As a mortgage broker, Consulting Agreements are a crucial part of your business relationships with and mortgage brokers or loan writers that work for your business. Whether you’re engaging a freelance broker or a loan writer, it’s important to understand the key elements of these contracts to protect your business, ensure compliance with industry regulations, and maintain long-term professional partnerships.
1. Scope of Work: Defining Roles and Responsibilities
The first and most important section in any broker consulting agreement is the scope of work. This outlines what services the broker or loan writer will provide and the expectations around those services.
Clearly defining the scope of work helps prevent misunderstandings down the road. For example, is the broker or loan writer expected to handle all aspects of the loan process, or are there specific stages that fall under your responsibilities as the business owner? Will you provide client management, compliance checks, or administrative support to the consultant?
Make sure the agreement reflects a detailed breakdown of tasks, timelines, and performance standards. This clarity will save you from potential conflicts later on.
2. Commission Structures: Setting Clear Payment Terms
A key part of any broker consulting agreement is the commission structure. Your commission model may be straightforward, but it’s vital that it’s clearly articulated in the contract.
This section should cover:
How commissions are calculated: Flat rates, percentage of the loan, or a combination of both?
When commissions are paid: Are they paid upon loan approval, settlement, or another milestone?
Who is paying the commissions: If the payment comes directly from the aggregator, this should be made clear in the agreement.
Clear payment terms ensure there are no delays or disputes, which can impact the health of your professional relationships.
3. Claw-back of Commission via the Aggregator: What You Need to Know
A major concern for brokers or loan writers is the possibility of commission claw-back. If a Borrower refinances or repays the loan early, aggregators or Lenders may reclaim a portion of the commission paid to the broker or loan writer.
Your agreement should outline the claw-back provisions in detail so that you are able to pass through any claw-back to the consultant. If your contract does not allow you to pass through the claw-back then there is a high chance you will be the one out of pocket and not the consultant.
Things to think about are:
How long the claw-back period lasts (commonly 12-18 months)
What percentage of the commission is subject to claw-back
Under what circumstances (e.g., early repayment, refinancing within a set period)
Claw-back provisions can have a significant impact on your income, so it’s crucial to fully understand and negotiate these terms.
4. Non-compete & Non-solicitation Clauses: Protecting Business Interests
Non-compete clauses are another important feature of broker consulting agreements. These clauses prevent the consultant from engaging in direct competition with your business during or after the agreement’s term.
While non-competes can safeguard your business relationships and client base, they need to be carefully crafted.
They should be:
Reasonable in scope: The geographic area and duration should be specific and justifiable.
Enforceable under local law: In some jurisdictions, overly restrictive non-competes may be struck down in court.
Non-solicitation clauses will prevent a consultant from taking any clients that they have formed relationships with during the agreement term. Depending on how protective you are of the clients of the business, will depend on how strict you want a non-solicitation drafted. So, these clauses take some thought and should be drafted to reflect how you operate your business.
By ensuring the non-compete and non-solicitation clauses are fair, you can protect your interests without risking legal disputes.
5. Compliance with ASIC: Staying on the Right Side of the Law
In Australia, the Australian Securities and Investments Commission (ASIC) regulates mortgage brokers or loan writer under the National Consumer Credit Protection Act. broker consulting agreements must comply with these regulations to avoid penalties.
Ensure that your agreement addresses compliance with all relevant ASIC requirements, including:
Licensing: Both you as the business owner and consultant must hold the necessary credit licenses or be authorised representatives.
Disclosure requirements: Make sure that all necessary financial disclosures are included in the contract.
Record-keeping: The agreement should specify who is responsible for maintaining records of credit activities.
Staying compliant with ASIC regulations protects your business from legal risks and strengthens your professional reputation.
Final Thoughts: Protect Your Business with a Well-Crafted Agreement
A solid broker consulting agreement is essential for avoiding disputes, protecting your commissions, and staying compliant with industry regulations. By carefully reviewing and negotiating the scope of work, commission structures, claw-back provisions, non-compete clauses, and ASIC Compliance, you can build stronger partnerships and ensure a smooth, successful working relationship.
If you need assistance drafting or reviewing a broker consulting agreement, feel free to reach out at hello@lawbydesign.com.au or (07) 3041 4063.
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