F&I Admin Fee vs. Ceding Commission: Which Is Best for Your Dealership?

All F&I providers charge admin fees, which are mutually agreed upon before the start of a partnership.

The fees may also apply to each individual transaction or according to a set percentage. However, actual pricing models can vary drastically from one provider to another, so working with a team that’s fully transparent about what they charge and why is essential.

Admin Fee vs. Ceding Commission: Understanding the Two

While admin fees cover necessary F&I management costs associated with taking care of your account, ceding fees are a bit different. Sometimes called a ceding commission or reinsurance commission, a ceding fee goes to a third party other than your F&I provider.

Ceding fees may be charged for a variety of reasons, including administrative and underwriting costs. However, these fees also often cover profit factors, risk management, and other costs that are sometimes never disclosed to dealerships.

Both F&I admin fees and ceding commission fees can impact your dealership’s profits and must be factored into your costs of doing business. That’s why transparency is such an important characteristic to look for in an F&I service provider. Fully understanding what you’re paying for, to whom, and why will help you make the best financial decisions for your dealership.

Admin Fee Transparency and Predictability: Why It’s Important

If you’ve ever wished your contracts with service providers were more transparent, you’re not alone. These days, dealership owners are tired of silently covering mystery fees and unexplained upcharges, making transparency essential for good F&I service providers.

The benefits of prioritizing transparency when choosing F&I services for your dealership include:

• Maximizing dealership profit by eliminating unnecessary charges
• Making it easier to assess where you can cut costs and spare your budget
• Facilitating a competitive pricing strategy on your F&I product menu
• Taking unexpected financial surprises off the table
• A better relationship with your F&I provider based on trust and mutual respect

Aligning F&I Management with Priorities and Values

Choosing the right F&I service provider is more than just a way to check a box on your dealership management to-do list. It’s an opportunity to gain a valuable partner capable of enhancing dealership profit when you choose a service that fully aligns with your business goals and brand values.

To learn about how transparent your partner is, dig into their fee structure to determine what you’re paying for. Don’t simply assume that the lowest rate is automatically the best one. A rate that seems too good to be true is often as low as it is because it doesn’t include essential benefits, robust support you’ll need, or additional perks that may be valuable to you.

Knowing what type of support you’re looking for from an F&I partner and how much you need is essential here. Consider whether you’re interested in the opportunity to be part of a lower risk and lower cost solution or a profit participation program. Additionally, consider whether you want the freedom to choose and change the structure you’re in as your goals change. Keep these values in mind as you explore your options.

The Connection Between Your Admin Fee and Value-Added Services

So what does a good admin fee look like? When might a lower or higher fee be worthwhile? The objective here is to consider what your dealership will be getting in exchange, giving you the most possible bang for your buck.

Trustworthy F&I providers help you maximize the profitability of your dealership with valuable services and benefits like the following:

• Premium in-store training and upskilling options
• Ongoing full-service support to boost sales volume
• Important opportunities to maximize profits
• Consulting services and support that extend beyond F&I

Unveiling the Hidden Costs in Ceding Commissions

As you explore your F&I options further, consider potential pitfalls, including those associated with many ceding commission options, like:

• There’s often a hidden nature to ceding fees, as service providers naturally want to downplay the fact that they could erode dealership profits.
• The costs of covering hefty ceding commissions can add up over time and eat into your bottom line without also supporting growth for your dealership.
• Ceding fees can be unpredictable, making it difficult to manage your finances wisely and craft winning profit strategies.

Always tread carefully when a lack of transparency comes into play. F&I service providers that are looking out for their clients and seeking mutually beneficial partnerships have no reason not to be transparent. They want clients to know about the incredible benefits they’re getting in return for the fees they pay.

Choosing a Fee Structure That Supports Sustainable Growth

Selecting the right F&I model and fee structure for your dealership is about understanding what you’re working toward as a business and choosing flexible options that support it while still giving you plenty of room to grow. Here are some expert tips for making an informed decision:

Define your goals

What are you hoping to achieve for your brand and business? Consider where those goals intersect with your current and future needs and keep them in mind as you consider F&I solutions.

For example, top service providers like JM&A Group offer flexible, tiered service solutions designed to benefit a wide range of dealerships and objectives. Dealerships of all sizes can benefit from customized support while leaving them ample room to grow.

Do your homework

Fully vet your options as you consider what’s available to you. Do your research on different structure options (PARC, DOWC, etc.) and providers. Carefully consider what each brings to the table and whether it’s a potential fit for your dealership.

Talk to your peers in the industry, especially those with similar goals and values to your own. How do they handle F&I and fee structures? What do they like or dislike about the choices they’ve made over the years?

Prioritize support level

Keep in mind that every F&I provider will offer its own type of support. This is a golden opportunity to form a partnership that can help your dealership reach its full potential. Some criteria to look for include:

• Transparency regarding admin fee benefits, reinsurance commission options and more.
• Willingness to act as a guide and create a mutually beneficial relationship
• High-quality support that makes it easy to get your questions answered or receive assistance
• Valuable services that go beyond the basics, including dedicated training, fixed ops support and process implementation
• Value-rich, personalized interactions that put you at ease and support ongoing growth

Consider track record and reputation

Top F&I providers have the clientele and the track records they do for very good reasons. They’ve been in the business a long time, they understand the value of mutually beneficial partnerships, and they’re committed to excellence in all that they do.

So, dig a little deeper when evaluating individual services. Check out testimonials and case studies that underscore the provider’s ability to provide the kind of support you’re looking for. Explore the training, education and support options they offer as well.

Does the provider invest in its clients and support their long-term success? Are dealership owners happy with how the company handles potential snags and customer service issues? When you speak to reps from the companies you’re considering, are you left feeling empowered after those interactions or apprehensive?

Final Thoughts: Weighing the Pros and Cons of F&I Admin Fees and Ceding Commissions

The key to choosing a winning long-term F&I solution for your dealership is getting to the bottom of what’s really included in the fees and rates you pay and what you get in exchange.

At JM&A Group, we strive to be a beneficial partner to thriving dealerships. The services covered by our upfront admin fee (with no hidden fees ever), include:

• Adaptable deal structures that fully align with your dealership’s goals
• Robust on-site staff training and assistance to enhance performance
• Premium consulting and strategic planning to help maximize profitability
• Data-driven insights to help dealerships identify prime opportunities
• Dealership compliance support to help protect your dealership

So, when was the last time you took a closer look at your dealership's F&I fee structure?

If it’s been a while, it’s time to assess whether it’s still in line with your goals. There could be a better option out there, and JM&A Group is prepared to help you find it.