Beyond the Handshake: Structuring Legally Compliant Referral Agreements
Strategic Insight: Referral networks account for a massive 70% of broker business. Yet, many brokers rely on informal "handshake" deals that expose them to compliance risks and payment disputes. This guide shifts you from casual arrangements to legally robust, systematized partnerships.
As a mortgage broker, your network is your engine. But in today's regulatory climate, an informal agreement isn't just unprofessional—it's a liability. From Regulation 9AB(6) disclosures to Australian Privacy Principles (APPs), the "old way" of doing business is changing.
The Referral Reality
Why formalize? Because it's where the majority of your volume lives.
1. The Compliance Gap
Strategic justification starts with compliance. Failure to properly disclose remuneration can lead to consumer complaints and regulatory scrutiny. The risks fall into three main buckets:
- Regulatory Scrutiny: Hidden commissions breach conflict of interest laws.
- Data Privacy: Sharing client details without a framework violates APPs.
- Revenue Leakage: "Handshake" deals often lead to unpaid referrals.
2. Mandatory Disclosure Language
To ensure compliance with Regulation 9AB(6), you must advise the client of any financial benefit the referrer receives. This isn't optional.
"Before we proceed, I want to let you know that [Referrer Name] may receive a financial benefit from us for introducing you.
This benefit is [Select: a one-time payment of $X / a percentage of our upfront commission].
Please note, you are not required to use our services as a result of this referral, and this arrangement does not impact the cost of your loan."
3. The Formal Agreement Blueprint
A robust agreement protects both parties. Ensure your written contracts include these three essential pillars:
A. Defining "Successful Referral"
Don't leave this ambiguous. Does "successful" mean a lead submitted, a conditional approval, or a settled loan? We recommend defining it as Settlement to align costs with revenue.
B. Payment & Clawbacks
Clearly specify the payment timing (e.g., "14 days post-settlement") and include a Clawback Clause. If the bank claws back your commission within 12-18 months, your referrer should refund their portion.
C. Privacy & Data Handling
Your agreement must require the Referrer to obtain express consent from the client before passing their details to you, satisfying Australian Privacy Principles.
4. Systematizing the Network
Once the legalities are sorted, focus on efficiency. High-performing brokers don't manage referrals via text message.
- Referral Portals: Use a simple form (Jotform, Typeform) for partners to submit leads securely.
- CRM Automation: Tag leads by "Source" in your CRM to track conversion rates per partner.
- Feedback Loops: Automate an email back to the partner when a loan settles.
Ready to Professionalize?
Moving beyond the handshake builds trust with your partners and protects your license. Review your top 5 referral partners this week and get a formal agreement in place.
Download Agreement Template