NZ expert shares step-by-step guide
The sale and purchase of a mortgage adviser's book is a significant transaction for both parties.
Whether you're looking to expand your client base or planning to exit the industry, understanding the value of the book and negotiating favourable terms is critical for a successful deal.
While high-profile lender book acquisitions get the headlines, an adviser purchasing another business’ books is surprisingly common in New Zealand.
Warwick Slow (pictured above), national sales manager at Trail CRM and Kiwi Adviser Network, explains what advisers need to know about the process, including the key factors that influence price and strategies to mitigate risks.
How much is your mortgage book worth?
When it comes to valuing a mortgage adviser’s book, several factors come into play.
According to Slow, on average, books sell for 2x to 2.5x annual recurring trail commission revenue, but prices can range from 1.5x to 3.5x, depending on quality.
“KiwiSaver books typically go for much higher multiples (sometimes as much as 4-5x),” he said. “This is due to the nature of an investment book where clients are constantly increasing the value of the investment due to KiwiSaver contributions.
“This is the opposite when compared to a mortgage book that gradually decreases over time as clients pay off their loans.”
What influences how a mortgage book is priced?
Slow provided insights into the key variables that influence the pricing of mortgage adviser books:
- Quality of the book
A well-organised book with comprehensive, up-to-date data is more attractive to buyers.
“Books with loyal, active clients and strong referral networks typically command higher prices,” said Slow.
- Data format
Digital books with structured CRM systems, like Trail, and clean data are easier to transition into new ownership and tend to fetch higher valuations.
“Poorly maintained or outdated systems can decrease the book's appeal.”
- Age of clientele
Younger clients often mean longer-term relationships, increasing the book’s long-term value.
On the other hand, an aging client base may reduce future revenue potential and thus lower the price.
- Associated products
Books that include a range of financial products (e.g., insurance or KiwiSaver) alongside mortgages are more valuable, according to Slow.
“These diversified offerings indicate multiple income streams and higher cross-selling opportunities.”
- Clawback risk
Slow said one of the biggest risks for the buyer is the clawback of commissions, typically if clients refinance or pay off their loans early. Books with higher clawback potential may see reduced valuations, or buyers may negotiate terms to offset this risk.
Cost and terms of sale: Factors to consider
The purchase price of a mortgage book can vary widely based on the factors mentioned above, with an average multiple of 2-2.5x recurring revenue. However, terms of sale are just as important as the price.
Regarding the cost and terms of sale, Slow emphasises the following:
- Staggered payments
Buyers often opt to stagger payments over time to mitigate clawback risk.
“This approach ensures that payments align with ongoing revenue, reducing the buyer's exposure to sudden commission losses,” said Slow.
- Seller involvement
A common strategy to ensure a smooth transition and reduce client attrition is to hire the seller into your business.
“This can help retain clients and offer continuity, particularly if the seller is trusted by their client base."
- Transition period
It's typical to have an agreed-upon transition period where the seller stays involved, either as a consultant or part-time employee, to help ensure client retention and maintain revenue stability.
“By understanding these factors and negotiating favourable terms, both the buyer and the seller can achieve a successful, low-risk transaction.”
How to transfer a mortgage book into your business
When acquiring a mortgage adviser's book, two crucial logistical elements must be carefully managed: the transfer of clients and their associated trail commissions to your business, and the migration of client data into your CRM.
These steps are essential for ensuring a seamless transition of client relationships and commission streams, according to Slow.
Transferring the trail commission
One of the most critical tasks during a book purchase is transferring the trail commission from the lender to the new owner.
“This process involves notifying lenders of the change in ownership, so they can redirect the trail commission to the buyer. It's important to follow a well-documented process to avoid any delays or missed payments,” Slow said.
“A sale and purchase agreement will need to be signed by the appropriate parties and sent to the lenders.”
It’s strongly recommended to have a proper agreement drafted by a professional to protect both parties.
“Speak with your aggregator if you need assistance with this.”
Migrating the data
Another crucial aspect of purchasing a mortgage book is migrating client data into your CRM system.
Slow outlines the process for migrating data if you’re a Trail user, but here’s a quick overview:
Cost: Your CRM provider may charge a fee to migrate your data. This is typically between $750-$2500 depending on the size and complexity of the migration.
Timeline: Once the data is received, you should get an estimate of how long it will take for the data to be implemented. Trail migrations take between one to four weeks.
Action required: To ensure a timely transition, please request the data as soon as possible and send it to your CRM provider’s support team.
“By staying on top of these key processes, you can ensure the smooth acquisition and transition of a mortgage book without disruptions to client service or revenue streams,” Slow said.
