Most banks see huge potential in selling investment products. With investors pouring billions of dollars every year into mutual funds, it's no wonder that banks are trying to tap into the market.
How successfully they're doing it, however, is the question.
One of the key problems they face is their general inability to effectively identify and position investment opportunities to existing customers. Bank employees often lack general - or even basic - investment product knowledge, so they have no way of knowing how investments can benefit their customers.
I recently taught a class of personal bankers from a bank that had been offering investment services for more than seven years. One banker was particularly enthusiastic. A week earlier a customer with $750,000 in certificates of deposit asked him if it was possible to purchase mutual funds through the bank.
This loyal customer stated that he would definitely keep his funds in the bank if the banker could provide him with some mutual fund expertise. Incredibly, the banker told the client that the bank didn't sell mutual funds, closed the customer's accounts, and had a check made payable to Merrill Lynch.
Why did the banker do this? Simple. The bank offers mutual funds, but the banker wasn't comfortable discussing them. To save face in front of the customer, who assumed the banker was a financial expert, the banker took the easy way out.
The only antidote to the poison of embarrassment is knowledge. This banker didn't have it.
Here is another scenario I observed on a recent consulting assignment.
CUSTOMER: This guy has been calling me about mutual funds. He says they can give me a much higher return than with CDs. (For the last five years this customer has had over $200,000 in the bank's CDs.)
BANKER: CDs are insured through the FDIC. Our new rate on a one-year CD is 5.8%.
CUSTOMER: Does the bank have anything like mutual funds that might offer higher returns?
BANKER: Our two-year CD pays 6.1%.
CUSTOMER: I think I'm going to put a little bit in this mutual fund he's recommending, just to give it a try. Take $25,000 out of my CDs and roll over the rest. Just make the check out to A.G. Edwards.
BANKER: We offer mutual funds right here in the bank! Would you like to talk with someone from the investment area about it?
There were various problems with this customer/banker interaction.
First, the banker failed to recognize early customer cues before finally attempting to make a referral. This diminished the banker's credibility as a financial professional. Customers look to their banker for expertise in personal financial matters.
Second, the bank could have helped the customer get better returns but failed to inform him of the options. Bankers need to intelligently and professionally inform customers of all the available investment options, both bank and nonbank.
