How do you identify & appoint a TPI who will operate in your best interests?
Published by David Roberts | 7th October 2020
Ofgem have recently stated that they want more protection for micro business and are set to regulate the market.
In 2019 there were approximately 5.9m Small and Medium Enterprises (SMEs) in the UK, and according to Ofgem’s Micro & Small Business Engagement survey in 2018, 33% of micro and small businesses had not switched supplier in the last 5 years, while 56% had switched tariff but not supplier in the same period. Those that have switched tend to be those with 10-49 full time staff (71%), but Sole Traders and small businesses are least likely to switch supplier (32%).
A typical SME business does not have the resources, time or inclination to spend monitoring the market, comparing prices and products from numerous suppliers; yet for many their energy spend is a significant part of their cost base. Consequently, businesses often seek help from one of over a thousand Third Party Intermediaries (TPIs) or price comparison sites, who are able to undertake this work on their behalf.
TPIs should find the supplier that best suits the requirements of the business. Typically for Microbusinesses the TPI’s fee is added by the supplier in the cost of the energy contract, so no money passes directly between the business and the TPI. Instead the business pays the commission to the supplier usually via an uplift to the energy rates charged.
Credible and reputable TPIs charge a fee which is a fair reflection of the effort undertaken providing their service and will be minimal versus the total contract cost. These organisations want the client to continue to use their services and will offer further products such as bill validation or energy surveys. They will keep in regular contact so a business knows they are there to support them and are ready to step in if the business has any future issues with their energy supplier or contract. These organisations want a relationship where the client trusts their judgement, so they can form a valuable partnership in the years to come.
However, there are a number of TPIs whose sole intent appears to simply be to maximise their own charges, providing advice to clients that is rarely in their best interests but to the benefit of the TPI itself. These organisations often only show the customer those suppliers that allow them to inflate commissions to an excessive level. In addition, some suppliers have agreements with certain TPIs to pay them a substantial proportion of their commission upfront, so it is in the interest of the TPI to maximise the length of the contract to ensure the best return straight away. With these organisations there is very little after-care service and these TPIs will only call the customer to extend the contract when there is opportunity to make more money for themselves. They do not work in the client’s best interest and they have caused significant damage to this well intentioned sector.
Nothing described above is illegal. It is certainly not in the best interest of the customer, but if the customer is happy with the price then no harm done, buyer beware etc. That said, Ofgem has recently issued a consultation on how the industry can help better protect businesses and improve transparency regarding the commission fees charged. The industry has tried to manage bad behaviour in the past, and there have been many attempts to introduce a Code of Practice for TPIs. The Utilities Intermediary Association (UIA) has for many years now had its own voluntary Code of Practice that some TPIs have signed up to. Eon has attempted to take the lead from a supplier perspective with a reasonable level of market support; however the rogue organisations continue to evolve and survive.
What can a TPI do to reassure a customer that they are working in the customer’s best interest? Rather than simply adding a large commission on the price presented to the client, placing the business with a supplier that pays them up front commission and allows 5 year’ deals which maximise TPI returns beyond even the underlying commodity cost.
What does a good TPI exactly look like and how do you identify them?
SME businesses are being inundated by TPIs cold calling, so it is difficult to know who to use, which are reputable and who are the cowboys. Most TPIs are reputable, they are looking to develop their business over time and not make a quick buck out of an unregulated market, but how can anybody know?
The better TPIs will have positive (but balanced) customer and employee reviews. They may have won industry awards or be well regarded by their peers. They are happy to answer questions, for example: ‘How do you get paid?’ ‘How much commission do you charge and how do you charge me?’ (As noted above, the supplier re-charges businesses the commission via an uplift typically to energy unit rates). ‘Do you have access to all of the supplier market?’ ‘What makes you different to all the other TPIs?’ ‘Do you have any service standards?’ ‘Are you signed up to a recognised CoP?’ ‘Who will be my account manager?’ ‘Could you confirm my price is fully fixed or if there are any pass-through charges, what additional costs should I budget for?’ ‘Could I read & sign a written contract?’
A TPI who is unable to answer these questions, being evasive or not telling the truth, is unlikely to be acting in the best interest of the customer and should be avoided.
There is also nothing to stop a business using more than one TPI to collect prices. The TPIs will usually go to the same suppliers who should provide TPIs similar if not the same prices, which means a business can spot inflated commissions simply by making a quick like for like comparison.
Or a business can be proactive. TPIs will welcome a call from a business and be delighted to provide their services. The best TPIs will have an excellent website with their products clearly outlined, a list of their suppliers, a section on how they get paid, important news updates and testimonials.
The best TPIs will be happy to talk, to discuss their products and how they are paid so that a partnership builds over time based on trust. Professional TPIs will always want to build a relationship that lasts and extends; to the benefit of both parties.
David Roberts has been in the UK energy market since the 1990s and has worked on both sides of the supplier and TPI interface. David has been consulting since 2017 and has worked with TPI and supplier clients reviewing their commercial arrangements and partner selection.
David is able to provide guidance to TPIs based on a strong understanding of market participants, where risk sits and how best practice can be achieved. David has been a TUME Associate since 2017 and is leading on our UK TPI engagement.
The Utility Market Experts support customer centric reputable TPIs
The TPI sector has a real opportunity to make a difference to end user energy costs; however there are a number of organisations using aggressive & potentially misleading sales tactics, who are exploiting client naivety and abusing trust. Borrowing tactics from investment ‘boiler rooms’ there is also a risk these organisations begin reinventing themselves as ‘claims firms’ and it is important for customers to remain vigilant until market regulation finally catches up.
The Utility Market Experts has a wealth industry expertise available to support TPI organisations who want to operate the right way both now and under new potential market regulation. Further to this to help credible TPIs we have the capacity, willingness and impartiality to provide a free independent review for any SME unsure whether they are being presented a fair deal before it is committed to.
Please contact us below or link in with David here if you would like to start the conversation…