New York banks took it on the chin a couple of months ago when The New York Times related that most banks visited by a reporter looked inept or uncaring when asked about investment products.
The article was based on walkins at a tiny sample of institutions in New York City, but I would have predicted the same result for any number of banks anywhere.
The irony is that the bankers fought for the right to offer investment products and are touting them with vigorous marketing campaigns. And yet they're letting live leads walk out the door.
Conflict of Interest
Consider the scenario of the newspaper's survey: A reporter walks into retail branches to inquire about investment products and gets the brush-off. The reason is simple: disintermediation. The retail side will lose deposits and cut its profitability if a retail account is tapped for the funds to be invested. The referring division damages its performance record while another division benefits.
The banks where this is occurring are those that are still structured in the traditional way, which means they foster a territorial philosophy. Each division's first concern is to protect its turf because senior management judges each division on the basis of how profitably it operates.
The banks with the most successful records in selling services of all kinds have adopted policies that include such concepts as shadow accounting and reciprocity.
Shadow accounting means that a division that gives up deposits to another division continues to get credit for those deposits.
Reciprocity means that if the investment specialists want access to retail customers, they must give the retail division access to investment customers.
These two devices are easily installed, and experience shows that cross-selling increases after they are implemented.
Bankers must also rethink the tradition of being product-driven if they want to compete in the investment-services arena.
A product-driven bank sets quotas for sales of specific products. To make a sale is the main objective, and the customer's best interest may not always be considered.
The thinking in the most successful banks today, though, is that the customer's best interest comes first. Experience shows that banks that have gone that route have seen revenues grow faster, for given time periods, than ever before.
So a change in thinking is not only the right thing to do, but it has also rewarded its adherents with more revenue, increased market share, upgraded customer relationships, and even increased cross-sales. These banks have what I call a customer-needs-based culture as opposed to a product-driven culture where a sale is the paramount objective.
The core of the customer-needs-based sales culture is an in-depth analysis of the financial needs of the bank's most profitable customers. Only after such an analysis can a banker be sure that customers are getting what's best for them.
The banks that have had the kind of results I mentioned have in common not only the needs-based culture, but also the philosophy that they can be all things to some people. These banks simply apply the old 20/80 rule. The 20% of your customers who provide 80% of your income are the ones to whom you want to be all things, including being the answer to their investment needs.
Segment that group and concentrate on it because it is critical to your ability to compete with brokers and mutual fund groups, which together control more than 85% of assets under management in the United States. Going after that 85% sounds formidable, but bankers do have some advantages.
First in the banks' favor is credibility. I know from studies that I personally made that bank trust departments felt hardly a ripple from clients after the October 1987 stock market debacle. Brokers, on the other hand, got harsh treatment. Many were driven from the business because investors lost faith in them.
Banks need make no investment in bricks and mortar; they have a ready-made distribution system in their branch networks. Finally, most investors know that brokers generate income by buying and selling, while banks are compensated for assets under management.
Bankers who want to offer investment products can do it successfully, but they have to choose: leave most of the investment business to the brokers and mutual funds or implement the kind of culture I have described.
Mr. Brown is president and co-chairman of Cohen Brown Management Group Inc., a Beverly Hills, Calif.-based consulting company specializing in development of sales culture.