Some broker-lessor trading agreements now 30 pages, not two
pages long
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The business landscape for UK
brokers has been turned on its head over the past year and, while
the most publicised changes have been to the amount of business
that banks are willing to fund, there have been equally significant
changes to the fundamental ways in which brokers make their
money.
Pre-recession, trading agreements with
lessors often ran to only two pages, but as times have become
tougher, funders have tightened and elaborated their criteria for
doing business, to the point where one Siemens Financial Services
document mentioned to Leasing Life weighed in at close to
30 pages.
The most significant change to broker
income has been the introduction of more stringent and
wide-reaching commission clawback terms.
In a clawback, the funder in a deal
gone bad may choose to take back a percentage of broker commission
on a pro rata basis over the course of a lease, with that
percentage depending on how long the agreement persists before
imploding.
Now, however, some lessors are
beginning to take back entire upfront commissions, and are doing so
further and further into lease terms, often demanding the money be
paid fully in 12 months rather than throughout the lease term.
Leasing Life heard from one
NACFB member which, having brokered a large fleet deal in which the
troubled lessee negotiated lower payment instalments after 18
months, found itself being billed for full commission despite the
deal being a year-and -a-half in the past.
The only bleak upside to the
increasingly strict clawback culture is that commissions for
brokers, once commonly at 10 percent or more, have now sunk into
the 3 to 5 percent range – meaning there is at least less to
lose.
But if broker profit at the front end
of deals is being choked off, surely there is still money to be
made from end-of-lease options. Not necessarily. Whereas brokers in
a good relationship with a funder could previously expect to
receive up to 75 percent (or even more) of lease end revenue, 50
percent is now considered a best-case scenario.
In addition, many smaller independent
lessors, under pressure to maintain cashflow, are now offering no
end-of-lease incentives for brokers at all – a situation that is
unlikely to earn them repeat business.
As well as keeping a firmer grasp of
what brokers can get out of the beginning and end of lease
agreements, funders are also finding new ways to gain advantage
during the lease itself.
Documentation fees, introduced to the
market around 12 years ago and traditionally shared with brokers,
are now being split increasingly in favour of lessors.
With brokers’ profits being squeezed
through tighter and more heavily enforced contractual arrangements,
is it any surprise that the NACFB is currently dealing with vastly
increased reports of dubious practice by introducers?
The reported surge in brokers asking
for upfront fees from lessees, for example, makes a lot of sense in
the context of a commissions climate where fees are half what they
were three years ago, and may be reclaimed at any point in the
future in the case of a client delinquency.
NACFB associate director Nikki Cann,
responding to Leasing Life’s findings, had this to say:
“These kinds of things are certainly being seen by the NACFB
membership, although it’s very important to acknowledge that there
is a huge amount of variation across the market.
“The association is looking to engage
lessors in a dialogue to offer brokers a voice, and explain the
impact some of these policy changes are having.
“We hope that by brokers and funders
talking and working together, the whole industry will benefit.”
Fred
Crawley
