Commissions have been a topic of conversation in the finance industry for a number of years. Discretionary commission models were top of the list, to protect the consumer and enable them free choice when deciding how to fund their purchase. This led to a ban in 2021 preventing higher rates to the consumer simply to return a higher commission to the motor dealer. Whilst this is specific to the motor industry there have been changes more generally regarding commissions in the regulated space. So what impact do vendor commissions have in the asset finance space?
This depends on whether you are a vendor or a client!
If you are a vendor…
Asset finance brokers partner with vendors of various equipment types, enabling you to offer the complete solution to your clients, including a finance option. Some brokers offer to pay a commission to you for successful introduction of a client, encouraging you to sell on finance. Whilst short term this may seem like an additional money earner it is worth considering:
- Deals are lost as cheaper finance is sought elsewhere from a different supplier
- Commission may need to be disclosed to clients if requested potentially ruining trust
- Is the broker knowledgeable enough to discuss all solutions with your clients or are they just buying business?
The option to take a commission can often be short sighted, as all it takes is for cheaper finance to be sought from another supplier and not only has the commission lost but also the margin on the entire sale.
If you are a client…
You are unlikely to be aware that the supplier is being renumerated, although you are well within your rights to ask if the vendor is receiving a commission.
If the vendor is receiving a commission:
- The finance is likely to be more expensive, than if you go to a broker directly, as the additional commission paid to the supplier is added to your monthly payments
- The final solution provided may not be the right one for you as the broker is working primarily in the supplier’s best interest
It is always sensible to get a comparative finance quote to that of the vendor’s broker as a sanity check. If the figures are similar, in which case it would be advisable to for you to proceed with whoever provides the most knowledge and understanding of your business and needs. The things to discuss to ensure that the broker chosen is the best choice for you are as follows:
- Explain the difference between hire purchase and lease
- How are both agreements accounted for
- End of term arrangements
- If no lump sum deposit option is available
- Are they aware of any existing exposure the client has and therefore are the figures achievable?
- Any future purchasing plans the client have, as this may have an impact on the best solution now
Many clients are often unaware that their supplier can be paid commission for introducing business to a broker. This means that the recommend may be less impartial than you would hope, so again always look at the detail to see if the solution presented is right for you.
At Focus we don’t pay commission to our vendors or other partners, as we want to work with like minded businesses who understand the benefits of offering their clients the complete solution. We protect the client, ensuring that they are receiving the correct solution for their needs at a competitive cost. For us long term relationship building is far more important to us, than buying in relationships. In my opinion, vendor commissions are bad for the industry, they increase rates and don’t put the client’s needs at the forefront of decision-making, often ruining reputations of both vendors and brokers alike. The sooner we have a level playing field, enabling the broker service to be sold on knowledge, expertise and value add over who pays the highest commission, the better for everyone.