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The chief executive of the major bank has flagged that if commission clawback was removed, upfront commission would have to reduce.
Ross McEwan, the CEO of National Australia Bank (NAB), has told a broker audience that while the major bank is still reviewing its clawback policy, any wishes to remove the structure as a whole would likely mean that upfronts would have to reduce, given the economics.
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Speaking at the LMG Growth Summit on the Gold Coast on Wednesday (29 November), Mr McEwan explained that while “there is some money to be made out of writing mortgages”, it all forms part of the economic pie.
“There’s a pie that contracts and expands over a period of time. And one of the pieces of that economic pie is where you spend your time and money putting [mortgages] on the books (and I spend a lot of time and money putting it on books),” Mr McEwan said.
“We pay a commission load on that and we’ve all spent money. And if you don’t have a clawback on it, you’re going to have to take some less on the upfront because the pie doesn’t get any bigger. It actually gets smaller over time with the margins get contracted.
“So, you’ve just got to think about it as there only being one pie and how we divvy the thing up.
“The more you mess around with [clawback] – or think: ‘I don’t like clawback’ – well, just think: ‘Where does the money come from?’ And that’s the piece we just need to get our minds on. And that’s the thing that Adam [Brown, NAB executive, broker distribution] and the team will work through.
“You can’t just keep taking it out of one bucket and expect somebody to keep putting the money up. So it’s the way I think about it.”
Indeed, the major bank CEO continued to explain that two of the most important (and scarce) aspects of banking were liquidity and capital.
“If I don’t make a return on a mortgage, I have plenty of other places I can put my money on behalf of shareholders,” he said.
“So, overall, we’ve got to make sure it’s economic for you [brokers] and for us…
“We are in this together. And we have to make sure that we’re all making money out of this thing because, otherwise, I think the lenders will just decide that [they’ll] put it into something else.”
When asked about channel conflict and how the bank balances that, Mr McEwan noted that more than 71 per cent of mortgages are written by the third-party channel.
“The customer will always make the call; whether they want to go through a broker, whether they want to go through proprietary channel, or do it themselves and do it digitally. They will make their own call. But the vast majority, at a home loan level, want a broker. We see that. Our view is to be invested in that channel…,” Mr McEwan said.
“I’d like to think we have a very good relationship with the broker community because we value it. We don’t see you as competing with us … you need somebody to manufacture the product and then somebody to distribute it – which is you. It’s symbiotic; we work well together.
“So, I think this is a really good relationship and is why we’re investing money in,” citing the Simple Home Loans and updated broker tech and systems as one aspect of its investment in the broker channel.
“When you look at your net promoter score … it’s 98! Our corporate bank is at 84. And we were high diving all over the place because of that.
“If you’re at 98, what the hell are you worried about channel conflict for? You’ve got an inferiority complex!”
Reflecting on the PCF sale
While speaking to LMG executive chairman Sam White at the LMG Growth Summit, Mr McEwan also reflected on NAB’s sale of former aggregation groups PLAN Australia, FAST, and Choice Aggregation to LMG.
Speaking candidly at the conference, Mr McEwan remembered that the major bank’s bandwidth was “only so long and wide” and “it was a big call” to sell them.
“The bandwidth of a business is only so long and wide and you’ve got to make some calls on where you put it. And I assessed we needed to put it into the manufacturing because we were struggling. We were too slow on getting approvals through the system, we were too slow on the back end, we were too slow on settlements … now we are the number one player on settlements in the marketplace. So, we had to put our money in the areas that were going to make the most different for us,” Mr McEwan said.
However, he said he was “delighted” that they had found “the right home” with LMG.
“You were going to do a better job with PLAN, Choice, and FAST than we could ever had gone because of the other things we have to invest in. So, well done,” he told the executive chairman.
“We trusted you, mate, And a big thank you for looking after them.”
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