With thousands of unregulated commercial brokers in the UK alone, how do investors find a good broker in today’s market? Jason Mendelson, Managing Director of IntaCapital Swiss plc, a UK regulated funded solutions provider tells us what he thinks investors should look for when choosing a finance broker.
Looking for a broker can be hard especially in a market where many of the lending activities fall outside of regulation and therefore there is no requirement for a regulated broker. However, at IntaCapital Swiss working with the National Association of Commercial Finance Brokers (NACFB) we are beginning to formulate some guidance for those looking to engage a broker.
There will always be a demand, but there is currently little consistent supply
There will always be a need for finance, a need to build a strong economy regardless of the political or economic market. There may be a hiatus at times with Brexit fears but whatever happens, businesses will still need cash and funding.
Although we believe that there will always be a demand for finance, we want to ensure there is a credible, and consistent, supply of brokers and providers. To build a strong economy we need a credible pathway for those looking to invest, of companies who can give them options for the best financial solutions for their investment and those who can provide robust investment opportunities.
Always choose a broker or introducer that is regulated, or registered with a regulated body
Joining an association or body is a clear message that you adhere to certain standards and codes of practice. This is one reason why at IntaCapital Swiss we have welcomed this move towards regulation and have taken the steps to register ourselves with the National Association of Commercial Financial Brokers in the UK. At the NACFB each member, regardless of their regulated status is measured against the NACFB’s minimum standards. This has led to a dramatic increase in FCA regulated brokers in the commercial space, highlighting the fact that brokers are aiming to meet standards, to do the right thing, maintain a robust compliance framework alongside demonstrable ethics and cultures.
However, it is not as clear-cut as some might think and it is important to understand that there are brokers who only deal with clients who are currently unregulated. A good example is where the borrower is a limited company. If the broker only works in this space, there is evidence to suggest that even if the broker applies for FCA permissions they will not be granted because they are not required.
It is therefore not as simple as saying deal only with a regulated broker for the best and safest service. Let us also appreciate that the client is unlikely to know the subtleties of FCA permissions. They just want some help sourcing commercial finance from a knowledgeable and trusted person. However, it is worth noting that if your broker is regulated they will need to clearly define their strategies and continue with their obligation to be regulated.
Being regulated not only helps protect the investor but also offers a level of comfort to the broker.
All regulated brokers go through a rigorous induction process that helps them understand their commitments and standards of practice. It is also likely that joining an association such as the NACFB they will hold a data protection licence and public liability insurance, which will protect not only their clients, but their own company too.
It also means that if your broker is regulated or registered with an association they will have a network of other professionals beside them to collaborate and collectively understand the nuances and complexities of the market they are working within, even though they might be working alone.
Regulated brokers tend to be the chosen partners for other financial institutions
Regulated brokers will also be more likely to be part of a network of bankers, lenders and other financial institutions as a general rule of thumb, only regulated brokers offer whole market advice and therefore tend to be the chosen partners for others in the financial sector.
Over recent years as the mortgage arena started to become regulated, the commercial sector has changed dramatically with various high street bankers having to restructure and the typical bank manager disappearing. The usual high street brand you would expect to see RBS, Natwest, Barclays, HSBC and Lloyds are now keen to collaborate with authorised brokers and work collaboratively.
Again the broker will have to go through a vetting process by each bank to be approved to be on the banks panel. The broker will also be remunerated by the banker, which will have a knock on benefit for the borrower as this can be offset against the broker’s charges that the client would normally pay.
Less inherent risks
As a result there are likely to be more inherent risks for customers who deal with non-regulated brokers who are not authorised and therefore not bound by quality control standards laid down by the regulator. For those whose scope of work are not covered by regulated bodies, look at examples from the NACFB’sUnregulated Business Members Practice Policy that brings a level of reassurance that the company is looking to adhere to good practice.
Look at the broker’s reputation and history
You have every right to ask about your broker’s history and reputation before you entrust them to work on your behalf. Check how long they have been established, how long they have been members of a regulated body or registered with industry associations. Ask what other clients they have and in what sectors and industries. Although they shouldn’t be able to give you details and information about specific deals they have undertaken on behalf of other clients, they should be able to advise on certain sectors and be able to prove that they understand the market you operate in.
Ask for transparency, especially when it comes to charges
Making sure you get the best charges is always going to be key to working with any broker. However, like in any industry, the cheapest doesn’t always equate with the best deal. Ensuring that you get the best outcome for you or your business means looking at the right charge and exploring exactly what you get for that charge. Ask for the details and only use brokers that will give you transparency about their charges. At IntaCapital Swiss we always provide our clients and customers with full advance terms and conditions to ensure that all charges and fees are agreed upfront. It is also worth noting that if you opt to use an unregulated broker, you have no recourse if you are badly advised or charged extortionate fees.
The key for the investor is to find a broker who has their best interests at heart and who is trusted to act in a way that delivers the best outcomes for them.
Jason Mendelson is the Managing Director of IntaCapital Swiss UK, a boutique finance company encompassing over 150 years of experience to offer clients exclusive, modern and dynamic funding facilities.