Broker-owner to broker-owners: Don't hold trailer fees hostage

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It’s wrongheaded and it has to stop, cautions one brokerage owner, calling on principal brokers across the country to abandon the practice of holding onto the trailer fees of departing agents.

“Retaining those trailer fees is like using a stick instead of a carrot to keep agents from leaving you,” Chad Robinson, of Verico Best Interest Mortgages in Ottawa, told MortgageBrokerNews.ca. “It’s a short-sighted approach that is doing nothing to encourage the maturation of the industry and to help protect the future revenue of mortgage professionals.”

The comment challenges status quo at most brokerages across the country, where principal brokers routinely hang onto all of the trailer fees earned by an agent once he or she leaves the firm. For the agents' part, many simply don't know about that particular clause in their contracts with brokerages, argued Robinson.

The practice effectively denies those agents years of residual income at the same time it encourages needless switching of clients in order to make back that money. Robinson is also concerned that it undermines retirement planning for those most commited to the industry.

Robinson is one of a growing number of broker-owners who have developed formal sharing agreements with departing agents that use funded volume numbers to determine exact splits.

They range from 50/50 to 85/15, and guarantee agents a minimum 50 per cent cut of those fee after leaving the brokerage.

Brokers have argued against that kind of arrangement, fearful it will encourage defections.

That just hasn’t been the case at Best Interest, said Robinson, pointing to his team of eight mortgage professionals and relatively high retention levels.

Ensuring agents have access to an uninterrupted cut of their trailer fees also promises to reduce mortgage fraud by fostering greater due diligence on their part, argues Robinson. But more than that, the sharing agreement just seems fair.

“My interpretation is if the agent hadn’t opted for that trailer fee in the first place, the brokerage wouldn’t have any of that income to draw on,” he told MortgageBrokerNews.ca. “And as for that stick, I think the relationship between agents and brokers should always be under constant review by both sides.”
 

  • John Heath - RMA on 2012-04-11 5:57:47 AM

    Hear, hear Ron De Silva!

  • Bob Woods on 2012-04-11 6:01:25 AM

    I share Bill's philosophy! Our agents also retain not only their Trailer Fees, but also access to past client data where ever possible. Similar to a number of independent Financial Planners. We need to strive to be professional in our approach as to how we handle our hiring and releasing of mtg agents and how a broker owner treats trailer fees is part of that process...

  • Chad on 2012-04-11 7:15:56 AM

    GTA Broker. That depends on many factors. If the agent goes to another firm then the fees must be paid to the new brokerage. If they retire there are a few options. One is that if the income justifies it they can stay licensed. If not a pv buyout. I am hoping that FSCO will look at these type of options and provide clearer regulations to help agents build value in their book of business.
    The message is clear. Read your contracts. I am always surprised to find out how few agents know they are in locked in contract with no access to their data if they move. AS in the financial planning world there are many different models it pays to shop around and make sure you have the model and philosophy. As in the “Rate Wars” it is not just about the lowest rate of highest split. There are many factors to look at.. 

  • Ontario AMP on 2012-04-11 7:22:57 AM

    As long as the terms and conditions are fully (and honestly) explained by brokerages to new hires the market will decide which brokers deserve agents and which ones do not. As for the comments above I recall when I worked as an agent for a brokerage in the past who when I had left had submitted deals under my name and when I inquired into those deals to which they falsely submitted
    wouldn't return an email or phone call....not to mention took all the clients I had serviced over the 2 years I worked with them... I think the reality is I would have been OK with them taking my books IF I WAS TOLD THAT THEY WOULD, But I was told the opposite....I think that is the true failure.. as brokerages we should spend as much effort and emphasis on disclosing the terms and conditions with new hires as we do with our clients...no??

  • Just passed my exam on 2012-04-11 11:42:21 AM

    Hello! Can someone kindly explain trailer fees to me? I just passed my exam and I'm looking for a brokerage. I want to make sure I have all my bases covered. Thank you!

  • Tim L. Walker on 2012-04-11 12:10:46 PM

    Ron - definitely one of the reasons I'm with RMA...

  • Cate on 2012-04-12 6:33:16 AM

    It's not "holding on to", it's "theft" in my books, no matter how the brokerage is set-up. I've had broker keep my book as well as all trailer fees & volume bonuses. Lawyer told me it was just too costly to do anything about it. There is much broker greed & lack of ethics.

  • Lisa on 2012-04-14 3:13:07 AM

    To TrailerFee Trash - Merix Financial recently put out a press release that they are paying over $5 million in trailer fees this year. The percentage of deals that they renew is as high as the other competitors and brokers are receiving the rewards of this as they receive compensation every year. The problem is when you pool volume under another person that does not share their trailers. It seems that Bill Nugent has a very fair system that other team leads show follow. Or outside of that, sign-up on your own! Knowing how Merix pays the trailers, they continue to get paid to you regardless of where you move.

  • Trailerfee Trash on 2012-04-14 4:27:14 AM

    Thanks Lisa. The issue that I have discovered, to be clear is that Merix does not offer the best rate available to the Borrower Client, who as Brokers we have a fiduciary responsibility to represent not Merix. Merix sends out a renewal letter 2-3 months before renewal date. A few months ago for example I had a renewal coming up with Merix (I was paid originally 5 years ago but never received a trailer fee) in 4 months time. Market Rates were fluctuating last fall and I called Merix to see if I could lock in rates 3 months prior to closing. Merix would not permit it. The renewal rate was the rate in their letter to "My" Borrower Client. I even asked them if I should take the Client to another lender. That is when they put me over to a retention agent. They still would not budge on the renewal rate. I ended up obtaining a commitment from another lender that was more Client focused and the Client left Merix.

  • Gord on 2012-04-14 8:31:48 AM

    Why is everyone worked up about the retention of trailers and no one seems to mind the long term handcuffs one particular Franchise seller places on their brokers.
    Frankly I think both are wrong. If you have the right environment, people will come if you have the wrong one people will leave. Putting bars on the windows - like holding their money or preventing them from earning a living is not the answer!! Now of course there's always a percentage of short sighted brokers out there that will go to the "highest bidder" regardless of the handcuffs.

  • AMP Broker on 2012-04-17 2:35:49 AM

    Right on Gord. 7 years is ridiculous and is really restrictive. Look at all those poor people that signed up for the pooling VB only to find that the lenders changed the goalposts. Now VB is available to individual brokers only, in many cases, and the trend is accelerating. The value proposition changes but the broker owner is locked into a huge expense that is no longer offset by the pooled VB structure. This is applies to most of the old aggregator models.

  • Ottawa Agent on 2012-04-11 4:46:51 AM

    It comes down to nothing but broker greed. On one hand the broker preaches professionalism and then the broker will rip off the agent because they chose to work elsewhere. If the current broker was doing a good job, the agent wouldn't leave. I am in a battle right now with my previous broker regarding the trailer fee's. I fully intend to take this to court if need be because it is over $10,000 a year in trailers. Plus I make sure every agent in Ottawa I talk to knows about how this broker operates. It has cost him numerous quality agents that have not wanted to work there becuase of his ripping agents off when they leave his agency for another agency. Hey brokers, agents talk and it will only come back to effect you in the end. Stupid business move holding onto trailers when an agent leaves.

  • Bill Nugent on 2012-04-11 4:51:31 AM

    One of the great things about the trailer fee it helps the industry to grow. If broker owners are not prepared to pass this on to the agents it will not take long for the lenders to take this away. It is part of there business plan on expanding ther loyalty from the agents. Our firm put it into our agreements with our agents from day one when we signed with DLC and will pass it along as we are legally able to.

  • Peter BC broker on 2012-04-11 4:59:29 AM

    I left Invis many years ago, some of the deals I set up with their white label "Industrial Alliance" were renewed, because the clients were not in a position to go elsewhere. I was told the trailer fees go back to the brokerage, so Invis was paid my full trailers and kept them.

  • Trailerfee Trash on 2012-04-11 5:10:31 AM

    I joined a major Canadian brokerage a few years back and part of the sales pitch by the franchisee to join was that you could build a book of recurring revenue for retirement funded on trailer fees and renewals. Sounded great. I was also promised under my contract that all of my trailer fees would follow me if I left the brokerage less my usual split. Also sounded great. Six(6) years later I left the company when I relocated to another city. I never received a trailer fee from the original broker after I left. I was told that none of the trailer fees where in my name. We were required to put all of the Merix and Macquarrie deals (Trailer lenders) through the brokerage's central underwriting which were submitted under the Principal Broker's name. I spoke with my lawyer and he said legally I did not have a leg to stand on. The language was clear legally. I had a case on an ethics issue but that could be a costly battle so I dropped it. However, through it all I have learned about the dirty side of the trailer business. In the last 3 years not one of my old trailer fee mortgages have been renewed. The trailer fee lenders I have learned almost always offer a renewal rate that is higher than the then current rate offered to brokers. I have seen spreads as high as 35 basis points higher on a variable and 50 basis points higher on fixed rate renewal. So their has been a silver lining in this cloud and targeting Borrower's specifically who have or have had mortgagee's offering trailer fee programs are a great source of business!

  • Ontario Broker on 2012-04-11 5:25:44 AM

    The fees legally belong to the brokerage, & must be paid to the brokerage, not the agent or broker. How the fee is divided, is between the brokerage & the agent/broker & it should be layed out in a written contract. If you want to take the trailer fees when you leave a brokerage, don't sign a contract that allows the brokerage to keep them. Its that simple. I would also look at any contract that you sign to be part of a "team". Could you be liable for actions/negligence/misdeeds of any of the other members of the "team"? Can the "team leader" keep your trailer fees? Strongly suggest you look before you leap to a new brokerage & have any contract reviewed by your lawyer before you sign it.

  • GTA Broker on 2012-04-11 5:39:46 AM

    Question for Chad. How are you paying those fees? Directly to the broker/agent? or to the the broker/agent's new brokerage? How can you pay a brokerage commission/trailer fee a)directly to someone who is registered at another brokerage? b) someone who is no longer registered as broker/agent?
    Aren't there some compliance issues here?

  • Ron De Silva - RMA on 2012-04-11 5:53:43 AM

    there are broker firms out there that in fact allow the trailer fees to folow the originating agent with only a processing fee deduction. Agents should take the time to do their due diligence when choosing a firm to work for....

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