers outsourced sales force. In the motor finance sector, the broker has established relationships with a variety of lenders to accommodate the requirements they may be asked to fulfil by their customer. The lender has issued a working criteria and cost of their funds.

Why do brokers exist in any business sector?

A broker exists as they can often deliver a specialism in a particular market, whether car finance, mortgages, IT equipment and so on. There are brokers in all areas of commerce, even a food supermarket is a form of broker in that they offer a variety of different produce, but all in one place.

Is the dealer finance option better?

Sometimes a dealer proposition can be better, however, the dealer is heavily financially motivated to ‘sell’ you their own branded funding product. Through inexperience, the tendency is to focus on selling you a cheap monthly payment without highlighting the real loan structure and crucial overall cost of your finance. After all, once they have sold the car the finance responsibility becomes yours and as with many new and nearly new cars, your finance product may be in serious competition with depreciation. Most dealer interest rates run higher than other areas of the market but get hidden by the attractive monthly payment.

When does using a broker become a better option?

Unlike a car dealer, a finance broker, by nature, will work with a selection of lenders from a variety of market sectors. These lenders are typically names you will not know but are ultimately the trading names of much larger finance organisations who do not have their own direct route to market. It is the broker’s role to understand the underwriting criteria of each of their lenders and use that knowledge to align the correct customer with the correct lender. It is not about a battle of interest rates but what a particular lender has an appetite to lend against and their preferred profile of customer. This is the understanding a broker should have to make your journey with them as easy as possible.

When does using a broker become an issue?

Inexperience is basically the weakest point of a large proportion of brokers. Not understanding your enquiry sufficiently to advise correctly is commonplace, focusing on an interest rate and monthly payment rather than a profile that suits your real purpose or overall funding requirement. Not understanding how your situation should fit a lender often means your contact will be coming back and forth gathering information demanded by the underwriter and wasting your time. Lack of good qualification and the gathering of the correct information creates delay.

How should it be?

A broker should clearly understand the criteria of the lenders he or she works with and be able to identify the profile of a customer that fits. Generally, there are three simple points to identify when you are being underwritten:

  1. Are you who you say you are and can you be found in the system with a clear credit footprint? – (Home ownership helps but is not crucial, but a UK taxpayer and UK bank account is).
  1. Can you clearly demonstrate the ability to service your loan? – (By providing three consecutive bank statements and additional financial data as required to demonstrate affordability, the lender can ensure responsible lending).
  1. Is the lender ‘asset secure’ with your loan structure? – (The loan to value is also crucial to ensuring that the lender is not placing you into an unsuitable agreement. A relative deposit, sensible repayment period and realistic leveraging (balloon payment) is also considered when underwriting an application. The broker and lender must ensure the profile being offered is suitable for the client and asset).

What makes us different?

There is no shortcut to experience and when we receive your enquiry, we listen. Every requirement is different and takes good qualification to identify if, how and when we can deliver the solution. A straightforward car purchase is relatively simple but multicar or high value asset capital raising, for example, takes commercial skill and an understanding of the lending policies of the financial institutions we work with. By nature of being high net worth, your wealth structure may be complex and above all tax efficient. Through experience, we understand this and ensure this is translated effectively to an underwriter for a fast and effective turnaround. If an underwriter respects the way an application has been presented, they will work fast to deliver a formal offer.

With recent changes in finance sales regulation, interest rates are set by the relative lender and are non-negotiable by the broker. This means that although there may be a marginal difference between the level of interest rates lenders charge, the key differentiator is the diversity of their lending appetite and the broker must gain the competitive edge by delivering fast, knowledgeable, and honest service levels. Easier said than done in an industry that lacks commercial experience in so many ways.