My last newsletter focused on the fall of the commercial banking RM from something approaching the status of rock star (ten years or more ago) to today’s rules based functionary. The RM is now primarily a sales and customer service officer with limited knowledge of and impact on credit decisions. That change has occurred as more banks have placed increased power in the staff units (in particular credit and compliance) versus the previous lead role held by line units. Bankers who were once decision makers have to pass the buck to others, undermining their credibility with customers and often slowing down bank responsiveness.
I have had more reaction to this newsletter than any other of the past several years. Both bankers and consultants agreed that the RMs’ role had changed and not for the better. One commentator stressed that the loss of respect and prestige followed a change in the RM’s role. He noted: “One point that is missing in your column is the change in training, experience and focus of the new generation of bankers. A broad background in credit and sales training usually supported the prestige of the banker, years of experience and overall reputation in the community. Community Banks lived off of big bank training programs that provided a broad background in both credit and sales. Very few if any of these programs exist anymore as the banker position has more often than not been transitioned to a pure sales role.” Of course he is right; bankers who developed a great internal and customer reputation established it based on the knowledge and expertise they demonstrated every day.
Rigorous training played a critical role in creating a foundation for the banker. As a freshly minted MBA, when I arrived at Citibank decades ago I quickly began a training program that included six (excruciating) weeks of full-time accounting. That program, about nine months in all, included interning in several areas and a stint in writing up credit packages. As far as I know nothing like this program exists in the industry today. Yes, there are sales training programs, but that is about it.
Why did the change in the RM job from sales and credit to a primary focus on sales occur? To the best of my knowledge about 20 years ago First Union was the first big bank to change the RM model, in effect separating sales from credit and monitoring. Management’s motivation was largely productivity oriented, that is, generating more client revenues per banker. Like many other banks they had found that their RMs were focusing most of their time on non-sales activities and that the job itself had little consistency from banker to banker; some operated primarily as customer service officers, and others focused on credit. Selling activities often fell by the wayside. I have often quoted the words of one banker from that period who said “Selling is what I do after I do everything else.”
Given the change in job roles, it is fair for bank management to have gained increased sales and profitability per RM. However, most banks we work with complain that productivity has not increased and, in fact, has eroded as more administrative and compliance activities take over the RMs’ job. The RM does spend less time on credit. In many cases, by design the bankers are no longer credit-capable, having failed to receive the necessary training and with credit authority shifted to another group. However, the banker has become even more mired in administrative tasks. These tasks may be important to the regulators, but they are not important to the customer or the bankers’ ability to show value.
Was changing the RMs’ job a mistake? In retrospect, change was necessary, but the nature of the job change undercut the banker’s capabilities and value to the customer. In surveys we conducted years ago we found that 40 percent or more of the bankers’ time was spent on what can be broadly defined as administrative tasks. Another 25 plus percent involved a credit focus, leaving a minority of the time for sales. Rather than minimizing credit responsibility, banks should have redesigned the job to allow a focus on sales and what I call first-time credit. By that I mean that at a minimum the banker should be intimately involved in structuring, approving, pricing, and negotiating credits involving new customers. Customers want to deal with credit knowledgeable personnel, not order takers. Banks can distinguish themselves from competitors if they are able to highlight the credit knowledge and authority of their line bankers, contrasting themselves with the banks that have centralized decision making groups and RMs as credit eunuchs.
This may be a great idea but the practical challenges are many. First, most line bankers, whether at big banks or community players, lack the necessary credit skills. (During the recent downturn when some of their bankers had credit authority, many also lacked the necessary credit skills.) Banks need to rebuild the RM role and remake the RM as both salesperson and credit specialist. Obviously, this takes time and investment. Some centralized and independent credit group will likely continue to be required both to assuage regulators and avoid the sins of the past.
Bank management needs to bring together some of its best bankers and consider the RM model that will best work within their institution. But, they need to emphasize the customer’s needs and preferences rather than internal considerations. Customers want to work with knowledgeable persons who can help them obtain the financing or other products that they require to make their businesses more successful. The customer has been a big loser as a result of the organizational changes that have occurred at many banks. Banks that step up to reexamine their current approaches and redesign themselves from a customer perspective can differentiate themselves against most other players.