When the time comes to exit your mortgage broking business, you will face a fundamental choice: take a lump sum payment for your client bank, or enter into an income share arrangement where you receive a percentage of ongoing income for a fixed term. Both options have genuine merits. Both have significant drawbacks. And the right answer depends on your personal circumstances.
How a lump sum sale works
In a lump sum sale, you agree a price for your client bank with a buyer, the money changes hands on completion, and the clients transfer. From that point, the income generated by those clients belongs entirely to the buyer. The appeal of a lump sum is obvious — it is certain. You know exactly what you are receiving and when.
The problems with a lump sum
The challenges with a lump sum sale affect almost every broker who goes through the process. The first problem is valuation — buyers and sellers almost always have very different views on what the book is worth. Many brokers find the final figure is significantly lower than expected, sometimes by 30 or 40 per cent.
The second problem is timing. A lump sum crystallises the value of your client bank at a single point in time. If the book performs well over the following five years, all of that upside belongs to the buyer. The third problem is that a large lump sum received in a single tax year may push you into a significantly higher tax bracket.
How an income share arrangement works
In an income share arrangement, you transfer your client bank to a trusted acquiring firm and agree that a percentage of income generated by those clients will be paid back to you for a fixed term — typically around five years. The income share percentage and the term are agreed upfront, in writing, before anything moves.
The advantages of income share
- Removes the valuation argument entirely. Rather than trying to agree on what the book is worth today, you agree on a percentage of whatever it actually generates.
- Aligns interests perfectly. The acquiring firm only earns income if it looks after your clients properly — which means your clients are in safe hands.
- You continue to benefit from the quality of relationships you built. If your clients are loyal and the book performs well, you earn more.
- Can be more tax-efficient. Income received over a number of years can potentially be managed more efficiently than a single lump sum.
The disadvantages of income share
Income share is not without risk. If client retention is lower than expected, your income will be lower than you hoped. It also requires genuine trust in the acquiring firm — you are relying on them to service your clients properly and honour the terms of the agreement over the full term.
The tax dimension
We are not tax advisers and nothing in this article constitutes tax advice. You should always take independent advice from a qualified accountant before making any decisions. As a general principle, trail income received over a number of years can often be managed more efficiently from a tax perspective than a large capital lump sum received in a single tax year.
Which option is right for you?
There is no single right answer. Ask yourself: do you need a lump sum immediately? How confident are you in your client relationships? How important is it that your clients are properly looked after after you retire?
At Broker Exit, we work exclusively on an income share basis because we genuinely believe it delivers better outcomes for most retiring directly authorised brokers. But we also understand it is not right for everyone, and we will always be honest with you. Get in touch for a confidential conversation.
