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Brokers need to create a strong client experience program to minimise commission clawbacks in a cashback-driven refinancing market, says Broker Coaching founder Paul Wright.
Wright, a former award-winning franchisee broker with MoneyQuest who wrote more $1 billion in loans over 20 years, said market dynamics were driving down average customer loan terms across the board, which could cause more clawbacks for brokers.
He said newer brokers who had established business in the last two years were at particular risk as they had little trail book income to fall back on, meaning they would feel the full impact on their business cash flow.
“For newer brokers cash flow is probably the big thing,” Wright said. “It has a massive impact on their business and could deter brokers from remaining in the industry or cause them to go out and get extra work, so they are not devoting time to building their business.”
Wright said adding monetary pressures to the existing stress impacted a broker’s mindset and was something “we need to be aware of and assist fellow participants when they are struggling”.
A client experience program can minimise commission clawbacks
Wright said charging a fee for service was one way brokers could ensure a payment and minimise clawbacks, though he added many aggregators did not allow brokers to charge clients a fee.
The key for the rest was client communication, Wright said, which started at the first appointment and involved education and communication to position brokers as trusted advisers to clients.
“I recommend brokers have up to 17 touch points with clients on an annual basis,” he said.
“That might seem like a lot, but it’s something I feel is really important – it’s a competitive environment, and it’s about having a client experience program that results in the client only thinking of you when they want to talk about or make a change in regard to their finances.”
To better manage the clawback impost, Wright said it was critical for brokers to be proactive in the initial 12-month period when the chances of getting a 100% clawback were the highest.
“That requires brokers to have many touch points with the client, including making actual phone calls.”
Wright recommended contacting clients one month after settlement to make sure the loan was working and to answer questions, as well as again at six months and having an annual review every 12 months.
“If you do that, while you won’t eliminate clawbacks, it will potentially reduce them,” Wright said. “If you’re in touch with clients regularly they will contact you if they are considering doing something from a financial position, which could include things like refinancing, a divorce, or selling a property.”
“While you may still receive the clawback, you have the potential to get another upfront payment, which at least offsets part of the stress caused by receiving a clawback.”
Sharing clawback risk with lenders could be the future
Wright said the current clawback structure was “unfair, flawed and definitely needs improvement.”
“I understand that economically the banks say it is something they need to include in the remuneration structure, but I do think they are unfair from the point of view that a broker can do a substantial amount of work … and then receive no payment whatsoever,” he said.
At times, this can involve substantial time shepherding clients through stressful periods such as a divorce, a death or just a property sale because the client’s circumstances have changed.
Wright said that if clawbacks remained, they should be shared between lenders and brokers.
“The clawback could be reduced every month. I think that would be a far fairer model,” Wright said. “While brokers will not be happy with that, because they would prefer them to be completely obliterated, they would at least end up with some form of payment.”
“I do see the future of clawbacks being that they will still exist, but hopefully using a fairer model where lenders will have some compassion for circumstances like where a client has sold the property and it has been completely outside the broker’s control.
“At least the broker should receive some form of remuneration for the work they do.”
How are you choosing to minimise the impacts of clawbacks on your business? Share your thoughts or stories on this topic in the comments section below.
