The slogan on a popular Tshirt reads, "You can talk the talk, but can you walk the walk?"
The slogan is a challenge to every playground basketball player to do more than talk a good game. You have to prove to everybody you can perform when the pressure is on.
Most banks today would do well if they heeded the words on that T-shirt in their approach to the affluent market.
Instead, too many banks are giving lip service to the success factors that a handful of forwardlooking banks (and hundreds of nonbanks) use to generate superior sales productivity.
As a result, banks have lost more than $12 billion a year in revenues from their own clients, according to Payment Systems Inc., a Tampa, Fla., marketresearch firm. This is fees earned by nonbanks on money invested by bank customers. In 1992 alone, more than a million affluent customers defected to nonbanks for investment services.
It's easy to see why banks are on the wrong end of these (hopefully) startling numbers: Nonbanks employ five times more sales people for the affluent market than banks do.
Specifically, there are 100,000 brokers not affiliated with banks selling investment services to the affluent, compared to 20,000 business development officers, or BDOs, who do this for banks' trust and private banking departments.
Nonbank brokers spend more than 40% of their day in sales efforts. Trust and private banking BDOs spend less than 15% of their day on this - or about five hours each week.
If banks are to compete for and win the affluent customer, market-sizing is crucial.
Market-sizing isn't some fancy market-research term. Instead, it means something basic - conservatively measuring your affluent market's population and their investable money.
Then it entails building and maintaining a sales force that's large enough and productive enough to bring this money to your bank.
To measure your market, first analyze your own affluent- customer base. Second, get a handle on the affluent households in your area that aren't your customers.
In your evaluation, take about 9% of your bank's retail household base and multiply that number by $5,000 per household. So if your bank has 1,000,000 customers, the initial calculation would give you 90,000 households.
Factor in the second part of the equation and you end up with $450 million.
Rock bottom, your retail customers are paying $450 million a year to your competitors. What can you expect to recapture? With an aggressive, motivated sales program, half would be a reasonable target. Over time, you might even be able to capture more.
Banks can sell. Look at the dramatic growth in banks providing mutual funds. Unfortunately, there are too few comparable success stories in the trust and private banking market, which has much more money-generating potential.
Why? Because too many banks continue to use the traditional, but outdated, incremental method of forecasting and budgeting.
With this approach, trust and private banking numbers always look good compared with the bank as a whole and therefore acceptable as a goal commitment to senior management.
After all, the affluent market is growing five times faster than the overall market (even faster for the top echelon of households - those with more than $1 million of assets).
That produces easy money. Also, trust groups have been steadily increasing fees for their substantially captive market.
So while a 10% to 15% incremental growth rate for trust and private banking looks good compared with the bank as a whole, it woefully undershoots the huge profit possibilities available.
A chief executive with foresight will appoint aggressive, strong leaders to manage a more ambitious sales effort. The chief executive will also provide clear, unwavering support.
A bank also has to commit enough human resources to compete. We're regularly met with disbelief when we recommend that a bank with 30 or 40 BDOs should instead field 100 or more. Nonbanks consider such additions routine.
Consider a major nonbank competitor in California. This firm employs more affluent-market BDOs in Los Angeles and Orange counties alone than all of the large California banks combined employ in the whole state.
When you consider that these nonbank armies are already spending at least three times as many hours proactively selling as bankers are - and that they are operating at an increasingly professional level - it's painfully obvious why banks are losing the war for the affluent.
A mature BDO should be able to generate at least 40 new accounts each year with an average investment account size of $800,000 and a fee of $8,000. A credit officer should handle 100 plus credit-driven accounts and accumulate these customers in two to three years.
You can use the same approach to estimate how many BDOs are needed to achieve non-bank customer household penetration.
However, in this case additional assumptions must be added for market-share goals as well as the substantially greater task of acquiring and developing totally new customers.
First and foremost, sales performance should be measured against market-size potential rather than the traditional, incremental this year-vs.-last-year technique.
Also monitor sales productivity, which is net interest income plus noninterest income per BDO. In the first year, this number should be about $250,000; after the third year it should exceed $350,000.
Additionally, you should evaluate how well your sales force employs these, l0 key success factors:
* An integrated, targeted strategy and market-sized organization.
* High-quality and demanding sales management.
* Productivity-driven compensation for referrals and sales.
* Client acquisition, development, and retention processes.
* Key client analysis and programs.
* Excellent products.
* Flexible credit.
* Technological support for client service and BDO efficiency.
Superior sales productivity and superior profitability go hand in hand in leading trust and private banking units, points out Michael Kostoff, director of the Washington-based Advisory Council.
The council's research shows that leading trust and private units manage 50% more revenue per officer than average trust and private banking units. This means not more but larger accounts.
Two more important factors to consider to form the most productive sales force: First, you may be able to limit the number of new hires you need by reengineering the responsibilities of the BDOs you currently employ. Second, increased sales productivity will substantially improve the bank's profit on its investment in the new and existing BDO staff.
To succeed, there also must be a strong, lasting commitment by the chief executive officer, because the effort requires total bank teamwork to succeed. Then, necessary changes must be made in existing and traditional practices; break the stereotypes and the paradigms.
Analyze the market and then master the 10 key success factors of sales productivity and your bank will be well on its way to, at last, generating millions of dollars in sales.
Mr. Palmer is managing director and Mr. Scheide is senior consultant of David Ross Palmer & Associates, a consultancy specializing in trust and private banking for the affluent.