Today, trust and private banking bears a dangerous resemblance to the U.S. auto industry of the 1980s.

A decade ago, America's Big Three automakers were on the edge of bankruptcy because they committed three big mistakes:

1. They underestimated the intelligence and savvy of their consumers.

2. They forgot that customers' needs are paramount.

3. They thought that their competitors' growing success was a fluke.

Today, banks are committing those same three mistakes in their approach to trust and private banking. As a result, they're losing millions of dollars a year as well as the trust and loyalty of affluent consumers.

In 1994 alone, U.S. banks' share of the "upper affluent" market - households with more than $1 million in investable assets - dropped by one- third, from 34% to 23%, according to PSI, a Tampa research firm.

At the same time, full-service brokers alone increased their share from 31% to 38%. That's a shift of billions of dollars.

Banks are clearly not just competing with each other for customers, according to research by the Washington-based Advisory Board Co. On the super-high end, they're competing with investment counselors and boutiques. On the high end, it's brokers. And on the low end, competition comes from discount brokerages.

And let's talk about the market that is at stake.

Each upper-affluent home is worth, conservatively, 22 times more income for a bank than its best retail households. And the upper-affluent market (households with more than $ 1 million of investable net worth, excluding homes, or more than $300,000 of annual income) is increasing about 15 times faster than the overall U.S. population, according to PSI. Its number now stands at 4.1 million.

The affluent market - households with more than $500,000 of investable net worth - is also increasing very rapidly.

Now is the time for banks to act decisively. They must completely overhaul how their private banking units approach, service, and respond to the rapidly growing and changing affluent market.

If your bank is serious about beating the nonbanks, here are some of the steps that must be taken to transform it into a competitive, sales-oriented organization.

An integrated, targeted strategy that combines trust, private banking, and investment management.

Your bank's private banking efforts should be spent focusing bankwide, rather than just on one unit. Internal turf barriers between credit, loan, retail, and other departments must be eliminated. Your best referrals are inside your bank.

They need to be tapped before you try to shift your focus to the much harder task of taking other firms' clients away. Amazingly, many product- driven banks still have separate trust, lending, and investment management functions.

Creating an integrated strategy means having officers that understand the person's total financial picture.

Do a better job training the sales force.

Support for training must start from the top. Then the sales managers must be an integral part of the process. They should be educated to appreciate and understand how to reinforce the behaviors that are first taught in the classroom.

Spend more time courting and keeping clients.

The average private banker spends just 10% to 15% of his time in proactive business development, compared with nonbank competitors, who devote 40% to 60% or more of their time developing and gaining new business.

Give support to the sales force.

High-quality sales management means fighting to get more support staff, better technology, better products, more products, more private bankers - and 101 other things.

Provide productivity-driven compensation for referrals and sales.

As it stands now, to progress in stature and income, most bankers must get promoted into management and away from their customers. Brokers, on the other hand, have no cap on income and get constant recognition for professional performance. Performance-based compensation attracts risk takers, produces increased effort, and keeps effective people not only in the bank but in their most productive positions within the bank.

Improve the effort to target your strongest customers.

To succeed in private banking, your bank must identify its top customers. Go down the list, starting with your top accounts, adding up the revenues you go, until you reach 80%.

The clients listed at that point, as a rule, will equal about 20% of the bank's clients. You have identified your bank's key customers.

Provide technological support for the sales force.

Access to promotional interest rate and investment performance data as well as materials commonly used for sales presentations should be available on a laptop computer.

All support should be designed to keep the private banker in front of the client or prospect with effective tools.

Mr. Palmer is managing director and Mr. Scheide senior consultant with David Ross Palmer Consultants, New York.

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