Be clear on clawbacks

Geoff Bawden

A recent complaint to dispute resolution service FSCL, in which a client complained about a $2,500 clawback fee, underlines the ongoing friction between advisers and clients on the topic.

A man received the $2,500 bill as he had refinanced his loan within 24 months, with the original lender clawing back its commission from the broker.

FSCL said the adviser in question was entitled to a fee, but sided with the complainant, as the broker's terms of engagement were deemed to be too vague. 

While clawbacks are a vital tool to compensate advisers when clients change course, top advisers say the industry needs to be clear on the scope and size of potential fees. 

Q Group's Geoff Bawden supports clawbacks, "The banks are very aggressive in exercising their clawback provisions and the adviser can sometimes find themselves out of pocket having done a significant amount of work."

He said: "Either way it is all about written agreement and disclosure. Any fee needs to be discussed, agreed to and be mandated in writing in advance."

Hamish Patel of Mortgages Online said, "Passing on some of the clawback to the client can be ok, as long as it is clearly disclosed to the client upfront." He said his business caps the cost at $2,000, and only if the company is charged a clawback.

He said: "It would be unfair to pass on the full amount of the clawbacks to most clients as, in a way, we are not paid for the time spent on that particular client, but rather the cost of running a business which is only paid on success of procurement."