Brokers vote against commission declaration

LEASING brokers voted substantially against displaying the amount of commission received on a lease deal.

Asked whether commission transparency was a good thing, nearly 78% of brokers polled voted against the idea; 11% were happy to disclose the commission on the sales agreement; and 11% thought there were other ways to do it.

The poll vote follows the announcement by west country broker Carparison, the broker arm of Mercedes-Benz South West, to bring new levels of transparency to the sector by disclosing commission payable on its website.

General manager of sales, Matt Woodward commented on a LinkedIn post:

“Hate it, love it, unsure what to make of it. We think it’s coming regardless by necessity soon so why not get ahead of the curve.”

 

So what did brokers think of commission declaration?

Most brokers were against the idea. Motoplan’s Derrick Wadsworth was direct and to the point:

“No other industry / market place has to disclose their commission / margin on a sale of goods or service.

“Can you imagine Amazon having to disclose their margin on every sale? The disclosure that we may receive a commission for introducing the client to a lender is sufficient.”

Another leading leasing broker voiced a similar opinion:

“The idea of commission disclosure is interesting but the reality is that I don’t think it is a good thing for the broker sector. Should dealers advise how much they make on the car?  What about the funders, will they disclose too? Brokers create competition, find cheaper cars and are good for consumers.”

Commission is a more complex issue

CBVC Vehicle Management’s Mike Manners also raised the issue that a commission declaration can be far too simplistic. The proposed legislation states all areas of profit should be disclosed, some of which – such as annual volume related bonuses – are unquantifiable until the year end.

“Whilst I understand and agree with the principles behind commission declaration, I am afraid it is a largely irrelevant and futile exercise.

“In the same way that multinationals move profits with management charges from high tax countries to low, it is possible for brokerages who have separate acquisition companies to manipulate where profit is realised. Should this be declared as well?”

Manners also continues to point out:

“The amount of commission the broker is making on a personal contract hire rental is somewhat immaterial if the rental is acceptable to the client and competitive with the rest of the market. Is the deal better for the client if Broker A is making £100 commission, and Broker B making a £1000 profit if the customer’s rental is the same? Why should a broker, who backs their expertise and takes the risk of committing to a volume of vehicles to provide an excellent rental, not see an enhanced return?”

Different services require different levels of assistance

Concept Vehicle Leasing’s Paul Bulloch offered this measured response to the question.

“The current rules require disclosure for regulated clients on request.  I’m all for transparency, and in the interests of treating customers fairly, we would openly disclose our margin on request by any client – regulated or non-regulated.  I believe that it’s more a question of value, and I’m confident that most clients would actually be surprised at the typical margin a broker generates, considering the value generally offered in return.

“However, the idea of a blanket disclosure of commission; or even the regulator mandating such a requirement needs careful thought.

“If we look at the UK leasing broker marketplace, there are two fairly distinct models – transactional and consultancy-based. The transactional model predominantly leads on volume and price, with perhaps a higher number of single unit transactions; whereas the consultancy broker model tends to reflect a lower volume / higher percentage of B2B transactions with a number of additional support services bolted on.

“Different operating models potentially require a different level of margin, and my fear is that a blanket approach to commission disclosure would create a “race to the bottom” in terms of price and margin.

“It’s expensive to deliver a high quality consultancy-led customer experience, and blanket disclosure of margin could ultimately impact on the level of service and experience clients receive.  I don’t feel that’s a good thing for clients or the marketplace.”

Conclusion on commission disclosure

The attitude of brokers seems clear. Transparency is a good thing. But offering a website disclosure upfront is too simplistic.

That’s because it’s not a true reflection of all commissions included in the deal, which may only be realised at year’s end, for example. It also doesn’t reflect the level of risk undertaken by a broker to offer a competitive rental that is appealing to a consumer; and there are different types of contracts that require different levels of servicing which are reflected in the commission charged.

Erosion of service would be the result if open commission disclosure was required – and potentially future levels of competitiveness to the detriment of the consumer.

Broker News take on commission disclosure

Transparency is always good. It builds trust and confidence.

But you can be transparent without actually disclosing an amount that is shown on the website. This can include stating clearly a commission is earned and, if requested, it will be supplied. But the answer showing the commission should also demonstrate the value that is being offered by the broker. Helping customers understand the value they are receiving engenders trust in the supplying brokers and assists customer retention in the future.

There can be few customers that don’t realise brokers make a commission, whether it’s for insurance, vehicles or for mortgages. A service has to be paid for, after all. But how that service is cut up by different leasing brokers is up to individual brokerages.

The key thing is to always treat customers fairly.