Luck favours the prepared

by Melanie Mingas22 May 2019

Jean-Pierre Gortan, founder of Simplicity Finance, says a solidified training framework is needed to prevent poor customer outcomes

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 should stop to 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 that are pushing hard for sector diversification in order to expand the broker’s product and service range. But before the industry decides to wholeheartedly embrace this strategy it should be highlighted that it does not come without risks – for the industry, for the individual broker and, more importantly, it’s a big risk for the client.

The best way to mitigate these risks, while working towards positive growth, is to put appropriate frameworks in place to assist with commercial broker training, which will ensure the upskilling of those who wish to play in the industry, and ultimately that the industry continues to act in the best interests of clients.

By way of context, the large majority of well-established commercial brokers have between 15 and 30 years of commercial lending experience, which is in large part the reason why they are successful.

Importantly, they also understand the risks and intricacies associated with a particular transaction, based on their experience with other successfully closed facilities over the years.

To elevate the industry and ensure we don’t disappoint all the clients who place their faith in our sector, we need to solidify a training framework for new commercial brokers, and this should include three key areas of focus.

The large majority of well-established commercial brokers have between 15 and 30 years of commercial lending experience, which is in large part the reason why they are successful

Firstly, brokers need theoretical and practical training. Lenders and aggregators should insist on mandatory training courses like the Certificate IV in Commercial and Asset Finance launched by the Commercial and Asset Finance Brokers Association of Austalia.

This course covers key issues in the industry: deal structuring, credit memorandums, preparation and product knowledge.

Secondly, after training, a suitable mentor is perhaps the most important pillar. 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.

Finally, brokers seeking commercial accreditation should be required to hold substantial industry experience of five or more years, or to have successfully completed their education and found a suitably experienced mentor.

A broker without the proper skill set and experience will result in a client not receiving the best advice.

These clients will often end up having their transaction placed with an unsuitable lender, structured incorrectly and priced poorly for risk.

Undoubtedly the whole process will take much more time than necessary.

The worst and quite likely result is that a commercially viable transaction is not placed at all, because of the inability of the consultant to locate a suitable lender that meets the borrower’s 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 businesses into other areas – but we shouldn’t be pushing brokers in a new direction before they are adequately skilled and prepared for it.

There is a reason why most 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; it is 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 also probably a legal minefield facing brokers who provide poor advice and whose clients suffer losses.

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.

Before we push traditional residential brokers into commercial finance, we need to understand the potential ramifications for our industry and, more importantly, for clients who might be on the end of a poor experience.

As the saying goes, only fools rush in.

 

Jean-Pierre Gortan

Founder of Simplicity Finance