NAB’s executive hunt complicated by pay overhaul

NAB chief executive Ross McEwan.

National Australia Bank is in the throes of finding a new leader for its private bank and JBWere at a tricky time, given a looming shake-up of pay structures at the storied broker next year.

The abrupt exit of longstanding NAB private, JBWere and nabtrade boss Justin Greiner in September after a lengthy period of leave has the bank getting closer to filling that post. But the changeover will come with a number of challenges as NAB seeks to comply with a new standard on remuneration – CPS 511 – that comes into effect from the first bonus cycle after January 1.

That standard will potentially up-end the way JBWere pays financial advisers and stockbrokers as the firm will need to, among other things, give “material weight to non-financial measures” in its pay structures.

JBWere currently operates a grid pay model which typically rewards brokers and advisers with a higher share of commission if they write more income for the firm. The commission grid system is only used in Australia and the US.

It will be interesting to see how blue-blooded broking house JBWere, which was established in 1840, navigates the changes.

NAB chief executive Ross McEwan.

When asked about the changes and NAB’s commitment to JBWere by this column, the bank’s chief, Ross McEwan, said: “We are in the middle of a leadership change there at the moment and that leader will be put in there with a mandate to keep growing it as a core part of our business of private banking.

“Here in Australia, JBWere with our private bank and also with our ability in our markets business to deliver some product and service, I think, is a very good platform that we want to hold on to. It’s showing good success … It is a different model to what we have in banking but we’re comfortable with that.”

McEwan said he didn’t expect to see advisers leave if the pay model changed.

But that may be wishful thinking. When Macquarie Group scrapped grid commissions it led to a complete reshaping and exit of advisers from its private wealth operations.

Macquarie axed the commissions paid to stockbroking advisers in 2019, after flagging the change late in the previous year, making it the first firm locally to make a shift after issues were raised in David Murray’s Financial System Inquiry. Macquarie moved to a salary and profit share model for all advisers.

Former NAB private, JBWere and nabtrade boss Justin Greiner. Picture: Ryan Osland

Other firms have also looked to make the stockbroking and adviser model more sustainable, by reducing the amount of revenue that brokers can earn under some tiers of the commission grid. Under some grids, advisers were raking in about 50 per cent of the revenue and trading income they brought in or executed.

In 2016, JBWere made targeted cuts to its commission grid and introduced a performance bonus pool aimed at taking the sting out of the decision.

When Greiner exited NAB appointed Ivano Simonutti as the private wealth executive, from his position of leading the northern division, while it worked through a recruitment process. Former Commonwealth Bank operative Maria Lykouras has led JBWere since July.

The looming pay changes at JBWere come as it also conducts a remediation process relating to adviser service fees. The bank’s annual report noted that there remained potential for further costs and developments relating to JBWere’s remediation program. JBWere is also part of NAB’s broader wealth review for remediation to customers, but in large part that reflected the MLC business which has since been divested.

NAB’s results showed higher income at JBWere and cited an increase in funds under administration and underwriting activity.

 

Bonus watch

With reporting season at the big four banks wrapped up for another year, attention has turned to the bonus cycle.

This column understands non-financial metrics acted as a 7.5 per cent drag on the bonuses of NAB staff that met all their individual metrics. That means all bonuses were at least that percentage lower given the bank met 92.5 per cent of group performance indicators.

The shortfall reflected targets for NAB’s net promoter score – which measures how likely customers would be to recommend the bank – and colleague engagement score being only partially met. The financial metrics across return on total allocated equity, cash earnings, lending market share and internal controls were above target.

McEwan, to his credit, has focused on improving NAB’s flailing promoter scores and instilling more professionalism at the bank. That included a compulsory staff education program.

Culture focus

The results from the latest stocktake on banking culture are in. The prudential regulator polled a large cross-section of employees at the nation’s five largest banks and 13 other entities comprising a mix of regional banks, foreign bank subsidiaries and branches, mutual banks, credit unions and building societies.

The Australian Prudential Regulation Authority acknowledged banks had undertaken a lot of work to transform their governance and culture, but glaring deficiencies still remain in some areas.

The survey highlighted “potential blind spots” by executives in encouraging staff to continue to feel safe to speak up. It also found executives were overconfident with regard to their bank’s risk management capabilities.

“Three-quarters of executives believed that sufficient resources had been committed to improving risk management, while legal, risk and compliance employees were far less positive,” APRA said. “This observation serves as a reminder that the critical ‘voice of risk’ needs to continue to be heard and acted upon.”