"How do you even get in the door?" I asked Peter Louderback. a bank consultant.
Top people at community banks feel they know their own operations. and they're confident they can work directly with vendors and data-processing outsourcers. And they certainly do not want to spend the $40,000 to $50,000 a bank consultant charges for an assignment.
Then how does a bank consultant get any community bank to listen, much less sign a contract for services?
I was sitting with Pete and his partner, Joseph Salsberry, whose Morristown, N.J.-based firm, CCI, earns its bread helping community banks upgrade their operations.
I have known Pete since his days as a peripatelic consultant for a Big Eight accounting firm, and I knew that Joe had had money years as a top official of a money-center bank. But I also knew that the hills are full of bankers turned consultants.
Good References Count
Pete and Joe answered that word of mouth is the best advertisement. Saving money for the first bank is the best way to get another assignment.
And they also stated what all consultants know: One great advantage to being a consultant instead of being on staff is that because people have paid you up front, they will listen to you and implement your suggestions in the hope of getting their money's worth.
But these consultants say a third factor also applies nowadays: Community bankers have been so absorbed with handling loan problems for the past five years that operations changes and needs have passed many of them by, Pete and Joe explained.
When asked what some of the areas where community bankers have fallen behind might be, Pete and Joe listed collecting maximum fee income and using systems that reduce the need for paper and provide more information while cutting costs dramatically.
"Look at escrow," Joe said. "We now have equipment that automatically determines who should pay taxes, that prepares a document for the locality, and that cuts one check to handle all the accounts in the bank.
"We also find that banks have should for valuable software - like central information files - that has not been used, because no one from the top went down into the bank and looked at what was happening."
Advice on Outsourcing
I was interested to learn that CCI recommends outsourcing of data-processing operations to gain cheaper and better service. "Some things are just too complex for the bank to handle itself, like Regulation DD - the Truthin-Savings annoyance" they explained.
"If you suggest outsourcing, who needs you?" I asked.
We know the vendors and can pinpoint their strengths and weaknesses.
"We negotiate with the service provider and sometimes cover our whole fee by what we save in the negotiation," I was told. "Contrary to what many community bankers think, outsourcing fees are negotiable."
Of course, as most consultants report, getting standardized policies for waiving fees and charging for exception items is one key to profitability.
Having bank employees learn who is a "good customer" versus who just has a large, churning unprofitable account is a key to helping out, as is working to coordinate the main office's desire for profit with the branch office's desire to give away the bank in marketing ventures.
How can a community banker tell who is a good consultant and who is a phony?
"Ask the applying consultants for solutions to tough problems off the tops of their heads, and ask questions where you already know the answer to see how they respond," was the advice.
"What if you find that the real operational problem lies with the rigidity or ignorance of the CEO rather than other procedures? Should you tell him?" I asked.
Pete's answer: "That type of CEO wouldn't hire us in the first place."
Too Hot to Handle
But both Pete and Joe hesitated when I asked if they should talk to senior management and the CEO about communications problems and getting the staff to know where the bank is headed - a major problem at many banks, both large and community sized.
"Unfortunately, that's not what we are hired for," Joe answered. "It might be resented."
"Where, then, can the CEO turn for such advice?"
Pete's reply: "The best person to suggest management changes is a smart wife."