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Succession planning in focus

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Annie Kane 19 minute read

For many, retirement or succession planning may seem like a far-off activity, but planning for your exit from industry early is the key to success, as Annie Kane finds out.

Thinking about retirement often conjurs up images of cruising around the Rheine, spending time gardening or playing golf. But all of these activities require a healthy nest egg to fund a leisurely lifestyle. Without the luxury or convenience of an employee superannuation fund, most brokers rely on selling their business in their autumn years. To ensure that brokers get the most value of their business, succession planning should be done as early as possible, according to Nick Young, director of trail book buyer Trail Homes.

“The thing I see time and time again is that succession planning is an afterthought,” he says. “The broker has long since clocked out at a business, the business has been in decline – probably for years – and when they actually come to sell it, they have lost a lot of value in it; it should have been sold years ago and it should have been planned many years prior to that.”

Indeed, Mr Young recommends that brokers put in place a succession plan with their accountant as soon as they have established their business and have stable income.


“Getting the business structure right at the start is really important,” he outlines. “So, when you first start your business, make sure that your aggregation agreement has flexible clauses with regard to the sale of the business at the end of your career and ensure you are really clear in your own minds as to what you are effectively building your rights to,” he suggests.

Likewise, Mr Young recommends that brokers ensure the structures and agreements are in place with their franchise/partners to ensure that they have legal rights to the business or trail book and that they talk to their accountant or professional adviser early on about the tax benefits and incentives that could be available to them upon retirement.

“That is step one: having the correct legal structures in place with a strong counterparty. Step two is then building the business – build a recurring client base of people coming back to you, have good, strong referrers, good processes etc. And step three is about getting lots of advice and really allowing as much time as you possibly can to transition your business to a new line-up when it comes to the actual point of sale or you leaving the business,” Mr Young says.

“Mortgage brokers spend an enormous amount of time building their business, but too often their retirement is just an afterthought. When it comes to selling your business – something you have spent an entire career building – it should be at the forefront of your mind, not the back of it.”

While there are myriad ways of retiring out of the business, the two most common methods are by selling the trail book and stepping out of the business entirely, or partnering with another broker or group to hand over the baton in a phased approach.


Knowing what process you want to undertake when you exit the business can affect what steps you take to get to that point, so making this decision early is also key to a smooth exit, Mr Young says. 

Selling your book

According to Mr Young, the average trail book sells for between 1.5 and two times the value of the trail, but it could be as high as three, or even four times, in some cases. The value of the trail book, he says, is a reflection of how strong the business is.

He explains: “The higher the quality of the book, the higher the multiple you should receive... So, the more time that you can put into the transition of your clients to a new owner or service provider, the more money you’re going to get out at the end of the day.”

“If you have been looking after clients, servicing their needs, kept good records, have a good CRM and a good follow-up process with periodic reviews, those all result in a strong business and build great goodwill in your business. That means that you then end up with a very large trail book that has good value,” Mr Young says.

However, the Trail Homes director notes that selling a trail book can mean anything from selling the right to receive the annuity off a group of loans to selling the right to take the annuity and take over the clients, or selling the business as a whole.

“So, it’s really important that both the buyer and the seller know exactly what the other is trying to achieve out of the transaction and what is actually included in that price,” he says. 

Phasing out of the business

While some brokers may wish to sell their book and set out of their business in one go, others may prefer to hand over the business to another broker/provider in a staged approach. This could involve slowly reducing the hours and time spent working in a business while another party looks after the business, often taking several years (see page 42 for a broker case study).

Former broker turned owner of TrailMinders, Frank Vowles, set up a company that helps brokers transition out, or “rest”, from broking after being burned by his own experience.

After selling his own trail book and clients to a young broker, Mr Vowles found out that his book and clients had been on-sold less than six months later, after the new broker had exited the industry. Mr Vowles says: “There was so much disruption to my former clients, and it was not a good experience for them. I thought there must be a better way, so with my accountant-turned-business-partner John Dymond, we set up a model where a broker can hire TrailMinders to manage the business on an ongoing basis – whether they want to take a holiday for a period of time or whether they are retiring from business. The broker can have as little or as much to do with the client base because he still owns them, but he just can’t provide credit advice to them. That’s where we come in – we have professional, originating brokers who write new business and we manage the client service.”

The TrailMinders business enables brokers to retain ownership of their business and receive 80 per cent of their trail commissions from their aggregator. The originating TrailMinders broker (from the same aggregation group) receives half of the upfront commission on any new business written, with TrailMinders retaining the remaining half for processing, servicing costs etc.

This model ensures that the “resting” brokers can live on their trail for as long as they like (as the book isn’t running off or is growing) and enables them to remain in contact with their clients for as long as they like. As the book remains with the broker, the “resting broker” can still sell their book should they so choose, or bequest it to their family, for example.

Currently, TrailMinders has 30 originating brokers who are able to write new business for “resting” brokers at several major and boutique aggregators, while additional agreements are said to be in the pipeline.

Like Mr Young, the TrailMinders director says that “the earlier a broker starts to plan for their retirement and work with partners on a structural plan, the better”.

“We would prefer to start talking to people who are thinking about retiring as early as we can, because we get the chance to build their trail with them and to work on the database over a period of years. But we can take over on very short notice, too – for example, if there is a bereavement or emergency of some kind.”

Health check your business

Director of Trail Homes Nick Young reveals a quick test to assess the health of your broking business.

An easy way to track the health of your business is to compare the volume of new business being written, Nick Young, director at Trail Homes, advises.

He explains: “If your monthly upfront commissions are actually greater than your monthly trail conditions, that generally means that business is growing; it’s getting bigger and stronger.

“If the monthly upfronts are broadly similar to the monthly trails, that’s a mature business that is just going along sideways – and most businesses will get to that point and stay at that point of constant activity for many years.”

According to Mr Young, businesses that are growing or are in stasis both have strong sale value.

However, he warns: “But when the upfronts are less than the monthly trails, I will be immediately suspicious that this business is going downhill.”

According to Mr Young, trail books with no new loans being placed into them run off at approximately 20 per cent per annum, meaning that after three years, about half of the book has disappeared.

“You have to stop that from happening if you want to sell your book or business. If your business is in decline, you should have already sold it. It has lost its value,” he says.

Mr Young suggests that, should brokers find that their book is in decline, they should look to build it back up again in order to get the most value out of their business when they sell it.


Trail, tax and taking your time

Tax and business adviser Justin Mastores, partner at advisory practice Rees Group, outlines the ins and outs of trail, tax and taking your time.

When is a good time for brokers to start succession planning?

Most brokers don’t necessarily think about retirement when they first put up a business, but by years two and three, once they have established themselves, they should be thinking about the systems and the processes that they have behind their business. Succession planning is not only about people but also about how bulletproof the business is over time. So, I’d say after two or three years of business, once the business is stable, that’s when they should be looking at what the next period of their business looks like. 

What should they start considering at that point in time?

Key person dependence is the number one issue. A lot of brokers are in the situation where they are the main point of contact and handle the relationships, so I think having a good 2IC (second in command) – someone who knows your client base and can deal with the client base when you are not there – is a good start. It doesn’t have to be just one, it could be a couple of people across your clients. It’s just about ensuring you have other people in the business.

From a broker perspective, that means they can have more time away from the business (and you can test that and build it up over time, for example, by leaving for a few days and then a few weeks, and then longer period once that 2IC has built up their proficiency), but from a buyer perspective, it is an important part of the value of the business, too. They could identify someone within their business, or hire someone that has the aptitude and proactivity to be a 2IC. It doesn’t have to be paying someone just a salary, you could incentivise them so that you can eventually be working four days a week instead of six days a week and start to wind down as that person takes a lot of the workload from you.

The second issue is around financial reporting and cash flow management, having the right systems in place. I often say to people that if they’re getting ready to succeed out of the business or sell out of the business, having the right reporting input process in place so you can see what the company has been doing/will be doing, at a click of a button, can help.

How would you value a business if not based on trail (given the RC recommendations)?

In broking, traditionally a trail book has been valued and that is what is used at succession/sale time for brokers. But I think in the future, broker businesses are going to be bought as going concerns, as opposed to just acquiring a trial book.

Most businesses [outside of the broking industry] are valued on a multiple of profit, or a multiple of EBIT (earnings before interest and tax), which takes into consideration client relationships and other goodwill that’s been created. I think broking businesses may transition to this.  

I think in the next two to five years, when finance businesses are being sold, it’s going to come back to: Who are the principals in this business? What have they created over the last 10 years? How big is the network? How many clients do they have? What’s the spread of clients like? How broad is the business and income streams? How many referral partners are there referring in?

Every broker I know is a really good networker. So, it’s about putting CRM systems in place to manage the network and build a business around your broking and building a network that is beyond your clients (i.e. financial planners or accountant partners that can refer in and ensure future business) and beyond one single referral source. It’s about reducing that risk. 

What tax implications are there in succession planning?

The way in which you legally contract to sell your business will have an impact on the tax. So, sitting down with your accountant early is very important to understand your options.

If you have been in the business for more than 15 years, a lot of the proceeds of the sale of the business could end up in superannuation, for example.

If they haven’t been around that long, there may be options around concessions for discounted taxation treatment for the people that are getting out of the business that are being sold. If it’s a trail book sub $1 million, there are some fantastic small-business concessions and sale of small-business concessions for retiring/selling owners.

Sitting down with your accountant early is very important to understand your options. 

Are there any things to avoid/be wary of when it comes to succession planning?

I’ve seen a lot of people who just get a little bit trigger-happy. They rush into the sale of their business with people they don’t know, jump the gun and are too hasty to sell part of the business to someone, instead of sitting back and thinking about what their objectives really are.

Too often, they go and execute something or go down a path that ultimately comes back to bite them – whether that’s because they’ve let someone into the ownership structure that doesn’t want to sell the trail book, or they don’t have the same client care etc. At that point, it’s too late, they’re already locked into contract with that person.

If you want to sell your business, don’t rush. You could look at incentivising a person for a few years and then sell them the whole business, or look at arranging a deal where you might get part of the proceeds over time.

Remember there are other ways to incentivise key people than just selling some equity in your book or business early on. So, make sure you aren’t too hasty and making fast deals just because you haven’t been planning to sell part of your business from the outset.

Also, it’s about knowing your options and having a couple of prospective purchasers (rather than just one) to create some competitive tension around selling that trail book or the business. 


Making the right choice in partner

Case study: Brad Anderson and James Algar, Mortgage Choice Dee Why


Succession planning can raise different challenges for independent and franchised brokers, but a universal challenge is finding a trusted pair of hands to take over a business that has been built over an entire career. Some franchisees may make the decision to sell their franchise to buyers, some decide to leave the legacy they have built in the hands of their children, while others create a succession plan that involves partnering with a fellow broker. 

One such broker was Brad Anderson, owner of Mortgage Choice in Dee Why, who created a partnership to help ensure his legacy and customers are protected into the future. 

Having owned and operated the franchise and been sole loan writer since August 1999, Mr Anderson says he felt a change was needed after reaching a “crossroads”.

He explains: “I had owned the business for 15 years and felt like I had reached a crossroads. I was considering two options: start to slow down or hire a younger, energetic loan writer to lead the business into its next chapter.

“I had shared my long-term plan with Dave, the state manager at my aggregator, Mortgage Choice, and he suggested I meet with a promising loan writer, James Algar, who was working at a nearby franchise.

“James absolutely satisfied the criteria for the second option.”

Mr Anderson first brought the new broker on as a salaried loan writer underneath him, during which time he recognised that the new hire was a good fit. He then worked with his aggregator’s state manager to develop a plan that would create a new company with equal ownership structure.

“The partnership meant that James didn’t have to come up with the capital to buy my loan book, and the new business structure meant that only I would receive the trail from the loan book that I had built over 15 years,” he explains. 

James’ point of view

After joining the franchise as a salaried writer, Mr Algar says they found they had “a great dynamic” and “fundamentally seemed to see the business and the world in a similar way”.

“Ultimately, we are totally aligned in our morals and priorities in terms of looking after our clients. Sometimes it’s as simple as knowing that neither of us would feel comfortable giving a customer more than a certain level of debt, regardless of whether they qualified for the loan,” he says.

However, the decision to enter into a partnership was not one he entered into lightly.

“We spent months working six feet from each other, which allowed us to really get the measure of each other and develop a high degree of trust…. We didn’t jump in head first without knowing what we were both getting in to,” Mr Algar says.

“We openly discussed what our goals were for the business and it was clear that Brad was looking for a successor to take his place once he retired. There was a lot of planning, so we knew what our vision for the business would be moving forward.”

According to Mr Algar, having a plan was “key to the process”, as it meant that “expectations were determined from the outset and we both knew what we were working towards”.

“Two years after I joined the business, we formalised our partnership and now co-own Mortgage Choice Dee Why,” he says. 

Words of advice

Mr Anderson states that his business partner has “reinvigorated the business”, noting that – since bringing on his business partner – he has been able to grow the volume of business settled from around $30 million a year to approximately $100 million a year.

The pair offer the following advice for other loan writers and franchise owners who may be considering heading down the same path:

“Don’t go in blind, you should both know what you’re getting into,” Mr Algar suggests. “Spend time working together so you’re confident that you’re making the right decision.”

Mr Anderson concurs, advising: “Get to know each other on a personal and professional level. While your staff member might have the experience and skill set you’re looking for, it’s equally important that you are like-minded and have a similar work ethic.

“After all, you are spending the better part of your day with them, so it’s better not to rush into things,” he says.

Succession planning in focus
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Annie Kane

Annie Kane

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. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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