It would be a dream come true. A salesman phones and offers a new car, free of charge, except for a small admin fee. There is no catch, he comfortingly reassures, simply drive away and enjoy.
Fortunately, if this type of conversation ever occurred, it would understandably be met with a large degree of scepticism. However, the same logic regularly fails to apply in the utility consultancy sector, with some brokers using these exact tactics when advertising “savings” they can deliver on a business’s energy costs.
They promise to slice bills, with no charge except a small admin payment. All too often there is a push to sign companies up to a lengthy five-year deal, too – “for peace of mind”.
According to a report by Cornwall Energy, businesses are often confused about exactly how and how much their broker is paid, with 37 per cent believing they are providing a completely pro gratis service. When you consider 40 per cent of medium-sized businesses which responded to an Ofgem survey on brokers use their services, these numbers quickly stack up.
While its standard practice to request a “Letter of Authority” to discuss accounts on a company’s behalf, pushier brokers ask to actually agree contracts, locking their client into an agreement they weren’t aware was even written.
What these rogue brokers won’t be sharing is that they’re embedding their own commission into your tariff, adding a fraction of a penny on top of each unit or getting a chunky finder’s fee from suppliers based on how long they can lock you into a contract.
Another tactic to claim a share of your eventual savings, building that into their ultimate fee – money which ultimately could have been shaved from the customer’s outgoings.
In the worst cases, businesses find themselves paying thousands of pounds to exit tariffs. Some end up going bust as a result.
These examples demonstrate a real lack of transparency in the sector, with too many rogue operators being able to practice without scrutiny, happy to make a quick buck before moving onto something else. The business model isn’t sustainable and the entire industry has been tarnished as a result.
There is a real need for Ofgem regulation to establish a binding code of conduct. This would combat aggressive sales, lack of transparency, misrepresentation and mis-selling.
It should be mandatory for brokers to clearly explain in a set format the tariffs they have negotiated. There should also be a mechanism for fairly settling disputes and exposing repeat offenders.
A number of organisations have established their own codes voluntarily, but enforced and codified Ofgem regulation would improve the sector’s reputation while protecting the customer, moving away from the perceptions historically associated with used car salesmen.
- Steve de la Rosa, MD at utility consultancy Boxfish.