How to identify mis-selling
Mis-selling affects all sizes of business, whether you are a large corporation or a micro-business then unless you have access to supplier base prices and have extensive energy knowledge then there is no way for you to spot the mis-selling as it's typically not detailed on supplier contracts or paperwork.
It can be hard for the majority of businesses and charities to identify mis-selling, especially if you are unfamiliar with supplier pricing models, contract structures, pricing trends of energy etc, and especially as you often are so pushed for time in business. Due to these complexities the broker always has the upper hand and relies upon your inexperience, and their industry knowledge to maximise their commissions. Paperwork often does not disclose these hidden amounts and most suppliers won't assist in disclosing commissions so it can be very hard even for financial directors to spot that they have been scammed.
But whilst there are many ways in which TPI's mis-sell, we believe there is normally 5 main ways to identify if a broker mis-sold your energy contracts.
You did not pay a fee for the brokers service, they told you that the supplier or somebody else paid them or they simply didn't discuss it and you were not told what they earned.
They promoted long term contracts as the best offers, possibly not showing you shorter term prices.
They told you they were searching the market but you only saw a handful of prices or suppliers.
They tried to renew or switch your contract more than 6 months before the contract ended.
They did not let you speak to the supplier directly throughout the process.
Most people think that brokers are presenting supplier pricing options to them, but the truth is that in most cases it's actually the brokers setting the prices and passing it off as the suppliers best price. And as the broker always knows the lowest price the supplier will offer its often easy for the broker to beat previous prices or renewal prices directly, this acts as a nice sweetener to seal the deal in most cases.
But the way commissions are earned is affected by 3 things:
1) The amount of commission included into the rates.
2) Your annual consumption.
3) The duration of the contract.
The way you work out broker commissions is as follows:
Amount of commission (pence per kWh) X Annual Consumption X Number of years contract will run for / 100 = £ Commissions
(eg. 1p X 79,500 kWh X 3 years /100 = £2,385 commission)
If you don't believe us, why not ask your supplier what amount was added to your contract by the broker (in pence per kilowatt hour)? Most suppliers will not give this information to the client and will refer you back to the broker even though they are collecting the commissions for the broker every time you pay your bill.
And as it is common for brokers to continue to lie once their actions are revealed we recommend you ask the broker to give you written permission to request the commissions direct from the supplier yourself. If they have nothing to hide then surely this won't be an issue for them?
Most brokers recommend long term contracts even though short term contracts are usually the cheapest. This is because the longer they can convince you to fix in for the more they will earn.
In order to increase the commissions they will earn many brokers will tell you that the energy market is volatile and recommend long term contracts on the basis that they will protect you from rising costs. There is no doubt that the market is volatile, but prices do go up as well as down.
Impartiality and whole of market
A lot of brokers claim that they are impartial, and that they will simply present the best prices from the market. Sadly, a large portion of brokers have commercial relationships and targets with suppliers and are anything but impartial. It's usually the case that the larger the brokers business is then the less likely it is to be impartial as they need a reliable source of revenue to keep their sales teams functioning and they get that by agreeing targets with suppliers. In these instances a market comparison may not even be conducted at all, instead simply sold to the suppliers they are cosy with.
Very few brokers can claim that they are able to search the whole of the market, this is especially true when they try to secure prices earlier than 6 months from your contract end date as some suppliers will not even offer prices so far out but this is rarely explained.
For all of the reasons detailed above it is rare for a broker to present the best price. To most people best price means the cheapest contract indiscriminate of duration that they are able to find. Brokers on the other hand want to sell you to whoever will pay them the fastest, pay them the most upfront and who they have commercial targets in place with.
Some of the best prices often come from suppliers who do not pay big amounts of upfront commissions, cap commissions and restrict durations of contracts but these prices are rarely presented as it does not make financial sense to sell them to you.
Same supplier renewals
The easiest job a broker can do is sell you back to the same supplier you are currently with. This is because if the supplier accepts the contract then there is no way they can lose the contract and the broker is certain to earn their commissions. If a broker switches supplier there is always the chance that somebody else such as another broker or supplier could come in and undercut the deal and keep you with the current supplier meaning the original broker would lose the deal.
Providing the current suppliers commission payment model fits with their own, plainly speaking there is much less risk in simply renewing with the supplier already in place. It is for this reason that a lot of brokers play it safe without even looking at other options.