Brendan O’Donnell

Brendan O’Donnell could not have asked for more of a baptism of fire when he took over the reigns of Choice from Michael Russell in June this year.

At the time of his appointment, brokers across the country, including the more than 1,300 who aggregate under Choice, were waking up to a new era of substantially reduced commissions, a contracting mortgage market and a virtually non-existent non-bank sector. The golden days were well and truly over.

But for the affable and easy-going Scots-born South African, he seems to have taken on the responsibility with a great deal of gusto and apparent calmness – with a clear vision to grow the business and usher brokers into a new era of professionalism.

Then again, as I discovered, O’Donnell is no stranger to taking on big, challenging roles – just don’t expect him to support the Wallabies.

High profile in Africa

O’Donnell grew up in Johannesburg, entering the financial services industry in 1982, where he completed an apprenticeship in South Africa’s branch network.

Roles at South African majors – Barclays and Standard Bank – saw him cut his teeth in the world of personal banking and marketing, which he says in those days was more about “the bottom line” than branding, with direct access to branch managers.

He was one of the youngest general managers at United Bank before being headhunted by the Amalgamated Banks of South Africa (ABSA) formed through the merger of United, and three other banking groups.

“Working at ABSA was a really good training environment,” O’Donnell recalls, as it was here that he got to understand banking, its processes and systems.

In 1996 O’Donnell headed abroad, spending two years in the US working for a consulting firm which looked at performance-based management systems for banks.

He was based in Salt Lake City but spent most of his time consulting with banks on the East Coast.

His American adventure came to an end when he was approached by ABSA’s head of marketing Santie Botha – a Gail Kelly type personality in South African banking – to return to the bank as contract project director for the merger of the four banks under the one ABSA brand (they had until this point traded independently).

The enormity of the role handed to O’Donnell – creating one brand from banks with nine million customers – a clear sign of the believe mentors like Botha had in his management and marketing abilities.

Not surprisingly, a role which was only meant to last nine months, ended up being a seven year stint at ABSA, with O’Donnell replacing Botha as marketing director in 2000, a job he held for two years.

Financial services and then Australia

Driven by a desire to work in a division of the bank that “makes money, not just spend it”, O’Donnell took up an offer to work in ABSA’s personal financial services division, which he ran for four years.

During this time he recruited and managed 350 financial planners, 500 personal banks, a couple of hundred back office support, “a big operation”, he says.

“That period was fantastic,” he recalls, “I really got into financial services and I got to understand financial planning and the psychology of a broker (as planners are called in South Africa).”

When UK bank Barclays bought ABSA in 2005, O’Donnell was asked to help with the integration process – he spent 18 months running its marketing operation, then took a short sabbatical and at the age of 41, decided it was time to leave South Africa.

He had opportunities to go work for a consulting firm in Toronto, or he could have gone to the UK (he holds a British passport), but as fate would have it, he got in touch with Greg Pennells, a friend and former school mate, who along with Ross Begley happened to be one of the founders of Choice.

Pennells convinced O’Donnell to meet him in Perth at time when Choice was in the process of acquiring Fintrack and Mortgage Find.

“Choice was moving away from family business and was beginning to ramp up…as were many other aggregators,” O’Donnell says.

There was also some familiar territory – both countries have a ‘four pillars’ banking rule, although he says Australian non-bank lenders were (at the time) far more competitive than in South Africa.

When he was told about such things as trail incomes and upfront payments he thought “this all looks to good to be true”.

“I did all the numbers, met up with (then CEO) Michael Russell and thought Australia is a great place to live with a similar lifestyle to South Africa – it was as much a family decision as well as career one,” O’Donnell says.

Despite 10 years experience in executive banking, he says it was quite a challenge coming to Australia, a new country where he had no network.

“It was a humbling experience – when you work in a big bank you forget to count the dollars and cents – but in a small business, you really appreciate what that is all about,” he says. “The things I was preaching, I had to put into practice.”

O’Donnell says he and Russell worked well together and “really got the shop into order – “Michael and I balanced each other.”

Things did not go exactly to plan though – O’Donnell headed back to South Africa for family reasons soon after Challenger bought Choice, where he spent the next six months.

It was during this time that O’Donnell got a tap on the shoulder from Challenger’s Brian Benari to take over after Russell stepped down, which is where he finds himself today.

Triple whammy

O’Donnell knew what to expect when he took the helm. “We anticipated the commission changes would happen – we were not surprised,” he says.

What was unfortunate though, he says is the triple hit brokers took – the cut in commission revenue accompanied by a pressure on funding and margin pressure through interest rate rises, which created a slowdown in market.

“That’s tough. If it was just revenue drop off, it’s not such a big issue – you work harder and smarter, however the perfect storm has come to bear.”

O’Donnell believes the next six to nine months will be crucial – no one can predict what will happen: “Hopefully we will see a stabilising of where the market is at in terms of rates, funding will become more available and more affordable and we will see a re-emergence of non-banks and mortgage managers.”

But he is concerned about the lack of competition in lending at the moment.

“From a brokers’ perspective – the challenge is that 93% of lending (if you take into account the St.George/Westpac merger) is being done by the major banks. This is not good for Australia and is not a good competitive space to be in.”

According to O’Donnell, it’s in the best interests of consumers and brokers that there are more players out there and he says one of his goals is to turn that situation around, and give some market share back to alternative lenders.

However, its not surprising given his banking background, the O’Donnell acknowledges that banks are a key stakeholder – without them there would not be a broking industry.

“So we are doing our best to understand the banks’ challenges.”

But he is very clear on his role – “I am here to champion broker channel and to work with key stakeholder including banks.”

While O’Donnell says he has a good understanding of banking psychology given his experiences in South Africa and the US, he says he was unhappy at the lack of communication that followed the initial announcements about commission cuts.

“With the third and fourth lender, there was a lot more engagement with aggregators, that resulted in some of the differentiation in pricing which I think is helping,” he says.

But he is in no doubt that it is a challenging time for brokers and he is urging them to tackle it by taking a long-term view: “I am using the phrase with brokers: ‘Don’t think for the next four months, think for the next four years.’”

“If you focus on just the next few months it will be doom and gloom. You need to look at…where do I want to be in two and four year’s time?”

According to O’Donnell, those brokers just looking at doing the next deal should not be in the game.

However, he is confident that broking is here to stay and disagrees with those that predict a 50% drop-off in numbers.

“I think that is completely overstated – I think probably ten to fifteen percent will disappear over the next while.”

“The truth is there are a number of part-timers. A lot of existing operators will find homes among existing brokers –they won’t leave, they will just consolidate. This is good from personal development and mentoring point of view.

“Maybe there’ll be 40% consolidation at broker level, but I don’t think they will leave,” he says.

Looking at it from the aggregator level, O’Donnell is adamant that significant consolidation will happen in this space, with those businesses like to be up for grabs being those that have gone from being a brokerage to an aggregator “more by default than design”.

“These businesses have scaled up enough to be an aggregator, but they’re not really one. I think we’ll come down to a maximum of ten aggregators – three or four national aggregators and a couple of boutique operators, that either have a strong franchising proposition or strong retail brand – we know who they are.”

Vision for the future

So how will O’Donnell lead Choice into this brave new world?

While admitting they’re all clichés he says he lives by things like “actions speak louder than words” and “talk is cheap”. For O’Donnell delivering on what you say you will deliver is absolutely crucial to success.

O’Donnell says when he joined Choice as sales and marketing head, he felt he had to justify his role: “Because I was new to the market, I was very vigilant around... if we’re going to take a cut from brokers’ commissions, we have earn it.”

“Saying to brokers: ’we have a panel of lenders, therefore you pay us’ is not good enough.”

O’Donnell is well aware that for most brokers it’s a lonely world out there and that most do not have the benefit of big bank training courses or the ability to keep abreast of management issues.

With this in mind, he believes it’s the role of Choice as the aggregator to bring the “corporate touch“ to its brokers through training and PD days – something O’Donnell claims Choice does as much if not more than others.

This focus on training ties into one of O’Donnell’s key goals over the next two years to “really increase the professionalism of brokers and make sure they really do service clients in the way they should”.

“The client is the one that is going to save this channel, not us,“ he says, pointing to the significant research out there showing that when ever a broker is compared to a bank on service levels - every time, the broker is stronger than the bank – “That’s a fact – you go to a branch, the service level there is really appalling.”

“Customers need to realise that without brokers we have a serious problem in this country,” he adds.

Margin management

The other key initiative is one he calls ’distribution margin management’.

“We are a distributor of mortgage manager products through the brokers to the customer. At the end of day as distributor, we have range of products on offer we have to start actively reviewing the margins, cashflow and profits we make as a result of what we sell.”

O’Donnell compares this approach to how retailer sell products on their shelf and says the playing field has gotten to a stage where because commission structures are no longer standardised and there are different hurdles to jump through, aggregators need to consider all those things

“Product at the end of the day is commoditised by and large,“ O’Donnell says, “Yes we must meet customers needs (if they want CBA, we must give them CBA) – but we also need to look at service levels, margins and commissions.”

Retail branding not a priority

While brokers are still able to take advantage of the Choice Home Loans brand under its franchise-style model, O’Donnell says the aim is not to build a retail brand like Aussie or Mortgage Choice.

Besides the significant investment required, he does not believe the franchise world is the one to operate in at the moment.

He says some brokers do go for the Choice Home Loans brand because it’s the “easy option” with everything already in place – but he says Choice’s biggest strength has been people opening their own independent businesses.

As the battle for broker talent continues to heat up, O’Donnell is adamant that how an aggregator treats its brokers will drive success.

“Where big aggregators will lose out, is if they become so big they lose it on the service levels – meaning a member becomes just a number.”

O’Donnell and his management team are very conscious of this: “We know that as we ramp up we have to service those guys appropriately,” he says.

However, he sees aggregators growing in importance: “The truth is that with volume targets, with legislation coming in, the role of the aggregator will be greater, not less.

“If you don’t have the ability to ramp up and scale up, you’re just not going to be able to service your brokers – that’s the reality.”

As for himself, O’Donnell is keeping himself very busy, putting in seven day weeks while he waits for his family to arrive at the end of the year.

“Work-life balance is important, but I guess in the current environment, there is more work than anything else.”

“There is a lot to do. There is going to be a lot of sacrifice over the next 18 months to get through this storm in one piece.”

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