While the federal election result has granted a reprieve for the conversation around trail commission, brokers should still be looking to build value outside of trail, the head of a trail book purchaser has suggested.
Speaking to The Adviser about the impact of the federal election on trail books, the head of Trail Homes, Nick Young, said he was “pleasantly surprised” by the election result and that a “black cloud” had been removed from over the industry.
Mr Young elaborated: “It’s like this black cloud has been removed from over the industry, because whilst Labor’s policies [on broker remuneration] would not have destroyed the industry, it was difficult to see who would actually benefit from them.
“In fact, I would argue that no one was going to benefit from the changes and we were locked in this cycle of making change for change’s sake. The idea of now keeping both trails and upfronts as broadly a similar structure to what we have in place today means that we can all get on and serve our clients. And the industry will continue to thrive and prosper and bring increasing competition to the marketplace.”
However, Mr Young said that brokers should not be complacent by the re-election of the Coalition, stating that “the creation of value in a broking business is always a good idea and we shouldn’t just be doing it because of the threat of the loss of trail”.
“It’s a bit like asking whether you should be healthy or not – you know you should, and you shouldn’t wait for something bad to happen before you take action. In the same way, creating value outside of trail is always a good idea.”
The trail book buyer noted that the value of trail books had fallen over the last six months off the back of the royal commission, uncertainty around the future of trail commissions, and falling housing transactions, but that their value was still averaging around 1.5 to 2 times the value of the trail commission.
He continued: “I do think that there will be more people interested in buying trail books now than there might have been a month ago [due to the outcome of the election] but I don’t see the value of trail books changing in a hurry from their current level of around 1.5 to 2 times (the value of trail),” he said.
Instead, Mr Young suggested that brokers could add up to 50 per cent more value to their business by creating goodwill in the ongoing business.
He explained: “The goodwill should be worth at least another one times the value of the trail. It has to be really thought through. But with a professionally planned sale, it can be done and create a really warm handover to the incoming buyer.”
Mr Young suggested that brokers could look to the following steps to improve their goodwill:
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.
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