Transformation in the commercial broker sector
By Dave Furnival, head of broker at NatWest
The marketplace for Britain’s commercial brokers is undergoing a significant transformation. From technological developments to a swathe of new regulatory requirements – not to mention a rise in the number of lenders servicing the market – brokers are under pressure to adapt to the changing landscape, as well as to seize new opportunities for growth.
Regulatory challenges in particular are one of the key drivers for the consolidation that we expect to see in the commercial broker sphere over the next few years. While the market is currently served by businesses that range in size from small managed firms to national corporate chains, the burden presented by such things as GDPR compliance and FCA oversight of broking activity will be felt most keenly by smaller operators. Even within the last 12 months, the industry has started to see these businesses form or join networks that can provide compliance support.
For many small firms, it can be difficult to stay abreast of the wide range of products available from the more than 140 lenders that currently service the market. Indeed, there has been a trend among many lenders recently to take steps towards shrinking their broker panels.
Technological changes are also set to play an important role in underpinning the move towards consolidation. As online platforms grow their capability to streamline finance requests from SMEs, smaller brokers are likely to find it even tougher to compete.
Meanwhile, open banking allows fintech companies to use application programming interfaces (APIs) to match marketplaces to borrowers. But not all brokers will be able to make the long-term investments necessary to keep up with or adapt to these developments.
The brokers who are able to meet these new challenges and successfully grow their operations over the years ahead are most likely to be those who can boast an excellent lead flow from a wide and diverse range of networks that can introduce business to them. Ideally this will encompass ties with accountancy firms and trade bodies, along with a mixture of strong marketing spend and robust strategies with aggregator websites.
Successful and productive broker-lender relationships
How can working with the right lender enhance and protect the broker’s brand? Dependability is clearly a key element: brokers need to know that, when they recommend a particular course of action to a client, the lender will be able to respond in a timely fashion as well as to articulate exactly how it can help – and how a broker’s reputation depends on it.
Expertise and experience are also crucial. No two businesses are the same, and a lender who can support a broker in understanding a client’s needs and tailoring a transaction to meet them can add a huge amount of value. This expertise can also be used to help brokers interpret and adapt to the changes – regulatory, technological or economic – that the industry is undergoing, as well as making it easier for them to identify any new threats or opportunities as they arise.
Brokers should be upfront with lenders about their customer requirements, as well as being open to innovation or flexible new solutions and different ways of thinking. And they should recognise that a lender’s risk appetite should not be confused with its willingness to support the broker market in general. Each lender will have its own unique attitude to risk and its own view of the state of the market; but on both sides, the focus must always be on deciding what’s right for the customer and giving the appropriate advice.
Finally, as with any mutually beneficial business partnership, both parties should recognise the value of sticking to their promises, of operating in an open and transparent way, and of being as straightforward as possible to deal with.
While these are somewhat turbulent times for the commercial broker sector, the businesses that stand the best chance of overcoming these challenges and thriving in the years ahead will be those that are able to establish the right networks and relationships today.