Let me begin by saying I am 100% for the expansion and development of the mortgage broking industry, however as with other aspects of our lives before we decide to embark on a new path we might stop to self reflect on our skills and support networks to ensure we have the best chance of a positive outcome.
There is a significant amount of press from lenders and industry bodies pushing hard for sector diversification in order to expand the broker product range. Before the industry decides to whole heartedly embrace this strategy it should be highlighted that that does not come without risks, for the industry, for the individual broker and more importantly a big risk for the client. The best way to mitigate any issues and work towards positive growth is to ensure that there are appropriate frameworks in place to assist with commercial broker training, which will ensure the upskilling of those wishing to play in the industry which will ultimately ensure the industry continues to act in the best interests of the clients.
By way of context the large majority of well established commercial brokers have between 15-30 years of commercial lending experience which is in large part the reason they are successful. It comes from seeing volumes of diverse transactions in all sizes and from countless industries they also look to clients for long-term relationships rather than one-off transactions. Importantly they understand the risks & intricacies associated with a particulate transaction using their experience with other number of other successfully closed facilities they’ve been involved with over the years.
To elevate the industry and ensure we don’t disappoint all of the clients who place their face in our sector we need to solidify a training framework for new commercial brokers which should include;
Theoretical & Practical Training: lenders and aggregators should insist on mandatory training courses like the Certificate IV specialising in Commercial & Asset Finance launched by industry association CAFBA. This course covers key issues in industry, deal structuring, credit memorandums preparation & product knowledge.
Mentoring: A suitable mentor is perhaps the most important pillar after completing their commercial training. The notion of a mentor is mandatory for new to industry residential brokers but not in commercial, a similar framework should be implemented for new to industry commercial writers.
Accreditation: brokers seeking commercial accreditations should be required them to demonstrate substantial industry experience 5 years + or successfully completed education and a suitably experienced mentor.
A broker without the proper skillset and experience will result a client not receiving the best advice. They will often end up having their transaction placed with an unsuitable lender, structured incorrectly, priced poorly for risks and undoubtedly take much more time than necessary. The worst and somewhat likely situation is that a commercial viable transaction is not placed at all, as a result of an inability by the consultant to locate the suitable lender that meets the borrowers requirements.
Given the proposed changes to remuneration and the general tightening of policies, the royal commission has emphasised the need for residential brokers to expand and diversify their business into other areas – but we shouldn’t be pushing brokers in a direction before they are adequately skilled to do so.
There is a reason why most of the commercial business is written by a small percentage of the industry, it takes a very different skill set and level of experience to correctly structure, negotiate and place commercial transactions. Its not simply about connecting a lender with a borrower and hoping for the best. Besides the possible risks to the reputation of the industry, there is a probably legal minefield facing brokers who provide poor advice and clients suffer loss.
The last thing we should want for our industry is to have hundreds of inexperienced brokers attempting complex transactions without the proper knowledge and tools required. Before we push traditional residential brokers into commercial finance we need to understand the potential ramifications for our industry but more importantly to clients who might be on the end of a poor experience.
Only fools rush in.