Trail book valuations built on evidenced run-off, not rules of thumb.

A trail book valuation determines the market value of a mortgage broker's recurring trail commission income — a decaying annuity that shrinks as loans refinance and discharge. Prismi values trail books using a discounted cash flow of net trail with an evidenced run-off rate, deducting clawback exposure on recently settled loans, for book sales, broker exits, restructures and CGT matters.

When a trail book needs a defensible value

Trail book valuations are required whenever the recurring commission stream changes hands or needs a number attached to it that will survive scrutiny: the sale or purchase of a book between brokers, retirement or exit from the industry, admission or exit of a partner or shareholder in a broking business, related-party transfers into a family trust or company, small business CGT concession claims on exit, family law property settlements, deceased estates, and lending secured against the trail itself. In each case the willing-but-not-anxious standard from Spencer v Commonwealth applies: what would an informed buyer actually pay for this stream of payments, knowing how fast it decays and what liabilities travel with it. The market value basis under IVS 104 and, for tax matters, the ATO's market valuation guidance frame the same question. A multiple quoted in a broker forum does not answer it.

A decaying annuity, not a flat multiple

A trail book is a decaying annuity. Trail commission is paid monthly on the outstanding balances of settled loans, generally net of offset balances, and the stream shrinks every month as borrowers refinance, discharge or pay down principal. The only methodology that prices that decay properly is a discounted cash flow of net trail commissions with an evidenced run-off rate. Run-off for seasoned Australian books typically falls between 12% and 20% per annum, but it is book-specific — driven by seasoning profile (loans in their first few years refinance hardest), borrower rate sensitivity, fixed-rate expiry clustering and lender cashback activity — and market-wide run-off ran well above the long-run range during the recent cashback-driven refinancing cycle. Flat multiples of annualised trail are the shorthand the market quotes, and a multiple is only ever the output of a DCF someone ran on a different book. Prismi derives the run-off rate from 24–36 months of the book's own trail statements, concludes at the most supportable position within the range, and presents the implied multiple as a cross-check, not a method.

Clawbacks come off the value, not into the footnotes

Every loan on the book settled within the last two years carries a contingent clawback liability. Most lender agreements claw back the full upfront commission if the loan is discharged within the first 12 months and around half of it in the second year, and since the mortgage broker remuneration reforms commenced on 1 January 2021, clawback periods cannot extend beyond two years from the credit contract and the cost cannot be passed to the consumer — the seller, or the buyer under the sale deed, wears it. A book heavy with recent settlements therefore carries a real, quantifiable exposure. The valuation schedules every loan under two years old, applies the lender-specific clawback terms and the book's evidenced discharge behaviour, and deducts the probability-weighted liability from the DCF result. Treating clawback as a warranty clause in the deed rather than a valuation input overstates the book — and it is the first adjustment a sceptical buyer's accountant will make.

Aggregator consent and lender concentration

Trail is paid by lenders to the aggregator and by the aggregator to the broker, so the book only transfers if the aggregator consents — and aggregator agreements differ materially on assignment rights, novation mechanics, transfer fees and whether the buyer must sit within the same aggregation group. That friction affects both value and deal structure: a book that can only be sold within one aggregator's membership faces a thinner buyer pool, and the aggregator's ongoing fee model — flat monthly fee versus percentage split of trail — changes the net cash flow the buyer actually receives, which is the cash flow the DCF discounts. Lender concentration compounds the risk. A book with a large share of balances at a single lender is exposed to that lender's commission terms, clawback policy and retention behaviour; concentration is analysed lender by lender and reflected in the discount rate or in scenario adjustments to the supportable range.

Selling the book versus selling the business

The distinction changes methodology. A pure trail book sale transfers the annuity and nothing else: DCF of the net trail stream, clawback deduction, settlement mechanics. A going-concern broking business also generates upfront commissions from new settlements — and upfront income only has value to a buyer if the referral relationships, brand, staff and lead flow that produce it transfer with the business. Prismi values the two streams separately: the trail book on a run-off DCF, and the upfront-generating operation on capitalised maintainable earnings with owner remuneration normalised to market. Buyers now apply a further screen: best interests duty file quality. Since the duty in s 158LA of the National Consumer Credit Protection Act commenced, buyer due diligence routinely samples client files against ASIC's Regulatory Guide 273 expectations, because a book built on poor files carries remediation and reputational risk that no multiple absorbs. File quality has become a pricing factor, and the working file records what was reviewed and how it informed the concluded position.

What the valuation file needs from you

• ·24–36 months of monthly aggregator trail statements or RCTIs
• ·A loan-level data tape: lender, settlement date, current balance net of offsets, rate type and fixed-rate expiry
• ·Clawback history and lender clawback schedules for loans settled within the last two years
• ·The aggregator agreement, including assignment, novation and transfer-fee clauses
• ·Upfront commission history and referral-source breakdown, for going-concern engagements
• ·Any prior appraisals, sale offers or aggregator marketplace listings
• ·A sample of client files where buyer due diligence on best interests duty compliance is anticipated

Which engagement tier fits

A straightforward pure book sale between arm's-length brokers who need an independent benchmark is typically served by the Essential tier from $1,495 + GST (10–14 business days). Most trail book work — related-party transfers, partnership changes and CGT-adjacent matters where the position may later be reviewed — sits in the Comprehensive tier from $3,995 + GST (15–25 business days), which documents the run-off derivation, clawback schedule and aggregator analysis in full. Where the valuation must withstand challenge — family law, disputes between principals, a concession claim with ATO review exposure, or a multi-entity broking group — the Defensible Valuation File from $8,995 + GST (25–35 business days) is the appropriate scope, and the Valuation Range & Scenario Review suits principals weighing a sale now against holding the book and banking the run-off. Retrospective valuations at historical dates attract a $495 surcharge per date; additional entities are $750 each. Every report is prepared under APES 225, senior-reviewer signed, with the working file retained for 10 years. Fees are fixed at engagement and never contingent on the concluded value.