Utilities brokers – why is there no sheriff in town for the cowboys?

In my last article I wrote about the trials and tribulations of using a utility broker. I highlighted and exposed a handful of the deceitful and distrustful methods that a large majority of “cowboy brokers” utilise to ensnare their clients (or better yet, victims). This poses the question, why is nobody doing anything to prevent this?

In 2018, Ofgem released its “Micro and Small Business Engagement Survey”. The aim was to “measure the level of micro and small business engagement in the energy market, business attitudes and behaviours around reviewing energy consumption, perceptions about the price differentiation in the market and the ease of comparing and switching suppliers”.

The study, with feedback from 1258 businesses, advised that 33% of sole traders used a broker as their only form of information on energy market, and 48% of businesses with 10 – 49 full-time employees also used energy brokers. Despite this, only 18% of those businesses reported a positive experience.

Why is that? Unlike the rest of the energy industry, there is currently nothing in place to prevent unqualified people setting themselves up as consultants. To become an energy broker, all that is required are as many Third Party Intermediary (TPI) agreements with energy suppliers as possible, a phone and a catchy company name themed around energy (if It includes a pun, then even better).

To become an energy supplier, you are required to jump through an abundance of hoops to ensure that you get a license. So why is this not the case for brokers?

Alongside not needing a license, there is no requirement to have any prior experience in the procurement and management of utilities. With the likes of Google at our fingertips, it has never been easier to come across as a seasoned veteran of the industry, simply reciting a document on your monitor. You wouldn’t hire an employee with no experience applicable to a job, so why would you work alongside a broker who has no experience in their field? The truth is, a lot of the time, you would never know.

Another one of the main reasons that SME businesses fall victim to my job’s cowboy counterparts, is that brokers are not required to disclose their uplift. A considerable number of brokers advertise themselves as a “free” service and whilst this may seem true, this is only because more often than not, you are not paying them a direct fee. A broker will earn his keep in one of two ways: by a set fee agreed with the client, or by including commission in the rates shown to the customer. In a lot of cases, a broker will elect to use both streams to bolster their income. This is why it is always important to make sure that any broker you use, be it insurance or energy, discloses their commission.

Who is most at risk and what can be done?

Following the economic run-off of Corona virus, those with lower credit ratings and SME businesses are both particularly susceptible to the influence of cowboy brokers. As a lot of energy suppliers have tightened up on accepting “high risk businesses”, a hole in the market has been left that a deluge of brokers are keen to take advantage of. Instead of wanting to help businesses who are struggling to find providers willing to take them on, these brokers are keen to take advantage of businesses in need of help.

The most common method being used is the inclusion of outrageous levels of commission, which in turn will inhibit the business from increasing their capital and keep them in a never-ending cycle until they are forced to liquidate. From my experience as a TPI Account Manager, the industries that I saw affected the most were hotels, bars/pubs and restaurants, which are also those that have been deemed as high-risk businesses due to forced closures over lockdown.

So, what can we do to prevent this from happening? The easiest way to prevent self-motivated brokers from running rampant across the market, is for Ofgem to create a licensing process so that the directors or owners of utility brokerages can be held accountable for their actions. The most common culprits are one-man band brokers, who set up shop, manipulate clients, and then disappear when they receive their pay-cheque. If there was a structured licensing process to prevent this happening, then this problem would disappear overnight.

If you have any questions on anything I have mentioned or have experienced the effects of a cowboy broker, then I would love to hear from you. You can contact me via email at Josh.burns@savemoneycutcarbon.com, or by calling me on 07554 444 948.