In the race to inform customers about investments, bankers truly have the advantage, but they have not exploited it. Customers already have relationships with the bank and, more importantly, with bankers, whom they view as trusted advisers.
When I teach investments to referral populations, I always ask if they have any customers who want to work only with them. Almost universally the answer is yes.
I then ask how many customers' financial pictures they understand completely and intimately. The answer averages around 25.
When I ask how many of these 25 already have some kind of nonbank investments, the answer is "all of them."
But when I ask how many have been referred to the bank's investment representatives, almost universally the answer is three or four.
Why aren't the other 21 or 22 qualified leads referred to the bank's investment area?
These numbers add up. Assume a bank has 200 customer service representatives and personal bankers. If 22 leads per banker slip away, that's 4,400 systemwide. Imagine how that could affect a bank's alternative investment program.
Though most banks offer nontraditional investments, the majority are still late to the game of referring customers to them, or at least making customers aware that their bank offers them.
Leading-edge banks teach their bankers how to make customers aware of investment products in a proactive, professional, and productive manner- not as a last resort or in reaction to money leaving the bank. They provide employees with product knowledge and consultative skill training to identify a broad range of customer financial needs-beyond those of traditional bank products and services.
There are two common misconceptions banks have with regard to investment-referral initiatives.
Some bank managers contend that the less bankers know about alternative investments, the less compliance trouble they can get into.
Wrong. It's a matter of arming people with knowledge. If they understand compliance and the limits must observe when talking to customers, there should be few problems, if any.
Another misconception is that making investment referrals is not service-oriented. Some banks say they would rather provide high levels of service than sell anything.
Wrong again. Not informing customers about alternative investment solutions does them a great disservice.
And what will happen when these customers learn from some other provider? The bank might end up with a checking or savings account, and perhaps a small CD; the competition will get the lion's share of the fee income.