Lessors are increasingly making use of brokers to source business. But how long will this last?
2007 is set to be a record year for the amount of broker-introduced asset finance business in the UK. Whereas some £3.1bn of broker business was introduced during 2006 (out of a total asset finance figure of £26.5bn) the figure is likely to reach £3.9bn in 2007 (out of a total of £27.8bn) – some 23 per cent up over the previous year.
Chris Stamper, CEO of ING Lease (UK), told delegates that he believes this is a trend that is likely to accelerate rather than decrease. He said: “Comparing the figures for 2005 and 2006 it is clear that all sectors of leasing experienced an increase in broker sourced business.”
Operating leases from brokers increased by 50 per cent during this period, finance leases by 23.6 per cent, hire purchase by 21 per cent and other leases by 32.6 per cent. Hire purchase comprised 47.6 per cent of the total business introduced by brokers, finance leasing 29.6 per cent, operating leasing 10 per cent and other finance arrangements some 12.8 per cent.
Stamper predicts that as lessors steadily divest themselves of their “costly” direct sales forces brokers will become ever more crucial to new business growth plans. “Increasingly,” he said, “a number of independent broking companies are working alongside direct sales forces for a number of funders. The result has been a sea-change in the way that funders view brokers – less as competitors and more as customers and partners.”
Alongside greater acceptance of brokers by funders has been greater investment in technology by intermediaries – particularly relating to proposal management and search systems. “The result,” he stressed, “has been a more consistent and known service delivery.”
By sector, equipment finance introduced by brokers is the largest at £815.7m or 26.1 per cent of the total for 2006 (see chart 2). This is followed by plant and machinery at £651.4m (20.9 per cent), commercial vehicles at £587.2m (18.8 per cent), and new cars at £520.5m (16.7 per cent).
The largest brokers commonly operate in the sales aid and office equipment sectors and are now often difficult to differentiate from their funders. Stamper explained: “They invariably use their own documentation and in some instances their own book and collection processes. They sometimes have their own proposal management software and are able to grant automatic acceptance as well as successfully deal in an aggressive sales environment and cope with heavy service demands from their funders.”
In the general asset finance sector smaller brokers are more active. “Many of these brokerages,” Stamper said, “are established by ex-finance company employees. They sometimes employ and train individuals from outside the industry, and their unique selling points are their deep knowledge of assets and their geographical locations. Although these brokers are far more traditional than their larger cousins, there is evidence that they are increasingly willing to invest in specialist software packages and become more automated.”
In the agriculture finance sector brokers are very specialist and trade off their relationships with farmers. “Although very traditional in their outlook,” Stamper said, “they often piggy-back relationships lenders have with manufacturers and are often experts in their assets. There have been recent moves among agriculture finance brokers to form co-operatives as a protective measure.”
The vexed question of who ultimately owns the customer remains a sticking point for the leasing industry. Invariably the funder is unable to cross sell products to broker-introduced customers since the broker views the client as their own and funders are unwilling to jeopardise their broker relationships. For the future, funders could view brokers as competitors, especially those brokers who are increasing the share of their own book.
Another question for the near future is, with direct sales staff declining in numbers, will national lenders be less willing to train their own employees? With whom will responsibility for investing in people for the good of the industry rest?
“At present, Stamper said, “brokers are critical to new business generation. Ultimately, however, brokers need funders – but will funders need brokers?”