In this episode of Elite Broker, N1 Holdings chief executive Ren Wong reveals how he successfully transformed his brokerage into an ASX-listed firm that offers consumers a holistic, one-stop shop for all their financial needs.
Tune in as he explains why diversification was the key to his success, how he generates consistent income throughout the business and how it has enabled him to pay his team a wage, as well as his advice for new-to-industry brokers on diversifying and adding to their service offering.
In this episode, find out:
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James Mitchell: Hello and welcome to Elite Broker. I'm your host, James Mitchell, editor of The Adviser, and we're joined once again by Annie Kane, deputy editor. How you doing Annie?
Annie Kane: I'm fine thanks James, how are you doing?
James Mitchell: I'm very good, thank you. We've got a Sydney-based broker in the studio with us today, Ren Wong from N1 Loans. How you doing, Ren?
Ren Wong: Good, thanks. How are you James? Hi Annie.
James Mitchell: Very good. I've been tracking the progress of N1 for quite a few years now, because you've been in our elite business writers ranking and in the top 25 brokerages as well. And I was wondering, for those listeners who might not be familiar with N1, tell us a little bit about how it started and how you've diversified the business now?
Ren Wong: We started back in late 2011 as a mortgage broker and just by myself back then, back in Chatswood. And then over the last couple of years, we have grown to become one stop shop. We like to call ourselves one stop shop because we are offering more than just mortgage broking. We are doing a lot of commercial and business loans. We are doing a lot of car loans and then financial planning as well. And then we have an accounting firm and then we run a real estate office off Chatswood and North Sydney as well.
So that's what we have been doing in the last couple of years. So we kind of diversifying to complementary businesses. The reason why we did that mainly because we want to be able to generate leads for our brokers as well. So when I say complimentary ... because the businesses that we run, they are helping each other. We have the lead so a lot of cross sale is happening between accountants, financial planners, brokers and real estate agents. As well as property managers because we manage about $8 million worth of rental per annum, and we have a team of four or three property managers. So that kind of help us to offer a more holistic approach to our clients, because we help them in every possible ways that we can. So it's a convenience for them as well.
Annie Kane: So it's sort of about creating stickier clients and having brokers...
Ren Wong: Stickiness to clients as well, yeah, that's right.
James Mitchell: Better retention.
Ren Wong: Better retention, yes.
Annie Kane: So you might have someone, for example who would come to N1 loans to get a mortgage and then if they have got a mortgage for an investment property, for example, you can help them with the property management side of things as well.
Ren Wong: That's right, yeah. Then we help them to launch their tax return as well, for investors, because we are an accountant as well and then we are financial planners to look after their protection. That's what we have been doing.
James Mitchell: In terms of the complimentary businesses, like the rental business for example, in terms of actually running a business and operating it and managing costs, does that work well in terms of cash flow?
Ren Wong: Yes it does, and the good thing with rental management ... or to have a portfolio of properties under management, is kind of similar to a loan book that you have, because in having a loan book we have consistent trial income every year. Having a portfolio of properties as I mentioned, we have consistent cash result from rental management revenue. So that's kind of similar to a loan book but the difference is rent is going up, but loan book, we pay off the balance so ... because on the balance of the loan. So that's the difference between them.
Annie Kane: Just touching their about the trail income, one of the things we have spoken to you in the past about is the fact that you have a pay as you go model rather than working ... brokers work on commission ... couldn't get that out then ... so yeah having a PAYG model, what was the decision process behind actually putting that in place, and how does that work?
Ren Wong: We started PAYG model back in 2013 I believe, a couple of years ago. The reason why we started that is because we love new brokers but then a lot of them couldn't sustain the dip and then the company N1 ... as N1 we managed to generate a lot of leads for our brokers through our own digital channels and other marketing channels, so in order to help them to be able to sustain and survive in the industry – you know, the first nine months you are not going to be able to get a lot of commissions – so we pay them a wage, and it's a decent wage I would say. It's not a low base with commission model. We pay them at least fifty to sixty grand a year plus superannuation and whenever they reach a hurdle, then we pay them bonus as well. And it's being reviewed every quarter.
Annie Kane: And do you find that that sort of creates enough pressure? I mean, some people might argue that the fact that you are working on commission, it keeps you hungry because you have to work that hard.
Ren Wong: Like I said, we have a quarterly review system in place, but then we never have such need to be able to review someone because of the performance, but then we ... in fact we have this unique advantage because everyone is on PAYG model so everyone works as a team so we can put a target on, as in how we're gonna help our clients because they don't have to be on the road as a sales hunting business. They are being measured on their customer service level and their ability to help the clients in other ways more than just mortgage broking 'cause that's one way for us to measure customer service. In a way, commercially, we say it's cross-selling but then from customers' perspective, we are helping them as well - giving them the convenience. And if you're a mortgage broker on PAYG model, you're not just looking after your own commission so you are working as a team that you need to help your client and then get your colleague to come in to join the conversation to help your client. That's why any client who walk into N1, he or she is talking to more than just one person in our company.
James Mitchell: And I guess in terms of a PAYG model and working as a team, I've always wondered about broking businesses because you get some and it's like a commission split ... pretty heavy commission split but obviously they're getting the leads. And then a broker gets a bit established a few years in the game. They're running their own ... lead their own referral business. They don't wanna be giving away their commission and they might leave that group. I've seen some growing businesses in the Sydney area who brokers have left because they wanna start out on their own thing. And you wonder about how sustainable ... It seems like the PAYG model is a bit ... much better for sustainability for one thing of the business. But also, in terms of equity, do your employees have a system in place to buy shares in the business. Obviously, you guys are listed on the stock exchange so do you think that would be part of encouraging that teamwork?
Ren Wong: We just issued close to a million worth of options to all our employees in N1 and then back to your idea on how the broker has generated a lot of business and then went out on their own. This is a common issue across the industry. We probably don't have that issue over here because ... and, frankly, we don't have superstar salesperson. We only have superstar customer service person. Which is why we're unique in this way. Which is why I love the PAYG model 'cause I don't need a superstar sales ... I just need some of Australia's superstar in helping my clients.
James Mitchell: In customer service.
Ren Wong: That's right.
James Mitchell: That's really good.
Annie Kane: So how much of the broker's role is actually bringing in leads? I mean, obviously, you're talking now that it's much more about customer service than it is about bringing in new clients. Is that done ... Does someone else do that?
Ren Wong: Mainly 50 per cent coming out from existing clients, but those existing clients ... in the first place, they came in through our marketing channel anyway 'cause we have mortgage comparison website in Chinese language and then we have also some different marketing channels. We have our social media channels and then recently we launched our own chat app, as in, we called it N1 Chat, which is just an app similar to WhatsApp or WeChat. Anyone can just download the app and then talk to any one of us from different categories of our businesses. They can just talk to property managers. They can talk to mortgage brokers. It's real-time communication. So that's one way for us to generate leads as well because we pass on a client to our brokers, brokers get a good job 'cause they don't have to hunt business. They just have to focus on their customer service. Then the assistant client would eventually refer business to the same broker, which is how over time we help them to have their own portfolio of clients as well.
Annie Kane: So it's more the company actually provides them with those leads.
Ren Wong: That's right. Yeah.
James Mitchell: You seem like a great example of one of these brokers, who's looking outside the square in terms of technology, the comparison stuff, the chat box ... you know, for things like this, which some people look at and they're like oh, you know, it's competing with us. But you're adopting into your business. I wanted to ask a little bit about ... Let's go back before you became a broker 'cause you've always struck me as an entrepreneur. A businessman who's come into broking and seen an opportunity rather than someone who's been in the banks for a long time and is a credit person. Tell us a little bit about what you were doing before you went to the mortgage space.
Ren Wong: Before I went to the mortgage space I was in the logistics business back in 2007. So I ran a logistics business and then two years later I was still running the logistics business. Then I saw an opportunity to run a packaging business and then I started a packaging business as well. Along the track and we also started removalist business and then we do printing as well because -
Annie Kane: Keeping yourself busy.
Ren Wong: Yeah, yeah. That's right. Yes. So I've been through a lot of different businesses. That's right. Yeah.
James Mitchell: Running a lot of businesses.
Annie Kane: Then why mortgage broking?
Ren Wong: Well, back in 2009, that's when the GFC hit. I was hit hard because I got to liquidate a lot of things. I have to sell all my properties. I have to sell all my businesses. So back in 2010, after 2009, 'cause I had to sell everything ... 2010 I had to take nine months off just to reconsider my options, which is why it took me some time to take the diploma, the Cert IV, and the mortgage broking, which is how I went to mortgage broking 'cause when I had my businesses between 2007 and 2010, that's a good living. I did some property investments so over the three years, I had four properties. So I talked to a lot of mortgage brokers, which is how I became aware of this industry. And then when I have to reconsider all my options from scratch, I find this industry as really valuable industry, as in value adding to clients and something that can start from scratch which doesn't require a lot of capital. That's how I became mortgage broker back in 2011.
Annie Kane: Although, having said that, we do hear from quite a lot of people saying that in the first year, you do need a little bit of capital behind you because you're not going to be writing leads. Did you find that was the case?
Ren Wong: No, because I started off as a business owner. I had my connections back since 2007. I have customer in the first month. I didn't get pay until two months later because of the lead cycle.
James Mitchell: That's really interesting.
Ren Wong: So I was lucky.
Annie Kane: Yeah. And then obviously, when you were saying that you use mortgage brokers for your own properties, that must have been a good experience if you actually wanted to go into that industry yourself.
Ren Wong: Yeah, yeah, yeah. Otherwise, I wouldn't want to be a mortgage broker.
Annie Kane: Did you touch base with them in order to get any hints or tips when you were starting out?
Ren Wong: No, I didn't to be honest.
James Mitchell: Did you see them as a competitor straight away?
Annie Kane: Shut the door.
Ren Wong: Nah, everyone was just too busy. Five years ago, the industry was booming. Everyone just got too busy to mentor anyone. It was hard to be honest in the first year 'cause no one taught me ... I remember I had $8.8 million worth of loans declined in the first 12 months.
James Mitchell: Wow.
Ren Wong: Yeah. I still remember that number.
Annie Kane: Disheartening. Wow, yeah.
Ren Wong: Yeah. It even declined the first 12 months, which is why I always thought we need to do more for new brokers 'cause I know how hard it is. I need to retain the talent, the customer service superstar in my company. I need to make sure there's a wide industry.
Annie Kane: Yeah. I do think that in terms of your loans getting declined because you said you weren't sure of the application process or was that because of the credit policy or ...
Ren Wong: I just don't understand the credit policy. No one taught me.
Annie Kane: So now do you have a, sort of, on boarding process when you have a new broker come in, do you try and...
Ren Wong: Oh, yeah. We have a training manager in-house to bring additions like new brokers on board.
Annie Kane: To act as a mentor.
Ren Wong: That's right. Yeah. Yeah. Solid structure.
James Mitchell: Fantastic. In the last five years, you've grown the business substantially. What's it looking like now in terms of how many staff have you got and what are the average settlements for going through the business.
Ren Wong: To be honest, I don't know how many staff we have.
Annie Kane: Too many.
Ren Wong: Not a lot. I would say maybe 35, but frankly I wasn't involved much in the day-to-day operations of the business, not even in the N1 loans, N1 realty as I was N1 migration and accounting so in terms of settlements, I just look at the numbers. The revenue number.
James Mitchell: Of course.
Annie Kane: What portion of the revenue comes from the mortgage side?
Ren Wong: The mortgage is including the trail income. I think it makes up 60 per cent of the group revenue at the moment, but I can see this as a declining trend. Doesn't mean we are not growing our mortgage. In fact, our brokers have increasing. It just means that we have other business entities which are growing faster than the mortgage business. We are lucky to be able to ... I mean, not lucky in a way that we have to model that we have to be able to retain 85 to 90 per cent of our trail income, which is a strong cash flow for us. And in terms of the rental management revenue, we retain 100 per cent of them 'cause we're not franchise model. We're not licencing model. Everyone in the business is on PAYG so we retain almost 100 per cent of the cash flow, which is good for us.
Annie Kane: Yeah, to keep the business together.
Ren Wong: Yeah, yeah. And then we can do a lot more things with a single objective as a team.
Annie Kane: Obviously, you talk a lot about the remuneration reviews that have been going on in the industry recently and we've been talking to different brokers who have different models so we know recently at the new broker academy, we spoke to Anthony Albakov, who was saying that he has an upfront phase so he will charge clients $395 just to do the paperwork because he's like, we wanna get rid of the tyre kickers but it takes a lot of time to do that so we just wanna make sure that people are committed to us and that they see us as a valuable model. Obviously, with you offering PAYG to your employees, but then there were other brokers who were saying it's about the commission and the upfront trail. That's how we want to work. Would you say that ... I mean, when you started, obviously, you didn't start off in the company where you're working for trail or for your upfront commission. Would you say that that PAYG model gave you more security and do you think that, maybe, more brokers will be moving towards that way in the face of all these reviews?
Ren Wong: I think it would be because people service for mortgage brokers. I just don't know whether that ever work because you can walk into a bank and get free advice. Why would you pay some ... Yes, we are highly experienced. We have brokers who have been in the industry for 20 years, but likewise, we have bankers who has worked in the industry for 25 years, giving free advice. So for us to be able to survive, go further in the industry PAYG model works because we have KPI that we need to be able to help our client be out of services as well, which is why we don't charge fee for mortgage clients. But then we are their accountants. We are their financial planners. We have other revenue of the same client with a single cost of client acquisition. On average, we pay 317 dollars for our client, yeah? That's how we measure cost of acquisition, but the revenue is much more than that. We don't just generate the revenue of mortgage broking. We have people want us to help them to manage their property. Apart from that, managing the property itself ... at least be able to sell their properties when it comes the time for them to liquidate their investment.
So that's another revenue down the track and then on a consistent basis, we do their tax return every year. We reveal their insurance every year so these are all sorts of different revenue ... We think in future maybe we don't want to call ourselves mortgage brokers. Maybe more as a finance brokers or financial advisor in a way that anything investment related or finance related we can help them because we have all sorts of different people who can help you. Not a mortgage broker who does your mortgage also manage your property. No one can do that. I don't believe anyone who can do more than one thing good because of our model, our PAYG model. We have colleagues who can help you as well.
Annie Kane: So while the clients aren't paying their fee for the brokers, they might be doing it for financial planning or for the accountant.
Ren Wong: That's right, yeah. That's right, yeah.
James Mitchell: So in terms of from a business metric, the return on the investment would be a lot more.
Ren Wong: A lot more, yeah. Because I don't have to spend more money on customer acquisition.
Annie Kane: I just want to ask a little bit about the comparison website that you launched. I'm sorry, I can't remember the name of it.
Ren Wong: ChengDai back in 2015.
Annie Kane: Yeah, and there must have been demand for it that you actually went about launching it. Is it for Chinese investors in China, investing in Australia, or is it for investors in Australia who speak Chinese?
Ren Wong: In fact, 100 per cent of the web traffic come from within Australia and you can’t access this website from China. A lot of people thought … it doesn't.
Annie Kane: So it's for Chinese investors in Australia?
Ren Wong: That's right. Yeah.
James Mitchell: I found just being in the media and being across the foreign investor chain and that sort of stuff that there's a lot of ... There can be some misconceptions about foreign investment. In terms of your business, how much would you say is from overseas investment? People outside of Australia as opposed to those living in Australia?
Ren Wong: Obviously, at the moment, it's zero per cent 'cause we don't lend to overseas people, but in terms of expat work overseas. It can be in UK; it can be in Scotland; it could be in Shanghai would make up maybe ten per cent of the mortgage business. And because all our marketing channels are locally based in Sydney and Melbourne, hence most of the businesses still come from local cities.
James Mitchell: Well, I think that's all we got time for. I might just ask you one final question and that is to do with new brokers. We recently had our New Broker Academy events in Melbourne and Sydney, which went really well.
Annie Kane: And coming up in Perth and Brisbane in October.
James Mitchell: That's right. And we're running it in Perth and Brisbane in October so let's talk about new brokers a little bit. In terms of giving your experience in the industry over the last five years or so and how you've grown your business and looking forward in terms of some of the challenges on the horizon, what advice would you give to new brokers?
Annie Kane: For all new brokers, I would suggest not to limit themself to just mortgage broking. Not just home loans 'cause commercial loans and car loans is a big business as well and, frankly, a lot of people probably not aware that car loans is a really simple business to be. It's good money, not as time consuming. So don't just limit yourself to just home loans.
James Mitchell: Good advice. Well, it was good to speak to you, Ren, as always.
Annie Kane: Thank you so much for coming in.
Ren Wong: Thanks, James. Thanks, Annie.
James Mitchell: And that's all we got time for this week, but do join us next time on Elite Broker and of course for all the latest news, insight, and analysis do check out theadviser.com.au. I've been your host, James Mitchell. Catch you next time.
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