Talking trail

Trail Homes founder Nick Young explains how brokers can cash in on their trail book

The discussion around trail has taken several turns over recent weeks, placing the onus on brokers to measure the ongoing service they provide in return for continued payments.

For Trail Homes founder Nick Young, the idea that trail is an ongoing responsibility rather than easy income is nothing new. In July the company introduced a new requirement for all book sales, stipulating that brokers must provide ongoing service as part of the sale transaction.

“We have now made it a requirement, as opposed to an expectation, that brokers must continue to service their clients as part of a trail book transaction,” he says. “The customer service angle on this is massive.”

Typically, brokers can sell anywhere from 20% to 100% of their trail book, and the reasons are varied. Some sell part of the book to fund business expansion strategies, such as an acquisition or new premises and staff. Under this arrangement, the broker’s obligations remain unchanged and they continue to work with their clients.

Others sell the whole book as an exit or retirement plan – and that group is steadily growing as more of the industry’s early entrants approach the end of their careers. Under the new arrangements, their clients must be transferred to a new broker to ensure ongoing service.

“The misconception is that brokers think of the client and book as one. However, one is a human being and one is an annuity stream attached to a particular loan – you can’t sell clients, and shouldn’t be expected to do so,” Young explains.

“This model is a very clear way to do business for all involved. It means everybody wins and we all end up years down the track with smiles on our faces.”

Planning ahead

The idea of a succession plan is nothing new, and many aggregators engage brokers in planning their industry exit from the start of their career. With Trail Homes’ new requirement, the firm can now collaborate with aggregators in this process to proactively address neglected client obligations while supporting new-to-industry brokers with its established client network.

“Some brokers have built up very substantial and successful businesses, so this needs to be taken very seriously,” Young says.

“The exiting broker has a monetary interest in making sure the handover goes well and that their clients wed themselves to the new broker. Rather than ‘here are the files – see you later’, it’s now a case of ‘here are my files – let’s work together to introduce my clients to you’. It’s a staged plan.”

The process takes a minimum of around two months and can last as long as one or two years. Revenue is split between the outgoing and incoming brokers, with the entire transition period facilitated by the aggregator.

“Brokers think of the client and book as one. However, one is a human being and one is an annuity stream”

What many brokers don’t realise is that, with an attrition rate of 20%, an unattended trail book halves in value every three years – but that doesn’t have to be the case.

“Brokers get a bit of a shock when it is three or four years down the track and they realise their lifestyle is out of sync with their income. If we had had that conversation four years earlier it would have had a very different result,” says Young.

The earlier a broker starts planning for a book sale, the better the return; when done properly, it’s possible to achieve in excess of three times the value of the book.

“The industry perception of a trail is very much set and forget,” Young says, “but actually it should be about looking at this facility, at how can you be smart about it and how can you use it to plan for the future.”