Do you pay referral fees?


Before starting my own business I worked for a number of different companies and each one had a common trend about them, which was the reason I eventually went out on my own…

They all required me to generate my own leads.

This still bugs me to this day in that I really think it is the business owner’s responsibility to be the rainmaker and for brokers within the organisation to be closers and loan writers as opposed to being expert marketers.

Too many mortgage broking businesses treat their employees much the same as real estate agents i.e. no base salary and only a profit share on upfront commission.

Now I know the subject to this email was referral fees so let me bring this around as I’m aware I’m in danger of getting off track! I have mentioned previously that the most important marketing tool a mortgage broker has and always will have is obtaining strategic referral relationships with other aligned business such as accountants, financial planners and solicitors.

Referral relationships form the backbone of a successful mortgage broking business and I always advise brokers I work with to have at least 5 tight referral relationship down pat before they explore other forms of marketing such as client retention strategies or social media marketing.

I recognised this even when I was an employee but every time I went back to my boss with a new opportunity they would either say taking on another referrer would cause an issue to the business’ core strategy or they didn’t want to pay referral fees.

In relation to referral fees, different brokers will have different thoughts on the matter. Some will say if you have to pay referral fees then the referrer doesn’t understand your true value proposition.

For me, when dealing with referrers I have found that some don’t want anything back from you and simply want you to do a good job for their clients. Others however want both you to do a good job and to also give them a bit of additional revenue as well.

For this reason I think it’s important that you are open to paying referral fees as it can make the difference between a potential referrer working with you or not.

How much is enough?

I have tried different arrangements over the years and it is a difficult balance to get right. If you talk to different brokers you will find that there is a large variance in what they pay their referrers. Some will pay a flat fee, some a share of upfront commission, others will share trail whilst some will pay a combination of both.

Personally I pay 15% of my upfront commission for loans <$1M and 25% for loans >$1M. I also don’t provide any split on trail commission. I have found this gives me the right balance of having enough of a financial incentive to make it worthwhile for the referrer but also not giving too much away that it starts to not be worthwhile from my own perspective.

Compliance requirements

If you do go down the track agreeing to pay a referral fee with someone there are a few compliance requirements you need to be aware of:

  1. Disclose the fee in your credit proposal. I’ve detailed in video 3 of my Client Closing Mastery video series that if you do a good job in your sales process you would have clearly demonstrated your value to your client so never shy away from informing them how much upfront and trail commission you stand to receive. Similarly, when it comes to paying a referral fee make sure you disclose this as well.
  2. Provide a referral agreement to your referrer. Your aggregator will most likely have a requirement that you provide your referrer with a referral agreement. This agreement should be readily available if you contact your aggregator.
  3. Keep an updated referral register. The other requirement you’ll find your aggregator will make you do is keep a register of all the referrers you have in place. Just like the agreement, your aggregator will be able to provide you with a register.

So there you go, my two cents worth on referral fees. Do you pay any yourself? If so how much? I’d be really interested to hear your thoughts.

Committed to your success,


Tim Russell