Optimize for the Exchanger
We recognized several years ago that reverse exchanges offer benefits to Exchangers that were seldom, if ever, explained in detail. Assessing the specifics of those benefits for a particular set of facts and circumstances is a critical part of determining an optimal exchange strategy. This is the ExStra approach. By contrast, far more often a QI will present the idea of a reverse to a client only as a last resort or if there is no way to manipulate circumstance so that a delayed exchange can be done. Many QIs have described reverse exchanges as “loss leaders” or a “necessary evil”. These phrases may apply to the status of reverses relative to the QI’s business but have nothing to do with the optimal exchange strategy of a particular Exchanger. Why this aversion to reverses? It has to do with the profit motive.
Many QIs claim to do reverse exchanges and some claim to be “specialists”. The overwhelming majority of QIs do not want to perform reverse exchanges because they do not continually invest in the process elements necessary to make them both valuable to Exchangers and profitable for themselves. Reverse exchanges are indeed more complex for the Accommodator if the processes are not in place to guide the execution at each step. Lack of complete and current processes, informed by current guidance of various types, exposes the Accommodator to the risk of errors and omissions during execution. This is in stark contrast to the delayed exchange process. Delayed exchanges are vastly simpler and most QIs can perform them without the same degree of risk. Most QIs make a lot more money executing a far simpler process (delayed exchanges) than they do on reverse exchange fees.
As we have shown in the section on Optimizing Economic Benefit, in a reverse, the Exchanger is the beneficiary of its capital investments. In a delayed exchange, it is the QI that benefits from the Exchanger’s capital. We monetize our business on the basis of reverse exchange accommodation fees only and not on the earnings from accumulated cash exchange proceeds. ExStra thrives when we earn a fair fee and the Exchanger gets the intended benefit of their investment strategy for as long as possible.
Therefore, our survival depends on having processes that help Exchangers identify an optimal strategy and execute it in a way that keeps risk and cost down. We have to be distinctively superior in our approach to reverse exchanges in order to survive. Our differences are detailed below. The critical question is whether the right choice of reverse exchange accommodator is a specialized and dedicated expert or an expert in a completely different type of exchange process (delayed) who probably would rather not do what you need to have done.