The cost of servicing an acquired mortgage client base is not a fixed percentage of trail income. It depends on how many clients require attention, what service has been promised, the quality of the records, the buyer’s operating model and which licensing, aggregator and compliance arrangements apply after completion.

A buyer should build the servicing budget from activities and capacity, not subtract a generic allowance from trail receipts. Measure historic demand, define the post-settlement service standard, price the required people and systems, and test a higher-contact scenario.

Define what servicing means for this book

Start by separating passive receipt administration from work requested by clients. The acquired base may generate:

  • contact-detail and repayment-account changes;
  • discharge, payout, variation and lender-document queries;
  • annual or event-driven loan reviews;
  • rate, repricing and product questions;
  • refinancing enquiries and new credit assistance;
  • hardship, arrears or vulnerable-client contact requiring careful escalation;
  • complaints, privacy requests and remediation work; and
  • trail reconciliation, lender follow-up and client-record maintenance.

Map what the lender handles, what the aggregator supports, what the seller absorbs informally and what the buyer will own. Distinguish an administrative response from new credit assistance. Where a mortgage broker provides credit assistance, ASIC’s best-interests guidance explains the applicable principles; it is not a checklist or safe harbour (ASIC RG 273). The buyer’s workflow must identify when a request becomes regulated broking work.

Build an activity-based cost map

Use a cost map that links each activity to volume, handling time, role, system and external charge.

Cost pool Evidence to request Question for the buyer’s model
Client contact Call logs, shared inbox data, CRM tasks and response times How many contacts occur, through which channel, and who resolves them?
Reviews and refinancing Review calendar, opportunity stages, completed reviews and outcomes Which reviews are promised, triggered or discretionary, and how much work reaches a qualified broker?
Administration Lender forms, discharge requests, data corrections and statement queries What can support staff complete, and what requires escalation?
Technology CRM, telephony, document storage, cyber controls and aggregator platform charges Which costs are per user, per client, fixed or bundled with another arrangement?
Compliance and complaints Complaint register, monitoring files, audits, training and professional indemnity information What continuing work and specialist support will the buyer require?
Management overhead Rostering, quality checks, reporting and vendor management Is this work already absorbed by the buyer, or does capacity need to be added?

Avoid double counting. A platform fee deducted before net trail should not also appear as a new operating expense unless the buyer will genuinely incur a separate charge. Conversely, do not omit a cost because the seller performs the task personally or shares infrastructure with another business.

Request evidence about actual service demand

Obtain at least 12–24 months of operational data where available, covering a full annual cycle. Ask for monthly inbound and outbound contacts, tickets by reason, response and resolution times, open cases, complaints, reviews completed, refinances initiated, discharges, data corrections and lender escalations. Reconcile samples to CRM notes, emails and lender or aggregator records rather than accepting a presentation summary.

Segment the evidence by client, loan count, responsible broker, lender, loan age and contact reason. A thousand reachable borrowers with current records may create a different workload from a smaller base containing duplicates, deceased estates, missing authorities or unresolved complaints. Identify dormant clients separately, but do not assume dormant means costless: records still need appropriate controls, trail still needs reconciliation, and a future rate event can create a contact spike.

Interview the people doing the work. Ask what bypasses the CRM, accumulates during leave or hides inside “general administration”. Compare timesheets or calendars with the claimed staffing allocation.

Test capacity, not just wage expense

Convert demand into hours by activity and role. Then add realistic allowances for supervision, training, leave, quality assurance, meetings and peak periods. Compare required hours with capacity the buyer actually has after allowing for its existing clients.

ASIC’s current credit-licensing guidance says non-APRA-regulated credit licensees must have adequate financial, technological and human resources for authorised credit activities and supervisory arrangements; adequacy depends on the nature, scale and complexity of the business (ASIC RG 205). That regulatory concept is not a staffing formula, but it is a reason to resist a model that assumes the same team can absorb the acquisition without evidence.

Price each role at its full incremental cost, including employment on-costs, equipment, licences and management time where relevant. Keep one-off data cleaning, migration and backlog removal separate from steady-state servicing.

Include systems, privacy and complaint overhead

List every continuing or incremental system, including aggregator access, CRM, secure storage, telephony, e-signing, cyber protection and workflow tools. Confirm whether licences transfer, minimum seats apply and historic records remain accessible.

For an APP entity, OAIC guidance states that reasonable steps to protect personal information include technical and organisational measures. Its examples cover ICT and access security, third-party providers, training, policies and data-breach arrangements (OAIC APP 11 guidance). Whether and how the Privacy Act applies should be confirmed for the transaction, but secure handling should not be modelled as a free by-product of acquiring data.

Complaints also consume internal time and may involve external cost. ASIC states that credit licensees must have a dispute-resolution system comprising compliant internal procedures and AFCA membership, and that relevant licensees must record, respond to and report complaint data as required (ASIC credit dispute resolution). Review complaint frequency, age and complexity, then determine which entity will handle legacy and post-transfer matters under the sale documents.

Model three operating scenarios

Build a base case, a pressure case and a transition case rather than one annual number.

  • Base case: supported historic demand, adjusted for the buyer’s documented service standard and cost structure.
  • Pressure case: more client contact, refinancing enquiries, complaints or staff time than expected, with no assumed revenue upside unless separately supported.
  • Transition case: client communications, data repair, platform migration, handover meetings and early service backlog during the first months.

Hypothetical example: records show 220 service contacts a month. The buyer’s sampling indicates an average of 24 minutes of direct handling and eight minutes of follow-up, producing about 117 hours before supervision, leave and peak allowances. The model should allocate those hours to appropriate roles, then price them using the buyer’s real costs. The figures illustrate the method only; they are not an industry benchmark.

Recalculate contribution after reconciled net trail, deductions and servicing cost. Identify incremental costs, spare capacity supported by roster evidence, and thresholds for another software seat or staff hire.

Questions to resolve before agreeing price

  • What service level has been represented to clients, formally or by established practice?
  • Which work is essential to protect clients and transferred rights, and which is an optional retention strategy?
  • Does the seller’s reported profit include unpaid owner servicing time or shared staff and systems?
  • Can the buyer’s aggregator, licence and technology arrangements support the base on the assumed terms?
  • Who bears pre-completion complaints, errors and remediation costs?

Legal advisers should address responsibility, transfer terms and liabilities. Licensing and compliance specialists should assess the operating model. Accountants and valuation advisers should test cost classification and maintainable cash flow. The buyer must still decide whether the workload fits its people, systems and service promise.

Frequently asked questions

Is trail income passive income?

Not as an acquisition assumption. Some loans may need little contact, but the portfolio still requires administration, record controls and capacity for enquiries, complaints and reviews. Test evidence by cohort rather than labelling the book passive.

Can spare staff capacity be treated as no cost?

Only if capacity is demonstrated through peaks, leave and existing growth. Record the hours, skills and threshold at which another hire or system licence becomes necessary. Economic and immediate cash cost are not always identical.

Should refinancing work be included in the servicing budget?

Include the expected work. Keep any potential new upfront or future trail revenue separate unless conversion, timing and commission assumptions are independently supported. This avoids using uncertain upside to conceal a recurring service obligation.

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.