Executive Summary: Now, more than ever, the role of the relationship manager needs to be redefined. Extraneous and lower value activities should be exorcised from job responsibilities as soon as possible, replaced by a renewed emphasis on sales and true relationship management.
The relationship managers (RM) of 2011 and beyond have to operate distinctively differently from the commercial banker of the very recent past.
The recent past fails to meet future needs.
Until recently, many commercial bankers were told, either implicitly or explicitly, not to focus on loan sales or bringing in new clients. Instead, in many cases, these bankers acted as portfolio managers, reviewing loan portfolios to maximize repayments in light of the challenging economic environment. While these bankers usually possessed little or no credit authority, nonetheless, increasingly they were being held responsible for any deterioration in their portfolios.
In addition, the administrative burden jumped dramatically over the past few years. Multiple staff groups within the bank requested RM input. Accounting, Finance, as well as Risk Management, among others, all needed information of the RMs, asking them to provide input into reports and analyses they were producing. At the same time, product and market training decreased, replaced, in some cases, by training related to compliance and CYA topics.
The net result was a banker who was largely chained to his desk, internal rather than customer oriented.
Turning on a dime.
Now, the marching orders have suddenly changed. Bankers are now being told to spend more time in front of their customers and to build their relationships by cross-selling the bank. As critical as this is, multiple challenges stand in the way of bankers doing so:
* Many banks lack the support staffs necessary to allow them to shift administrative tasks from RMs to operationally knowledgeable staff.
* Many bankers have become administrators and need to significantly change their mind set to a marketing orientation.
* Bluntly, a sizeable percentage of RMs are incapable of being effective as sales persons.
* Even more fundamentally, many of the bankers have only a rudimentary understanding of products other than loan products, making cross-sell and solutions-based marketing impossible to pull off. To the extent they can sell, their emphasis is to be a “loan jockey.”
* Further, bank incentives remain chained to the past. For example, we frequently see caps on potential RM incentives, an approach that dampens the enthusiasm and productivity of the best sale people.
Years ago, Ed Morsman, then the credit chief of Norwest Bank Minnesota, commented about the tendency of banks to follow a pendulum approach to banking. At a certain point in the business cycle, the internal emphasis or pendulum swings to sales; within three-five years, it swings to an emphasis on risk management; then, back and forth, given economic changes. Very few banks avoid this type of semi-schizophrenic movement. If anything, during our most recent downturn, this shift to an inward emphasis became more pronounced than previously. This approach not only confuses and disheartens the customer but also discourages the best RMs.
Required changes.
If banks want their RMs to sell, the following are some of the steps they need to consider. These initiatives are all easy for me to recommend, but they require the commitment of senior bank management to evaluate and implement:
* Redefine the RM job to eliminate all nonessential administrative and credit related tasks.
* Establish an administrative assistance/parabanker group that assumes the majority of administrative and day-to-day customer-related tasks.
* Consider creating a portfolio manager (PM) function. The PM will take responsibility for the existing credit portfolio. Tasks include: annual reviews, additional credit extensions, management of covenants, etc. PM candidates are bankers who have shown good credit abilities but may not possess the skills or interest in being a sales person.
* Change compensation to incent for selling. Depending upon the bank, incentives may be geared to loan or deposit areas, among others.
* Establish team leaders as sales leaders, mentors, and real team leaders rather than as an administrative hurdle for bankers. Changing the role of the team leader is fundamental to reestablishing the bank as a sales organization.
* Require team leaders to lead an account planning process. This involves RM’s writing account plans, initially for their top 10-15 accounts. Those plans include determining priority sales opportunities for the next 12 months and listing the internal bank action steps required to win that business. That type of disciplined and consistent approach toward execution achieves impressive results.
* Train the banker in key product opportunities. We remain convinced that the level of product knowledge across the RM base is woefully inadequate.
* Introduce an RM evaluation program with three related aspects. First, banks need to ensure that they retain and reward their best performing bankers (10-25 percent of total RMs). Next, they need to construct and execute a development plan that highlights the performance/knowledge gaps of the majority (50-60 percent) of bankers. A significant number of bankers need training in the fundamentals: products and sales management are two key issues. Many banks are also finding that their bankers lack necessary accounting knowledge. The third group of bankers (10-20 percent) should be replaced or moved to a different function.
Of course, each of the above recommendations needs to be customized to an individual bank.
Banks following an approach like the above have the opportunity to dramatically increase selling time as well as the quality of the sales process. The goal is to put on the street a knowledgeable banker who can diagnose client opportunities and increase wallet share and profits.
Concluding thought.
Most banks need to find areas that offer sustainable growth. Certainly, Business Banking is one of those increasingly rare areas for most banks. This segment offers: good lending returns, multiple fee opportunities, and a tie in with the owner and employees for further revenues. Senior management needs to make sure it is actively removing barriers from the RMs’ and the bank’s success.