A trail book does not retain a fixed percentage of its loans simply because the seller’s historical average says so. Loans amortise, borrowers make extra repayments, properties are sold, lenders reprice accounts and clients refinance. Each pathway affects outstanding balances, trail receipts and the continuing relationship differently.

A buyer should rebuild retention from loan-level cohorts, documented exit reasons and realistic servicing capacity. The acquisition model should distinguish external refinancing that leaves the book, repricing or internal changes that may preserve the loan, and refinancing completed through the buyer that may create a replacement facility. Apply downside cases to both balances and commission cash flow before agreeing price or an adjustment mechanism.

Understand what can leave—and what might stay

ASIC’s remuneration review described trail commission as generally calculated by reference to loan value and paid while the loan remains in place (ASIC). That report is historical market evidence, not the contract for a particular book. The buyer must inspect the current lender schedules, aggregator agreement and transfer terms to establish when trail accrues, changes or stops.

Separate at least four forms of balance reduction:

  • Scheduled amortisation and extra repayments: the loan remains, but the balance that may generate trail declines.
  • Property sale or full discharge: the facility ends without necessarily indicating dissatisfaction with the broker.
  • External refinance: another lender replaces the existing loan; the old facility and its trail ordinarily cease under the applicable commission terms.
  • Repricing or internal restructure: the existing lender retains the borrower. Whether the loan identifier, commission treatment or servicing record changes must be checked rather than assumed.

A client who refinances through the buyer is not automatically “retained” for valuation purposes. The original trail may end, a new loan may start on different terms, upfront commission or clawback exposure may arise, and the replacement may sit outside the purchased book’s adjustment definition. Model old and new facilities separately.

Build evidence at loan and cohort level

Request monthly loan-level snapshots for at least the longest reliable period available, not merely current balances and annual total trail. Use a stable de-identified loan key so records can be followed without circulating unnecessary personal information. Useful fields include:

  • settlement or origination date, original amount and current balance;
  • lender, product, purpose, repayment type and fixed-rate expiry where applicable;
  • monthly trail amount, status and date of last payment;
  • discharge, refinance, sale or other closure date and reason code;
  • repricing, product switch and lender-retention events;
  • responsible broker, last meaningful client contact and usable contact status; and
  • any replacement loan linked to the former facility.

Reconcile the snapshots to aggregator statements and bank receipts. Then calculate monthly balance retention and loan-count retention by origination quarter, lender, rate type, loan purpose and responsible broker. Keep voluntary refinance separate from sales, scheduled repayments and data corrections. A single blended percentage can hide a young cohort with no observed seasoning, one lender losing borrowers rapidly, or a seller relationship that the buyer may not replicate.

Test the seller’s closure coding. Sample discharged loans against lender notices, CRM notes and replacement-loan records. If “paid out” is the only category, the buyer cannot tell whether a client sold a property, refinanced elsewhere or returned through the same brokerage.

Treat market data as context, not a forecast

The RBA reported in February 2026 that external refinancing had increased to a record share of housing credit during a period of heightened borrower attention to mortgage rates, while many borrowers also negotiated better rates with their existing lender. Some obtained better rates with broker assistance (RBA). This supports investigating repricing and refinancing pathways; it does not prove that the target book will repeat a national pattern.

Loan age, rate position and lender mix matter together. An older variable loan may attract attention if its rate is uncompetitive, but the borrower’s equity, income, switching costs, product features and service experience can alter behaviour. A fixed-rate expiry is an observable review point, not proof of departure. Concentration in a lender with a weak retention process can also matter even where historic aggregate run-off looks stable.

Be precise when using public data. The ABS defines external refinance as a new loan replacing one provided by a different lender. Its internal-refinance definition captures specified new or increased facilities with the original lender, and its lending data measure commitments rather than all completed funding activity (ABS). National series therefore cannot substitute for the book’s own event history.

Stress-test retention rather than selecting one rate

Build a monthly projection in which each cohort’s opening balance moves through scheduled repayment, extra repayment, full discharge and refinancing. Link the surviving eligible balance to the correct commission schedule. At minimum, compare:

Case Evidence basis Buyer test
Seller case Seller’s stated retention and growth assumptions Can every rate be reproduced from loan-level history?
Evidence case Observed cohort behaviour after correcting coding and one-offs Does it hold across lenders, vintages and brokers?
Downside case Faster exits, lower balances and delayed client engagement Can debt service and operating costs still be met?
Transition case Seller departure, contact failures and transfer disruption What happens before the buyer establishes a service rhythm?

Do not offset proven run-off with speculative new lending unless the buyer has a separately evidenced origination plan, capacity and economics. Show the projected trail from the acquired loans on its own.

Hypothetical example: suppose a cohort has historically lost balances through scheduled repayments, property sales and external refinancing. The seller’s model combines all three into one annual retention figure and assumes the buyer will replace every refinanced loan. A more disciplined model preserves the observed exit categories, gives replacement lending its own probability and timing, and tests a case where client contact starts later than planned. This illustrates the method only; it is not a market benchmark.

Examine whether the retention plan is executable

Retention is not just a spreadsheet input. Ask whether the buyer will receive usable records, lawful access, valid contact details, lender accreditations, sufficient staff and a clear seller introduction plan. Segment the first contact schedule around borrower needs and known review points rather than sending indiscriminate refinance messages.

Conduct matters. ASIC’s RG 273 explains what it considers when assessing mortgage-broker compliance with the best-interests obligations in the National Credit Act (ASIC). A commercial desire to preserve trail cannot override the broker’s obligations to the consumer. The buyer’s operating plan should allow a borrower to receive appropriate consideration even when the best outcome may reduce or end acquired trail.

Questions for the seller and advisers include:

  • Which cohorts drive the forecast retention rate, and how many months of observation support it?
  • Which loans have fixed-rate expiries or recent pricing requests, and how were those events recorded?
  • What proportion of former loans was refinanced through the seller, refinanced elsewhere, sold or simply recoded?
  • Are the seller’s client relationships transferable in practice, and which clients cannot currently be contacted?
  • Who owns trail and any new commission when the buyer refinances an acquired client?
  • Do the sale agreement, aggregator consent and privacy process permit the proposed transition contacts?

Connect uncertainty to price and sale terms

A headline multiple does not resolve uncertain retention. Apply the valuation method to clearly defined, reconciled cash flow and disclose the retention curve underneath it. If evidence quality is weak or seller involvement is critical, parties may discuss a holdback, earnout or price adjustment—but the drafting must be exact.

Ask the lawyer and valuation adviser to define the measurement date, reference loan file, eligible balances or receipts, permitted exclusions, replacement loans, lender migrations, seller-caused departures, data corrections and audit rights. Confirm how disputes and delayed statements are handled. An adjustment that rewards keeping a loan regardless of the client’s interests is a warning sign; conduct and consumer obligations remain applicable.

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.