November 27th, 2017
It’s tough to be a mortgage broker in today’s digital world. With increasing pressure from industry regulators, over-cautious banks and digital savvy consumers becoming more demanding, it’s no wonder many brokers are feeling the heat and are thirsty for cash.
Each week I am contacted by different mortgage brokers looking to potentially sell their trail book. Usually they want to sell it to raise capital to grow or sustain their business, or the complete opposite – to exit mortgage broking entirely. Every situation is unique, yet no matter what the circumstances, everyone asks me the same things: “What options do I have?” and “Should I sell?”
When you talk to your customers, you need to discover their unique financial situation and goals before you can come up with an effective credit strategy. It’s the same when you want to sell your trail book. It’s a ‘what and why’ scenario that’s different for everyone – and once it’s sold there’s no going back.
So here are four factors that you need to weigh up before you decide to sell your trail book.
Remember the tax man!
“The only certainty in life are death and taxes”. It was true when Benjamin Franklin said it in 1789 and it remains equally true today. If you wrote all the loans in your trail book, chances are you have a $1 cost basis for tax purposes. That means you need to pay tax on all of the gain. The tax man will always want his cut, unless you can find a way to take advantage of some tax breaks. (I highly recommend that you also discuss this with your accountant before you make a decision to sell your trail book.) After tax, will you be left with enough to fund your retirement or next venture?
Would you be better off waiting?
The value of trail books is not static – they have gone up considerably in the past few years and all indications are that this increase in value is not about to stop anytime soon. If you sell now, are you leaving too much potential value on the table? Any discussion about a selling price will be, by and large, determined by what the highest bidder will pay right now. If people are increasingly paying more to own trail books, would it pay to wait a while and maybe grow yours a little more first?
Do you really want to stop broking?
Is the grass really greener on the other side? Everyone needs a change occasionally, but does it have to be permanent? Many brokers are simply tired. To get their business up and running, they have given a lot of themselves often for less reward than they could have earned in a job. But do you actually want to throw that away, or do you just need a good well-funded holiday? Do you really need a career change that potentially comes with selling your trail book and complicated arrangements like entering non-solicitation clauses, or non-restraints?
Are you throwing the baby out with the bathwater?
So, you’ve decided you definitely want to do something else besides broking, but do you have to sell your trail book? I see brokers lured away from mortgage broking to some of the most hair-brained new ventures and schemes that you can imagine! Fair enough, sometimes you just have to give it a go and scratch that itch. But it is bad enough if your new venture does not work out – how much worse would it be if you have sold a great asset to chase an impossible dream?
Borrowing against your trail book may be a better idea.
Connective Broker Funding provides a range of loans which give brokers a more tax effective, less permanent option than selling. Today you can potentially borrow against your trail book without having to give any personal guarantees or put up any property assets. More and more brokers are choosing to hold onto their trail book and clients. Instead of selling, they use them as assets to fund a loan – because a loan does not have to be forever! With Connective Broker Funding, you can borrow for a few years, pay back the loan using your trail commissions, and perhaps take that badly needed holiday!
Why not test the waters before selling out? You only get to sell your book and business once. Eventually, the time will come for us all to sell, but don’t make needing the cash the primary motive! Please contact me today to see if there’s a better way. Simply fill out your details on our Connective Broker Funding info page, and I’ll call you soon.
About the author – Jeff Zulman
Jeff Zulman studied at the University of Witwatersrand in South Africa and then read law at Oxford University in England. After graduating, he joined Goldman Sachs, where he was trained on Wall Street, and then worked in their wealth management division in London. Jeff immigrated to Australia where he has founded, run and successfully sold several businesses. Jeff now runs the “BBBSA Finance”, an M&A advisory firm and specialist lender focused on brokers.
We recommend that you seek independent financial and taxation advice before acting on any information in this article. It contains general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances.