A stampede of banks into mutual fund sales has raised the issue of cultural clash.
Investment brokers tend to be "gunslingers," accustomed to making cold calls and working on sales commissions. Most bank employees, on the other hand, are button-down types who abhor pressuring customers and play the game for a straight salary.
Which will make the best recruits for a bank's new mutual funds department?
Freelance reporter William Tucker talked with Brian Hays, a 20-year veteran of the investment world. Mr. Hays is now senior vice president and roving sales instructor for the Selbst Group, a sales training and consulting firm based in White Plains, N.Y.
Q.: What's the best place to look for recruits for a bank's mutual funds department?
HAYS: There are two principal sources. The first, of course, is to recruit people from the broker-dealers The second is to take bank employees who are up-and-coming people but may not have a securities background.
The trade-offs are what fascinate me. The people who come from the broker-dealer -- Bang! They're off and running. That's the plus for them.
The negative is that these people tend to be very independent. They just sit down and start dialing, without spending any time with the branch manager gaining his confidence. They tend not to get involved with the rest of the bank.
The internal employees, on the other hand -- they tend to be hesitant. They're not aggressive enough. It takes longer for them to become effective.
But once they reach that point, they're fabulous. They understand the bank culture. They know a lot of the people and gravitate toward working those relationships. The feed coming in from the bank's customer base is the one they tend to capitalize on.
Q.: A lot of people have talked about the cultural clash between the broker-dealer and the strait-laced banker. Where it comes out particularly is in the pay structure. How do you deal with that?
HAYS: Our feeling is that you can't use straight commissions. You have to foster cooperation.
In all those situations where we find people are just interested in pushing products, we say, "I'm sorry but we really don't want to be involved." Once people start focusing on that 90% commission dollar, a pollution process starts.
You need incentive payment for the people involved in the sales process, but you also need incentives to foster cooperation with the rest of the bank.
Q.: How do you do that?
HAYS: You've got to have some way to compensate people for referrals.
The levels of compensation don't often have to be as high as one might think. You can say, "Sales contest: Winner gets $100" or "Sales contest: Winner gets a new Walkman."
The Walkman is only worth $50, but surprisingly, you'll get more action with the second approach.
Q.: Won't trust departments say these investment programs are encroaching on their territory?
HAYS: That's part of the cultural clash. The trust department is saying, "We're seasoned professionals and these guys aren't." So it's a matter of defining the playing field and saying, "Here's the break point for each of you."
If the break is at $250,000, the mutual funds person is going to understand that if he tries to grab a $1 million or $2 million sale, the trust department isn't going to pass any more referrals on to him.
But if he starts saying to customers,
"I think you'd better have a conversation with our trust department," the trust department is going to start shooting accounts to him in return.
At some point, both parties are going to say, "This thing works," and it becomes self-sustaining. But don't get me wrong -- it takes a long time to get to that point.
Q.: You've talked about hiring salespeople. But what about the management?
HAYS: Basically, you've got the same choice. You're either going to go outside and find someone with sales experience, or go to another part of the bank for someone in customer relations.
You'll go through the same behavior changes, because the bank employees have a tendency to focus on the administrative side. They're not always self-starters.
You'll hear things like, "I've been here three months and I still can't get my phones to work right." But once they learn, they're terrific.
Q.: Does the bank have to have a salesman in every branch?
HAYS: No. Most salespeople operate in at least three or four different branches. They work by appointment. The thing you have to watch out for is when the salesman and the customer arrive and there's no place for them to sit down. You have to keep things professional.
Q.: People have said these mutual funds departments may get orphaned. Have you seen any indications of that?
HAYS: There are a few banks that are going about it half-heartedly. If you're going to do it tentatively, then don't do it at all. Because six months or three years down the road, the certificate of deposit rates aren't going to be 3% anymore. The spreads won't be there, and the whole program will languish.
You've got to create a marketing strategy that will carry this thing forward, even after this whole imperative of low CDs is gone.