Clawbacks for Jeff Royle’s iLender business have been the highest this year since 1991 – even higher than during the global financial crisis (GFC) of 2008-2009.

However, one of the big differences says Royle is that during the GFC advisers didn’t have the documentation they have now that clearly sets out when a clawback fee can be charged to a client. “That has made a huge difference and my business has been able to recoup from clients about 80% of the clawbacks it has had to pay to lenders.

Although he can’t recoup all clawbacks, Royle says he is quite happy with that, particularly in comparison to other businesses where there can be bad debt.

“As an industry we don’t generally have bad debt as we get paid by a lender.

“There has to be a balancing act -  it comes back to transparency.”

He says for some reason the banks and non-bank lenders, with the exception of Resimac, are not transparent and do not disclose to clients they may have to pay advisers a clawback fee if they refinance or sell their property before the fixed term loan period is up.

“They need to come to the party and start disclosing to clients that they should check with their mortgage adviser if there will be any fees if they are refinancing within the fixed term. Advisers have to do this and lay out what their clawback fees are in client contracts. It doesn’t make sense that most of the lenders don’t follow this practice.”

There can be some push back from clients if they receive an invoice for a clawback fee, but Royle says they have often not read their contracts. Most advisers also spell it out when they are talking clients through their mortgage contract.

Refinancing surge

Most of the recent clawbacks have resulted from refinancing because of high interest rates.

Resimac general manager Luke Jackson says there has been a surge in refinancing for lending that has been with the business for less than two years.

It has meant a lift in clawbacks from advisers as people have rolled onto higher interest rates and looked elsewhere for mortgage financing.

Resimac pays up front commission and trail on its products. Royle, one of Resimac’s biggest supporters since it opened its doors 11 years ago, has seen his trail book shrink significantly in the past 12 months because people have refinanced out of Resimac.

Either they have gone through another adviser, dealt directly with a bank or sold their property. “The industry has been particularly hard hit in that respect.”