What value-for-money looks like

How closely do you look at supermarket shelves?

Supermarkets these days have to display a “price per 100g” (or per litre or equivalent) under the unit price of certain goods. It gives the shopper the option of being guided by price, or by value. They can choose what’s important, but the unit price is invariably bigger than the cost-per-weight because I suppose deep down we’d all prefer to judge by price, not value.

Warren Buffet’s famous quote “Price is what you pay, value is what you get” works to disassociate the two nouns. But even after you’ve left the supermarket it’s price, rather than value, that grabs the attention of the buyer.

In part, that’s because price is easy to compare across a range of providers; value is harder to pin down. You can go to an artisan market and pay four pounds fifty for a loaf of bread; its value is defined as much by its location as by anything else. The NACFB regards its membership as something like the artisan loaf, but at a Co-op price. We are now charging an attendance fee for some of our events (specifically, the Compliance ones). This puts us in new territory and sometimes leaves us explaining to our members why we feel the fee constitutes good value. Which we do, because we’ve been independently told that’s the case.

What the FCA makes clear is that shopping by price alone is not smart. To be fully compliant, a broker can’t simply demonstrate that he or she has chosen the cheapest option up front, nor the cheapest in the long term, necessarily. “Best” doesn’t even have to mean “best value” … because loans are not sold by the gram……. Is this loans or loaves?

The Compliance events charge comes about because we’re adding these on top of the usual annual programme. They don’t replace anything we would otherwise have been doing. They’re added on, and as such, the usual events budget won’t cover them. And they’re designed to help our brokers, directly and specifically. We can tell them exactly where they are falling short, by highlighting the most likely areas and checking those first. For example, some require help around Training & Competence and evidencing client outcomes. So you can see that these are being tailored specifically for the need of the Broker.

This is due to something we might call “racehorse in a zoo” syndrome. The kind of person who has a passion for his or her brokering business is unlikely to be creatively inspired, or even satisfied, by sitting down with someone else’s training programme. Or drawing up template documents for events that probably won’t happen. Or reading a 248-page book for what appears to be a tangential qualification … one which your client might not attach any meaning or weight to. If you put an entrepreneurial individual in a repetitive administrative role – even if only for a few hours per week – you won’t get them at their very best. So, they are going to need a nudge, or a focused event, to get it right.

Tailored advice for each broker is key, in exactly the same way as a broker needs to tailor his or her advice to each and every client. This means that when push comes to shove, the good broker will have no choice but to disassociate “price” and “value”. There are days for the value 800g white loaf, and there are days for the hand-baked spelt-and-rye. Whether it’s the NACFB selling a product to a member, or the member sorting out a loan for a customer, the fit is everything.

The NACFB Blog 1/6/17

Two years on from the FCA taking over from the OFT and I am still hearing the same phrases.

Some brokers say, I don’t need to be regulated. I am a Commercial Finance Broker and everything that I do is unregulated; all the products are unregulated.

While its true that most of the products are unregulated, it’s the activity that is regulated. In PERG (2.7.7E) and the FCA’s Definitions, the FCA provides a broad outline for Credit Brokering. This outline makes it clear that anyone effecting an introduction to an individual, which includes sole traders or partnerships of 3 or less for finance, needs to be FCA Regulated. They must hold as a minimum some level of credit brokering permissions.

So, what about the lenders and funders? How well have they adapted to Regulation? Some have opted not to be regulated and when I ask them about that decision, they explain to me that everything they do is unregulated and that all their products are unregulated. That is when I ask them who introduces business to them and what due diligence they undertake. Surely they need to make sure brokers are not trading illegally?

The most common response I receive is that the lender will only lend to limited companies, which means that lending is out of scope. Then we address the hypothetical issue: if an unregulated broker is introducing limited companies to one lender but then introducing regulated deals to another funder, or to a broker who is regulated is this not illegal?

You might not know that here at the NACFB we still receive enquiries from individuals wishing to join as Unregulated Members because all they do is introduce business for limited companies, yet when questioned about their activities it becomes clear they are looking to avoid adhering to the rules of the regulator. Unregulated Brokers having a website that says they can provide lending solutions to SMEs can be misleading.

Take a look also at Invoice Discounting and Factoring Brokers; yes, I know this part of the market is not regulated, but when a sole trader deal is introduced to a funder; you cannot then subsequently introduce the clients banking requirements which includes outstanding loans. Equally the funder should not be accepting this if the broker is not regulated.

We humans are fascinated with trying to bend the rules. How often do footballers try to steal a few extra yards for a throw in when the ball is kicked off? We are now in Wimbledon season where the standards are that players must play in whites but there will still be players pushing the boundaries with different shades of colours in the hope they can get away with it! These acts of rule-flexing are relatively visible. Brokers have less obvious ways of pushing at the boundaries of what is acceptable.

Let’s look at accountants that are not part of Designated Professional Bodies (DPBs); they still believe they can introduce clients who are sole traders and partnerships direct to lenders because that is what they have always done. Well the simple fact is that they can’t do that, because it’s a breach of regulation. They must hold Credit Brokering Permissions and what’s worse some funders continue to accept the business. The same can be argued for surveyors and valuers who are not part of DPBs.

While you’re here on the new website, please have a look around and let us know what you think. A few features you are used to seeing have been hidden away for the short term so we can finish building them.

If you need anything that’s not there, we have an office full of staff who can help and send you what you need or guide you to it. We also have Phase 2 plans, so if you ask us for something that isn’t there, we might be able to make it happen.

Warm regards, Norman Chambers, MD