RedZed confirms clawback changes

The new structure will recognise the number of months a loan has been active and apply a diminishing clawback scale to determine the clawback payable.

As each month concludes (up to 24 months), the clawback percentage will reduce on a pro-rata basis (dropping by approximately 4.16 per cent a month).

For example, if the loan is discharged within the first month of settlement, 100 per cent of the upfront commission will be clawed back. However, this will drop each month on a pro-rata basis, so that around 54 per cent clawback will apply at month 13, for example, and 12.5 per cent clawback will apply for loans that refinance out at 22 months.

Speaking of the change, Adrian Fisher, head of distribution and product at RedZed, told The Adviser that the move came following industry feedback.

He commented: “For some time now, industry associations and aggregator heads have been seeking a fairer clawback structure for their members. However, the issue has been compounded of late by the recent spate of bank cashback offers and lender incentives, which have significantly increased the number of broker commissions being clawed back.”

Indeed, LMG executive chairman Sam White recently flagged that brokers had historically seen approximately 5 per cent of their upfront revenue being clawed back, but that this had “jumped” to 11 per cent in the past year, as customers looked to pocket thousands of dollars being offered by lenders with cashback.

Mr Fisher commented: “Many brokers have either lost customers to other lenders or brokers, or have been required to rewrite loans with no guarantee of new net revenue. This recent refinancing boom has understandably intensified lobbying for clawback structure change.”

The head of distribution and product said that RedZed has been “passionate about supporting brokers” over its 17-year history, noting that 97 per cent of its volume currently comes through the third-party channel.

“With clawback rates rising, and broker businesses suffering as a result, we decided to make a change to our clawback structure and deliver a fairer solution to our broker partners,” Mr Fisher continued.

“Traditional clawback structures don’t typically recognise the exact length of loans, with most tiers set at 12, 18 or 24-month intervals. However, our diminishing clawback structure considers the number of months a loan has been on our books, and recognises the revenue generated over that period. As each month concludes (up to 24 months), the clawback percentage reduces, creating a fairer outcome for all.”

RedZed announced the changes to its broker partners earlier this week and said the initial response had been “overwhelmingly positive”.

Mr Fisher added that aggregators had been “exceedingly complimentary of our fair-minded approach, commenting that they hope other market participants will follow suit”.

The move makes RedZed the latest lender to amend its clawback structure, following changes by both banks and mortgage managers over recent weeks.

The moves come as the broker channel has been advocating a more equitable clawback policy, particularly given the surge of refinances as the ‘fixed-rate cliff’ arrives and borrowers hard-hit by the cost of living look to take advantage of cashback offers.

[Related: Clawback rate rises to 11%: Sam White]