I read with interest the article in last month’s edition
(see MF58, August 2009), in which the BVRLA discussed its
thoughts on ‘master broker’ arrangements, the basis of which seem
logical to me. Why can’t a smaller broker, who isn’t able to
service the needs of a funder directly, work with a larger broker
who can? The answer is simple: funders simply don’t like it and
never have. Personally, I understand their position.
In my long involvement in the broker market, I have seen countless
incidences of unauthorised broker-to-broker business that have
resulted in serious problems for the end funder. The main reason
for this is the secretive nature of the relationship between the
two brokers. This lack of transparency is usually born out of a
desire to keep the murky details of the transaction out of the
funder’s domain, because it probably won’t approve.
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Often the relationship is formed by two desperate
parties: one that desperately needs a home for a deal that it can’t
place, and one that is desperate for business. The bigger broker
knows the funder won’t like it, so keeps the source quiet. This
will almost always result in poor-quality due diligence, and
default, fraud, or some other type of issue.
So as long as there have been brokers, there has
been broker-to-broker activity. It is not normally allowed and it
is not normally pretty. However, it doesn’t have to be that
way.
Lessons from the past
Back in 2000, DSG Financial Services
launched a scheme that we called Unity. It was designed off the
back of broker consolidation plans by funders that simply didn’t
want to deal with small brokers.
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By GlobalDataWe took up their cause, and persuaded our
funders to allow us to manage these smaller brokers and extend our
facilities to them. No doubt this was broker-to-broker business,
but the big difference was transparency. There were no secrets,
nothing hidden. We told the funders who our brokers were going to
be, and we made them sign proper legal contracts tying them to
procedures that we designed.
This scheme has operated to this day in the full
knowledge of our funders. Some of them have flatly refused to
accept business from our Unity division, but most welcome it. In
nearly 10 years we have had no horror stories or nasty lessons,
simply because we are transparent and because we work hard with our
sub brokers to ensure they follow our procedures and ethics.
Additionally, we have helped them develop their IT
and extended white-label versions of our award-winning Maia Online
software to them, to improve their professionalism in front of
dealers.
Unity proves that broker-to-broker business works
if managed properly in partnership with each funder. Funders need
to be reassured that the master broker has the skills and integrity
to look after the interests of all parties. On the other hand, the
cloak-and-dagger activity that is still rife in the industry must
be stamped out.
Richard Hoggart,
managing director of DSG Financial Services
