[AMA] I Am The Managing Director of a Car & Equipment Finance Company - Ask Me Anything

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  cheapisgood on 15/06/2018 - 23:26

  -2

  OzBargain is now OzAMA

  

  cheapisgood on 15/06/2018 - 23:26 (Collapsed - Offtopic. Show)
  • 

    BlazinPast on 15/06/2018 - 23:44

    +4

    feel free to keep reading insurance claim and parking fine discussions

    • 

      avocado on 15/06/2018 - 23:54

      +1

      Thank you.

      Yes - many people appreciate the help an AMA can provide.

      Hoping this can be of assistance to the community.

  • 

    Zedsdeadbabyzedsdead on 16/06/2018 - 00:16

    One day OzAMA will turn into OzBargain.

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  silverrat23 on 15/06/2018 - 23:50

  +2

  Red or Blue?

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  avocado on 15/06/2018 - 23:56

  +3

  If you're playing roulette, Red.

  If you're buying a car, go with Blue. Red cars have horrid depreciation bar a couple of examples.

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  burningrage on 16/06/2018 - 00:06

  +1

  I don't have a question but rather to thank you for taking time to write and answer questions in advance.

  All the best for your venture.

  • 

    avocado on 16/06/2018 - 00:21

    Thank you kindly sir

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  Zedsdeadbabyzedsdead on 16/06/2018 - 00:13

  -1

  OP. Is it true that There are three methods to gaining wisdom. The first is reflection, which is the highest. The second is limitation, which is the easiest. The third is experience, which is the bitterest?

  

  Zedsdeadbabyzedsdead on 16/06/2018 - 00:13 (Collapsed - Offtopic. Show)
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    avocado on 16/06/2018 - 00:21

    +2

    Is it true you googled "brainy quotes" and copy/pasted the first thing that came up?

    https://www.brainyquote.com/quotes/confucius_393491

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  th123 on 16/06/2018 - 03:08

  How much do you make?

  • 

    avocado on 16/06/2018 - 09:24

    Thanks for the question.

    In the early days, it was a struggle to be honest. I sold everything and was eating into savings to keep the business afloat while we were getting customers. It wasn't easy.

    Now it's a bit different and is commensurate with a typical managing directors salary. As I have staff reading this, I won't be revealing my exact salary.

    • 

      th123 on 16/06/2018 - 10:25

      Fair enough,

      avocado baths, broccoli coffees? ;)

      • 

        avocado on 16/06/2018 - 12:44

        My lifestyle is not that excessive just yet ;)

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  cloudy on 16/06/2018 - 11:21

  Do you think you’re much different from the big guys? What do you think of you’re competition. I note gogetta was dumped by its parent company for under performing.

  It looks like you don’t take the risk of the loan, so do you have any financial interest in the borrower paying off the asset?

  • 

    avocado on 16/06/2018 - 12:43

    +3

    Great questions.

    a. Do you think you’re much different from the big guys?

    Actually yes. The big guys tend to filter as many loans as they can through the one lender to achieve volume bonuses. While this is great for the business itself, it's not always the best thing for the customer. For the most part, when a customer comes to us with a deal from one of the "big guys", we can beat it. Further, if it's a motor vehicle, we can usually get better pricing on the vehicle if there's one available.

    Ultimately, we all get the same wholesale interest rates from the banks, but we have a lower cost model where the broker handles every part of the process rather than having a sales person, admin person, receptionist etc. which just adds unnecessary wage costs. One point of contact for everything makes running the business cheaper and the loan process smoother meaning a lower cost to the consumer.

    b. What do you think of you’re competition?

    I have no issue with our competition. I only take exception to those brokers that arrange finance for people that clearly can't afford it. I actually knock back deals if I think the loan will put that customer in a tough financial position. Ultimately, if a customer defaults on a loan, especially early on in the loan, it is investigated by the lender and you can have your accreditation stripped and be reported to the Ombudsman if anything untoward has occurred or strict compliance hasn't been followed. Personally, it's not worth losing your licence and accreditation over a few bucks.

    ASIC, during their investigation into the financial services industry found that well in excess of 90% of people are happy with their loans issued through brokers. Compare that with customer satisfaction going direct to the bank and you'll get the idea. A few bad eggs will always spoil it for the rest of us, but thankfully it's not systemic as they would have you believe.

    c. On GoGetta

    GoGetta have exited the market, but there are plenty of other options out there.

    d. Do you have any financial interest in the borrower paying off the asset?

    A finance broker is accredited to arrange loans on behalf of banks and lenders. We are no different from Mortgage Brokers in that regard. We assess the customers needs, discuss which lenders are likely to give them finance based on their lending profile, then guide them through the application and documentation stage.

    Unlike mortgage brokers, asset finance loans receive $0 in trail commission. When the customer pays the loan off, we also get nothing. There is no financial interest in seeing the loan out to maturity or encouraging an early payout. We are paid a one-off fee on settlement of the loan which we invoice to the bank itself, not the customer. If we reach certain lending milestones with a particular bank, we are paid a volume bonus which works out to around $50 a loan. We don't normally get this as our loans are channeled through many different banks rather than one lender.

    A mortgage broker, on the other hand, receives between 0.15 - 0.20% trail on the loan value each year ($500,000 loan balance would be about $750 - $1,000 per year) and an upfront commission of between 0.4% - 0.8% of the loan value.

    Despite being paid, the rates offered to customers going direct to a bank are higher than what a broker can achieve for you (of course, it depends on which broker). Further, there are lenders only available through brokers with great rates that the public cannot access.

    Banks prefer a broker model to sell their products and services because it means they don't have to hire staff - they simply pay for settled loans. To encourage that model, they give the broker wholesale rates to allow them to make a living, while also being able to offer the customer a lower finance cost than if they went direct. Customers benefit greatly from this model.

    • 

      cloudy on 16/06/2018 - 21:45

      Thanks heaps for doing the AMA, it’s great to get this understanding, and I can now see the value your work brings! Cheers mate.

      A couple of additional questions,

      Do you think it’s a very competitive business?

      As a guess, what growth (%) do you think your business can achieve short term

      And, the industry growth (%)?

      • 

        avocado on 17/06/2018 - 09:18

        +2

        Apologies for the late response and no problem.

        a) Do you think it’s a very competitive business?

        Yes. Extremely competitive. I wouldn't be getting into this business today unless I had some solid relationships first and you knew people would be referring loans to you.

        Just think about it. The customer that comes to me then walks into 3 car dealerships for test drives, swamped by high pressure finance managers. Overnight, there's now 4 people competing to do the finance. You need to build relationships.

        To survive in the business and pay yourself a modest wage, you'd need to find about 10 loans per month - 120 a year. That probably means about 300 - 400 referrals or leads. You have to ask if you can generate that sort of enquiry from the start.

        Why so many? well, after paying for all the compliance costs, systems, professionals fees, insurances, a small wage for yourself and everything else required to run a brokerage, you're not left with much.

        b) As a guess, what growth (%) do you think your business can achieve short term?

        I think we can comfortably grow at 15%-25% in the short term. Maybe more, but I like to be conservative.

        New product offerings that are relevant to our clients will add revenue as well as growing our relationships. Fact is, the more loans you write, the more people that are referred to you. It really is a snowball effect.

        I probably need to get out of the day to day stuff and do more in the way of relationship building to help this along.

        c) And, the industry growth (%)?

        It's important to distinguish a finance broker and a mortgage broker. Right now, the indication is that mortgage broker numbers are growing, but the pool of loans is staying the same - about 53% of property loans are written through a mortgage broker, whereas in the USA, it's much higher than this (I don't have the figures, however it's around 70%-80%).

        The industry can grow, however people in Australia seem to have a problem with the remuneration model of a mortgage broker. People are very interested in what they get paid for doing the work. In reality, even if they were paid nothing, the cost to the customer would be the same - potentially, the cost would increase because banks would need to hire staff to fill the role of the broker. We need to get over this. If the broker gets paid $3,000 as a commission, there's a problem, but if the broker charges a fee of $3,000, that's ok? The bank pays brokers, not the customer. I don't know of any other industry where you need to divulge what you receive from a supplier to your customer if it doesn't affect the end cost to them. The revenue of a business is a private matter for the business.

        It costs money to do business and to pay staff and to provide great service. Banks recognise that the customer has a far better experience through a broker and it is cheaper for them to provide services this way.

        I do, however have an issue with mortgage brokers recommending unsuitable products based on the commission offered by banks. Easy fix, the aggregator should receive the commission and give the broker a flat rate regardless of the lender. If the broker is a high performer, volume bonuses can be given as well. That way, the conflict of interest disappears. In truth, most brokers will place you where they think they can get you approved for the loan vs the minor differences in commissions that banks offer.

        Asset Finance has growth potential, but people are still telling me that they didn't know I could organise finance for certain things - as an industry, we need to get better at educating the public on what a finance broker can do for them. I can't give you statistics, but there is growth to come - it's mostly linked to business rather than consumer confidence. Businesses just finance more things, more regularly when times are good.

        Personally, my product offering is increasing to capture more of what businesses are financing. E.g. cash flow finance. I'd like to increase our service offering to include personal and business insurance at one point as well.