by Mark Faircloth

I witnessed two totally separate views of relationship building at last week’s Virginia School of Bank Management, an excellent three-year curriculum for rising bank managers run by the Virginia Bankers Association.  The first was reminiscent of Che Guevara; the second was close to Gordon Gekko, played by Michael Douglas in the 1987 movie “Wall Street.”  Both were wrong — partially.  Both contained glimmers of truth.  The question is: which one represents your bankers and managers?

 “Poder al Consumidor!”

In the second-year negotiations class, we were discussing developing a scale of options to prepare for a client meeting, ranging from most to least advantageous.  The question from more than one banker was, “If you have already developed a better deal for the client, why not go ahead and offer it?”  Whoa, I thought. What about leaving money on the table plus the problem of repeated expectations in future encounters?  A good discussion followed, both in the classroom and in that afternoon’s faculty meeting, which was attended by several bank CEOs.  An interesting observation from the top of one of these organizations, “We have plenty of bankers who are advocates for the customer; but we need them also to be advocates for the bank.”

 “Greed is Good”

At a client meeting later in the week, a commercial manager explained his philosophy, “I want my people to keep selling products until the customer says, ‘Ouch!’”  Whoa again!  I found myself flinching just hearing his words.  He went on to talk about his bank’s needs for deposits and his direction to present depository services to every client, at every opportunity “because you never know when your presentation may strike a nerve.”  Images of Gekko at the Bluestar Airlines shareholders meeting: cock-sure, poised, committed.  His direct reports around the table stared straight ahead.

Reversing the question from earlier in the week, I wondered, who is advocating for the client?

Guevara or Gekko?  Neither!

Many banks can seem bi-polar when it comes to relationship building, swinging wildly between “we really care about your life” and “if it moves, let’s charge for it.”  It’s easy in a skills training class to focus on truly understanding the needs of the customer; after all, that’s what lies at the heart of relationship building. 

But it’s also easy to forget to understand the needs of the bank: to make a reasonable profit from providing service to the public.  The best approach is not the easiest (or shortest) path.  It lies in communicating four concepts to your team:

#1 — Understand your institution’s needs.  You work for an income-producing organization, so don’t forget to charge adequately for your services — whether they are in the form of products or advice.  As a salesperson I admire once advised me, “If you give something away, it becomes worthless.”

#2 — Know your customer.  Not all at once (this isn’t Speed Dating), but over time, get a clear understanding of your best clients’ background and goals.  In a twist to the manager’s comments above, in every conversation, learn something new about your clients.  This knowledge can help you better understand the correct solutions to present to them.

#3 — Do no harm.  Always do what is in the best combined interest of the client and your institution.  Recommending a product or service that helps you, but not the client, will almost always come back to haunt you.  Find where your company’s business needs and what is best for your clients overlap; that’s where you will succeed.

#4 — Add value.  Product benefits and competitive prices are nice, but loyalty is built on relationships.  The best recipe for adding value?  See Item #2 above.

 

QUESTION OF THE DAY

What advice would you give to the manager who wants his team to present deposit products to every customer, in every encounter?

Let me hear from you. 

Thanks!

by Dr. Jerry Crigger

Recently, I was at the beach on the panhandle of Florida.  The area there is called the “Emerald Coast” because the water is an emerald green and very clear.  Because it is so clear, water life such as small “minnow-like” fish that tend to swim near the shore can be seen when they come in to feed very late in the afternoon.  As with all of nature, when one species gathers for any reason, other species who survive off of the first group tend to gather as well.   So it was one very windy late afternoon when I was walking off a day of lounging in the sun and surf.

 

That afternoon, the wind was consistently blowing in the 20-mile-per-hour range (I learned from the evening news later that day).  As I was strolling along the edge of the water, I noticed a small cluster of birds hovering 15 feet or so above a small pool of water formed by the tides and shifting sands.  Most everyone who has been to the beach has seen this type of bird.  We used to call them “sandpipers.”  I am not sure if that is the correct name; however, that is the name by which I always knew them. These small birds are brownish in color, with some white mixed in.  They have legs of three or four inches that are too long for their body mass.  They also have a very sleek, pointed beak that is somewhat long for their head size.  I have normally observed them scurrying along the beach on their too-long legs, never very afraid of the tourists who are walking in close proximity to their daily rituals.  (I have never been sure who is actually observing whom in that instance.)

 

That particular day and time, the birds were not scurrying along, but were airborne, hovering over a small pond. They would periodically fold their wings close to their bodies and dive into the pond to capture a small fish.  I stopped to observe their “fishing,” as the birds had to struggle to maintain a hovering position given the fierceness of the afternoon wind.  To maintain that position while they scouted out the fish in the pond and waited until just the right moment to dive, each bird would have to turn into the wind and struggle to maintain aloft with just the right angle of wings relative to the summer breeze.

 

I decided to pick out one bird and watch its technique for maintaining altitude, “supper” selection of fish, and capture technique.  The sandpiper I chose appeared to have good technique, but missed on the first try, unlike many of his fishing buddies.  He immediately returned aloft, turned his head into the wind, and tried again.  He must either have had bad eyesight or incredibly poor timing, as he missed over and over and over again.  The remarkable thing to me was that, while he continually missed, he never delayed rising into the air again to continue to fish.  Finally, after perhaps 20 attempts, he captured one fish, rose into the air, and triumphantly flew away to savor his dinner. 

 

As I left the beach that late afternoon, I thought of how often we are unlike the bird that kept fighting the wind and other elements to succeed.  We oftentimes settle for “I tried” rather than “I overcame.”  The bird understood that giving up was not an option, as it meant going hungry, losing strength, becoming an even less effective hunter, and ultimately perishing.  We too often believe that a good effort expended entitles us to rewards.  From time to time, it is good to be reminded that the livelihood of our organizations — the customer — only becomes a customer by actually “accomplishing” our goal of winning their business against outside competition.

by Mark Faircloth

OK, the title is actually a reverse of the first sentence in Dickens’ A Tale of Two Cities, but it seems more appropriate in this order today.  I’ve been in the financial services industry since 1978 and in my opinion this is the first time we’ve had a crisis of confidence this deep, both from the markets we serve, and frankly, from within our own ranks.

 

Banks are failing, not struggling and then being acquired, but failing.  Clients are complaining (see the July 28 article in the New York Times: “Worried Banks Sharply Reduce Business Loans“).  Our industry has become a partial focus (not in a good way) in the run-up to the presidential election.  Local economies are directly or indirectly affected by the housing/credit crisis, and banks are listed by name among the culprits. Earnings and stock prices are down.  Seems like low tide in the banking industry. 

 

Or is it?

A Matter of Control

 

A few years ago, I mentioned to a broker friend that my bank was achieving record profits.  “Who isn’t?” he replied.  He went on to comment that the economy at that time was a rising tide that “floats everything higher.”  Rising collateral (i.e. real estate) values; stable, cheap credit; low unemployment; and other favorable factors created an environment of success for banks.  Fast forward to now:  The environment has changed, and the financial performance of our industry is suffering.  So, the question is, “How can financial institutions succeed in a variety of economic conditions?”  (We need to answer this, or otherwise admit that we have no control over our successes or failures.) 

 

As I see it, the place to begin is by building (or rebuilding) credibility.  This came to me in talking to Greg Cronin, a friend and long-time holding company banker, who has gathered a group of investors and experienced financial professionals to form Charter Bank on the Gulf Coast of Mississippi, where I live.  “That we are starting a bank in this environment is a testament to our belief that customers will bank with people they trust.  If we build and maintain that trust, the results will follow.”  Here’s my take on credibility:

 

Credibility Comes in Three Flavors

 

Industry Strength

 

“Alldepositsinsuredupto$100,000perdepositorbytheFDICanagencyofthefederalgovernment” is a phrase we say, or print, so often that the words seem to run together.  Until recently, we haven’t had to think about the impact of safeguards on our customers.  Overall, our industry remains well-capitalized and well-run. However, the successful banks aren’t the ones in the news.  Failures, spectacular in terms of size, rate of decline and absurdity, serve to make even customers of sound institutions nervous about their funds.  I watched a senior manager in Houston last week repeatedly take calls from clients who were moving massive amounts of funds to other institutions “just to spread it around and stay safe” under the FDIC limits.

 

Some things to look for in your organization:

1. Do our bankers understand FDIC coverage and can they explain it accurately to our customers?
2. Are our bankers confident in our explanations of the solid state of our industry?
3. Do we know how to respond to customer doubt (best expressed in transfers of funds)?

 

Bottom line:  Our industry is sound, but is being watched for signs of weakness, even by casual consumers.

 

Institutional Reputation

 

In Fareed Zakaria’s excellent book, The Post-American World, he speaks of the successes of countries and companies which can react quickly to changing economic and political environments to create success.  Many financial institutions have been creative in entering new markets and creating new sources of profit.  These entrées come with two potential problems:

1. Do they stay in too long and get burned if conditions change? (Think current mortgage crisis.)
2. Do they frequently enter and exit, thus causing doubts in their customers’ minds about their commitment to a segment?

 

The key to creating institutional trust lies in thinking long term.  Try asking and answering these questions as you look at current or future market opportunities:

1. Is it honorable? (which is a higher standard than merely “legal”)
2. Is it presently profitable?
3. What is the long-term viability of this market?
4. What effect will success in this area create throughout the rest of my organization?
5. What will happen if we fail?  (Do we have a “Plan B?”)

 

Remember that the search for profits (including bank mergers) should always involve a clear-headed balancing of risk and reward.

 

Individual Integrity

 

Dr. Edmond Seifried, Professor of Economics at Lafayette College, once told me, “Little things people do tell you big things about them.”  How true, you may think, as you observe the actions of others.  The supervisor who never has praise for her employees.  The banker who is always trying to sell the most lucrative product, no matter what the client’s need may be.  The driver with the Christian “fish” symbol on his bumper who cut you off in traffic.  But what do you see when you look at yourself?  Just as we judge others, fairly or unfairly, by their actions (no matter how brief or incomplete our observation may be), so too are we under the microscope of the people around us.

 

We’ve all heard the phrase, “People bank with people, not with banks,” and it is never more appropriate than in today’s fluid economic times.  

 

In addition to the questions raised in the previous section, here are some additional ones to consider in your dealings with clients and co-workers:

1. Do I truly understand the needs of the other person?
2. Is my idea/solution the one that I truly believe is best for them (not me)?
3. If it were my money (or my career, reputation, etc.), is this the decision I would make?

 

Increasingly at Omega Performance, we are seeing the “culture of one” emerge as clients form relationships with individuals that they trust, and then follow those individuals from one institution to another.  My conclusion?  Individual integrity is more important to our clients than the institutional or industry factors mentioned above.

 

Clients are looking for stability in our in industry, in our institutions and - especially - in our individual actions.

 

I would like to hear from you:

1. Which credibility factor is most critical, in your opinion?
2. Why don’t customers have more trust in their bankers?
3. What can we do as managers do to increase customer confidence?

by Dr. Jerry Crigger

 

In my world, I find myself on many different airlines going to many different cities.  Recently, I was headed home from a city in the Northeast.  As is customary, when the flight attendant closes the forward door, an announcement is made to all passengers asking that all “seat-backs and tray tables are returned to their upright and locked position” and that all “electronic devices are turned off and stowed.”  Also, as is normally customary, the flight attendant will suggest that we “sit back and relax” and “enjoy our flight” to our destination.

 

On this particular day, after the seat-back, tray tables, and electronic devices requirement were announced, our flight attendant told everyone, “Sit back and relax, or sit up and be nervous.  Either way, this flight is going to Nashville.”  As expected, the comment received light laughter and we pushed away from the gate on our way to a beautiful, smooth flight through a cloudless sky. 

 

On returning home, I told my wife of the comment, thinking it both interesting and humorous.  The more I thought about it, however, the more I realized how relevant the concept is to our current credit environment.  Clearly, the public markets are currently very nervous about the near-term future of the financial institutions markets.  As an industry we are facing challenges that have not been experienced in the same combination in history. 

 

For example, we have very low interest rates, which should encourage interest-sensitive sector borrowing.  On the other hand, we are experiencing significant drags on the economy in the housing sector, combined with extraordinarily low consumer confidence readings, increasing unemployment levels, and inflationary fears.  To top those external variables off, the financial services industry is currently “sitting up nervously” as write-offs are reported on a regular basis by many of the country’s largest financial institutions.  We are seeing significant weakness in, as we all know, housing.  First mortgages are clearly affected, and many institutions are facing the reality that if the first mortgage is troubled, there may not be any realizable equity in the home equity credit lines extended.  Additionally, rising credit card past due rates and defaults are emerging, as well as automobile loan past due rates and defaults.

 

When the consumer sector is troubled, the commercial sector also suffers, as is well known.  However, financial institutions faced with increasing losses have essentially two choices: sit up and be nervous and try to “ride out” the storm; or proactively decide how to manage through the environment.  In the final analysis, financial institutions that are not capital-impaired due to losses must be prepared to emerge at the earliest possible opportunity from the current, troubled credit environment. This requires early and aggressive collection activity around current portfolios to minimize losses.  Also required are two additional, critical processes: 1) focused and unrelenting business development efforts to maintain all viable relationships (and thus market share), and harvest all prudent, new opportunities, and 2) a firm commitment to prudent underwriting standards.  The combination of aggressive problem asset management along with a positive market approach will provide a combination of loss minimization and revenue maximization during this difficult period.

 

As an industry, we should not expect profitability during these times to equal that of expansionary economic cycles.  However, we cannot give up by assuming that “something really bad is going to happen” (i.e. sitting up and being nervous).  By accepting the current environment for what it is-a difficult but transitory phase-we can assume a positive position by taking the correct steps to manage through the phase.  Through careful process management, we can create a positive assumption that our industry will work through the phase with the least disruption possible.  We cannot “sit back and relax” in the literal sense.  However, if the proper approach is taken to this environment, we can firmly believe that the financial services sector is not falling from the sky.  Thus, in a figurative sense, we can “sit back and relax” knowing that we are proactively managing all that is within our control.

 

by Mark Faircloth

I serve on the faculty at the Graduate School of Banking at Louisiana State University.  This three-year program provides an excellent hands-on education for rising managers, as well as serving as a catalyst environment for discussions about what is/isn’t working in the banking industry.

I worked this year with Ed Francis, head of commercial banking at Hancock Bank, a $6 billion institution with a presence in Mississippi, Louisiana, Florida, and Alabama. We delivered a course entitled: “Creating an Advisory Culture.”  This senior elective focused on the strategic and practical actions which need to be taken for banks to be successful in today’s commercial and small business markets.  It was attended by 120 mid-level and senior managers of banks mostly in the $500 million to $5 billion range in assets. 

As part of the preparation, we invited attendees to participate in a survey on various aspects of their own sales and management practices.  Topics covered:

• Goal-setting, results/activity measurement, and incentive programs
• Profitability measurement
• Differentiation of banks in the marketplace
• Effectiveness of CRM, MCIF, and other support tools
• Sales management activities

The input received was valuable and intriguing to me in two particular areas-incentive systems and sales meetings.  Here are my observations.  How do they compare to what’s going on at your institution?

Sales Incentive Systems:  Are You Getting Your Money’s Worth?

 As the two graphs indicate, over 50% of the students said that their institution had some form of incentive structure in place.  However, 37% said their system was not effective and another 26% said that it was neither good nor bad.  That’s 63% of the audience saying that their bank is not getting a good return on its investment in this area.  

 

In class, several of the more senior students mentioned that there was a feeling that just having a program (i.e. Quantity) constituted a sales culture.  However, these same managers talked about frustration on the part of management-that bankers were earning incentives for business which was not benefiting the bank, and that their bankers were frustrated with various aspects of the program (i.e. Quality). 

The conclusion?  Just having an incentive program is not enough; frankly, ill-designed incentive structures can do much more harm than good.

Based on Omega’s input from surveys and industry data, plus our experience with a variety of institutions, here’s my list of considerations when designing (or reassessing) your program:

• Base rewards on what is important to the bank’s balance sheet
• Reward long-term, relationship-based growth
• Structure the incentive on what the employee can control
• Create simple rules
• Pay promptly

Sales Meetings: Are You Wasting Your Employees’ Time?

Similar to the incentive responses, over 50% of the students said that their institution held sales meetings, but 45% said these meetings were not effective (with 20% entering a neutral response).  Interestingly, managers thought that meetings they conducted were effective while meetings they attended were boring.  Think about this: getting employees together in the same place at the same time is one of the most expensive uses of the bank’s money-these meetings better be good!   

 

Based on Omega’s experience with some top- (and not-so-top-) performing institutions, here are some thoughts about making sales meetings more productive.  How do these ideas match your thoughts?

 

•  Keep the focus on sales 
• Start on time, finish early
• Only include topics that can’t be covered by other means (no reading memos to your team and then asking “what questions do you have?”)
• Involve everyone
• Praise individual and team performance
• Focus on future activities, not just target goals

Quantity and Quality

Quantitative steps are important, as they establish a base and show a level of commitment.  Qualitative actions build on this base and add true value to your institution’s sales culture.   Here are two examples:

 

Quantity	Quality
Set loan growth goals	-Assess market for potential growth-Set size/credit standards for target accounts-Work with RMs to determine feasibility -Break down goals into specific activities     1.  loan growth     2.  # and $ of new loans needed     3.  # of applications required     4.  # of contacts to obtain applications     5.  plan for generating contacts - Begin contact and monitor results
Establish incentive system	-Determine ROI for bank-Assess attractiveness for RMs-Put qualitative checks (i.e. credit quality standards) in place -Get feedback from focus group of key stakeholders -(If possible) run several test scenarios to find and work out bugs in system -Finalize and begin

In short, any quantitative plan should contain qualitative ingredients.  A good way to check the effectiveness of these two and other activities is to assess progress over time.  Do your numbers go up?  Do the right activities increase?  (Do you know what the right activities are for your organization?)  Do you see a difference in people’s behavior? 

Do the right things in the right way and you will achieve the right results.