The danger of diversification

by Madison Utley20 Jul 2019

A board member for the Commercial and Asset Finance Brokers Association (CAFBA) has voiced concerns about residential brokers diversifying into news areas of lending without seeking the right support.

George Karam, who is also a commercial broker and director of BF Money said, “There seems to be a push, led at the aggregator level, to get more resi brokers writing more commercial transactions. In and of itself, I’m not opposed to that.

“My concern is that there’s too much of an emphasis on upsell and not enough emphasis on upskill. You need to upskill before you upsell and I really don’t see enough of that actually being done at a practical level,” he added.

According to Karam, the issue is compounded as diversification is often pushed to resi brokers with an emphasis on how much more money can be made through expanding into commercial, without adequate focus given to maintaining the standard of customer outcome in the new space. 

“What we’re seeing is brokers who are ill-equipped or under-informed to do this type of deal, so we’re inheriting more and more borrowers who need to be rescued from situations they shouldn’t have been in, which isn’t a good outcome. And the more that happens, the more the need to regulate there is,” he added.

Karam stressed that brokers can’t provide the right outcome for their customers without fully understanding the scope of possible solutions themselves.

“[Commercial] is notably different than doing a home loan. The amount of work that goes in, even before an application is discussed with a perspective lender, is significant. There needs to be a significant amount of upskilling in order to get into that.

“Having the skillset is just one thing. You also need to be part of that ecosystem. Get to know the valuers, the surveyors and the lawyers that represent the lenders. Those relationships and access to those people are an essential part of delivering the right outcome, because the solutions are a lot wider than the lenders that sit on the panel of the aggregators.

“Without the ecosystem, you don’t know what you don’t know,” he continued.

According to Karam, CAFBA is leading the push to implement stronger education standards for brokers newly entering the commercial space, but it’s going to require wider industry support – particularly from the aggregators.

“We’re headed in the right direction, but progress is incredibly slow and I don’t think it needs to be or should be that slow,” he said.

“If we can’t agree on what’s best, the theory is that we’re going to be regulated into it and I can’t see how that is in anyone’s best interest. When we have the ability and the resources to be able to self-regulate and self-educate, then why would we wait for somebody to come impose it upon us?

“Look at the regulation now coming to the resi space. Everybody is complaining about it from different angles, but the resi brokers and the resi associations had a couple of decades to get that in order. If we don’t learn the lessons, then we deserve what we get,” he said.