Published by MPA:
No broker likes having their hard-earned money clawed-back, so here’s my three-step Clawback Reduction Formula – which you can use to reduce and even avoid clawbacks. As a bonus, this formula will help you maximise your referrals and repeat business at the same time.
Step 1 – Educate Your Client
One of the biggest mistakes many brokers make is assuming a client understands what you do, how you work, how you get paid and that your income can be taken back despite all your hard work.
Most consumers are uneducated about the broking world, so you must spell it out for them from the basics to the in-depth analysis.
As part of your client education process, explain the differences between dealing direct with lenders and working with a broker. Specifically focus on the benefits the client will receive when they choose to deal with you.
You must also educate your clients on how you earn an income and how clawbacks work. When a client understands that you could have your commission recalled if they refinance or sell their property within 2 years, they will feel more obliged to work with you in the future.
Step 2 – Protect Yourself
There are three ways you can help protect yourself from clawbacks:
- Have a clawback fee written into your standard client agreement. Either use a set percentage of the clawback amount, or decide on a flat fee.
- Make your client 100% aware of your clawback policy. Don’t be afraid to put a value on your expertise, directly tell your clients about it, and be confident enforcing your policy. I would go as far as having your client initial or sign the section outlining the clawback provision.
- Consider the lenders you recommend to your clients. Will they compete with you and internally refinance your client behind your back? If possible, deal with lenders who have a clear “non-compete” policy and will always direct clients back to you for assistance.
Step 3 – Regularly Communicate With Your Clients
Did you know that a recent RBA survey found that 92% of clients did not remember who their mortgage broker was within 12 months of settlement?
This proves if you do not communicate with your clients on a regular basis, they will not remember you. If your clients do not remember you, they won’t come back and will take up the next “shiny offer” from your competition instead.
When you keep in touch with your clients on a regular basis they will remember you, like you, trust you, and become a loyal client for life – but there are two catches:
- Keeping in touch “regularly” does not mean just sending a quarterly newsletter or making contact for an annual review. Aim to contact your clients on average once every two weeks. This is easier than you might think, especially when any decent CRM or email system can automate much of this process. For example, over a year all you need is: a monthly email message (12); a printed quarterly newsletter (4); RBA interest rate alerts (11); a birthday card (1); a Christmas card (1); and an annual review (1). This would be 30 contact points throughout the year, which is enough to maintain a rock-solid relationship with your clients.
- A loyal client is an engaged client. If you send generic, corporate-style communications your messages will never be read, doing nothing to develop a long-term loyal client base, because “boring equals in the bin”. You need to take a different approach, add your own personality and be entertaining.
When you implement my Clawback Reduction Formula in your business, you will reduce the impact of clawbacks when they do happen, have better (more educated) clients and create a loyal client base that will continue to refer and do business with you for life.