Borrower concentration shows how much of a mortgage broker trail book depends on a small number of client relationships. A buyer should group connected loans, calculate each group’s share of eligible balance and reconciled trail receipts, and test the cash effect if one or more large relationships refinance, repay or otherwise cease generating trail.

A high percentage is not automatically disqualifying, and there is no universal safe limit. Its significance depends on loan terms, seasoning, borrower circumstances, service history and how readily the buyer can absorb an exit. The decision should rest on verified exposure and downside capacity, not loan count alone.

Define the borrower before calculating concentration

One borrower can appear many times in a loan file. A household may have a home loan, investment loans and split facilities; an investor may borrow through several entities; related applicants may be recorded under different spellings or identifiers. Counting every facility as a separate client can make a concentrated book look diversified.

Create a stable, de-identified borrower-group identifier that links facilities where the evidence shows a common economic relationship. Preserve both levels: the individual loan for reconciliation, and the connected group for concentration analysis. The grouping rules should be documented and exceptions retained. Do not combine people merely because their names or addresses look similar; ask the seller to validate ambiguous links.

For each group, calculate its share of:

  • active loan accounts;
  • current outstanding and trail-eligible balances;
  • gross trail reported by the payer;
  • deductions, splits and adjustments; and
  • net cash received over a representative monthly period.

Show the largest borrower group, the largest five and ten groups, and the remainder. Also calculate the cumulative share at each rank. Repeat the schedule over time so that a single adjustment month does not determine the result.

ASIC’s mortgage-broker remuneration review described trail as a recurring commission normally linked to the current or average loan balance and found wide variation in annual trail paid per loan (ASIC REP 516). The report reflects the arrangements ASIC reviewed in 2017, so current contracts and statements remain decisive. Its findings nevertheless explain why account count alone is weak: a few large balances can produce a disproportionate share of income.

Request evidence that can be reproduced

Ask for a loan-level file using stable masked identifiers, together with the original statements and bank evidence needed to verify it. Relevant fields include borrower-group ID, facility ID, lender, product, settlement date, original amount, current balance, trail-eligible balance, trail rate where available, gross trail, deductions, net trail, status and discharge or refinance date.

The supporting pack should also include:

  • at least 24 to 36 months of aggregator or lender statements and bank receipts;
  • a borrower-to-facility mapping with the basis for each connected group;
  • monthly balance and trail history for every material group;
  • discharge, refinance, arrears, suspension and correction records;
  • client contact history, complaints and unresolved service matters for major relationships; and
  • commission schedules and transfer terms affecting the relevant facilities.

Reconcile monthly borrower-group totals to the complete trail statement and then to bank receipts. Unallocated cash, duplicate facilities and unexplained group changes should remain visible as exceptions. Concentration based on an unreconciled spreadsheet is only an assertion.

Borrower analysis also has a privacy boundary. The OAIC’s guidance on selling a business says vendors and prospective purchasers should consider Privacy Act obligations, use de-identified information where possible and control access, including through a data room. Early concentration analysis generally needs masked group IDs and financial fields, not names, contact details or identity documents. Lawyers and privacy specialists should advise on any later access and transfer.

Investigate the largest relationships

For each material group, trace why its exposure is large and what could cause it to change. Compare loan purpose, product, lender, fixed or variable status, settlement vintage, remaining term, repayment pattern and any known fixed-rate expiry. Check whether one household’s facilities share a common decision point, such as a property sale or refinance review.

Separate current income from relationship assumptions. Historic contact does not prove the borrower will engage with the buyer, and a servicing record does not create ownership of the client. Confirm what rights and records transfer, how introductions or communications will occur, and whether aggregator or lender processes affect continued servicing.

Look for concentration that overlaps with another dependency. A large borrower group may also sit entirely with one lender, consist of a similar loan vintage or be associated with one referral source. These exposures can move together. A borrower schedule should therefore be read alongside lender concentration and historical run-off, not as a standalone percentage.

Stress-test cash rather than predicting behaviour

Build the base case from reconciled net receipts and the actual loan-level history. Then remove the largest borrower group, the largest three groups and a selected percentage of the top-ten exposure. Model immediate discharge separately from gradual balance reduction or a temporary commission suspension. The purpose is to expose sensitivity, not claim that any borrower will leave.

Hypothetical example: a trail book has 1,200 active facilities, but five connected borrower groups produce 22% of net trail. The largest group contributes 7%. The buyer tests the loss of that group at settlement and, separately, a two-year run-off of half the top-five income. These are buyer-selected stresses, not forecasts. The results show whether acquisition debt, servicing costs and liquidity remain manageable without assuming replacement lending.

Compare the stressed cash flows with purchase-price terms and funding obligations. Deferred consideration, a retention mechanism or a completion adjustment may allocate some risk if appropriately documented, but none makes concentrated cash flow diversified. Accounting, valuation, legal and finance advisers should test the definitions, evidence and consequences.

Keep retention within the consumer-duty boundary

Concentration may encourage a buyer to focus service on large borrowers, but trail preservation cannot override consumer obligations. The National Consumer Credit Protection Act 2009 contains best-interests and conflict-priority obligations for mortgage brokers covered by those provisions (Federal Register of Legislation). ASIC’s RG 273 explains ASIC’s approach when assessing compliance.

A forecast should not assume that a major borrower will remain in an unsuitable loan, or that refinancing will occur merely to protect or replace trail. Future credit assistance must be considered on the consumer’s circumstances and the applicable duties. Treat ethical, compliant service as an operating requirement—not as a guaranteed retention strategy.

Questions buyers should resolve

  • Are connected facilities grouped consistently, with ambiguous matches documented?
  • What percentage of eligible balance and net trail comes from the top one, five and ten groups?
  • Does concentration rise when loans are grouped by household or related entity rather than facility?
  • Are the largest exposures also concentrated by lender, vintage, product or referral source?
  • What happens to cash cover if a major group repays or refinances sooner than expected?
  • Which personal information is genuinely necessary at each due-diligence stage, and how is access controlled?

Frequently asked questions

Is there a safe borrower-concentration percentage?

No universal threshold determines whether a trail book is acceptable. A buyer can set transaction-specific limits, but should support them with the stability, transfer evidence, run-off history and downside capacity of that book. A threshold is a decision rule, not a regulatory safe harbour.

Should concentration use gross trail or net receipts?

Use both, but base cash sensitivity on reconciled net receipts. Gross trail shows the underlying commission before identifiable deductions; net receipts show cash available to the buyer. Eligible balance and loan count provide additional explanations rather than substitutes.

Can seller introductions remove the risk?

They may support an orderly handover, but they cannot guarantee borrower engagement, retention or future income. Test the economics without promised loyalty, and have advisers review the transfer, privacy, communication and restraint arrangements.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.