Value your time and charge a fee, SME brokers told

Trent Carter said that finance brokers who have never charged their small- to medium-sized enterprise (SME) clients for their services require a shift in mindset.

While brokers are adept at explaining to clients how they are remunerated via commissions after settling a loan with a lender, their value proposition extends beyond this, he said.

“There’s another part to a broker’s value, which is at the front end of the transaction, and that’s their capacity to hold discussions with their clients about their business goals and objectives, identify key risks and value drivers for the business, and make recommendations,” Carter said ahead of the free SME Bootcamp 2024.

“All of that expertise comes with experience. It requires the technical prowess that brokers bring to the transaction. But the problem is brokers don’t often charge for that.

“Charging a fee is about getting brokers to value all the work they do prior to submission because the commission they get paid from a lender is for introducing a deal to them and taking that successfully through to settlement. What about all that other work? Let’s value all the other work brokers do.”

At the bootcamp, Carter will explain how finance brokers could grow their business by selling their services based on the value they provide. He will also share practical mandate template and fee structure guidelines to streamline fee-setting processes while tailoring fee arrangements to clients’ needs.

Fee arrangements and models

Finance brokers could opt for a wide range of fee arrangements and amount depending on their brokerage model and the types of deals they undertake for their SME clients as well as the time and expertise required to complete the deal.

For example, while brokers might charge a client a lower fee of between $350 and $1,000 for consumer lending, it could rise to thousands of dollars for a finance broker assisting an SME client with complex deals as these require more knowledge, effort, and time.

The next step is to communicate the broker’s value proposition effectively so that their clients feel comfortable with paying them the fee.

Carter said they could do this by reflecting on the amount of work required for every deal and understanding the “true value” they provide to clients at the front end of the transaction.

“The first thing brokers need to do is qualify in their own minds that they’re adding value, regardless of whether the business loan application progresses or not,” Carter said.

“Doing the financial and risk analysis for a business and communicating that information to clients is an invaluable service regardless of the outcome. We’re all working towards a successful application outcome, but the two can be separate.”

Finance brokers could incorporate a “success fee” or potentially offer fee rebates, depending on what suits them and their clients, Carter said.

Another option is to charge the client a higher fee upfront and rebate a substantial amount once the commission has been earned after loan settlement.

Alternatively, finance brokers could split their fees into smaller components and charge a proportion upfront and the remaining amount upon lodgement of the application to the lender.

Carter said: “By doing this, the broker is showing that they have skin in the game and are doing the work to submit that application to the lender.

Written by Adrian Suljanovic

Last Updated: 26 June 2024

Published: 27 June 2024

Adrian Suljanovic

AUTHOR

Adrian Suljanovic is a journalist on Momentum Media's mortgages titles: The Adviser and Mortgage Business.

Adrian has written for a range of titles under the Momentum Media umbrella such as IFA, Investor Daily and Lawyer’s Weekly before joining the mortgages team in 2022.

He graduated from the University of Wollongong in 2021 gaining a Bachelor of Communication & Media with a major in Digital & Social Media.

E-mail Adrian at: [email protected]

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