Tuesday, March 09, 2010

Is the bank sales culture gone wild?

A few weeks ago, a nice woman from Sovereign Bank called our home with news that, based on our relationship with the bank, we were pre-approved for a home equity loan. The problem… my wife and I don’t bank at Sovereign. They called for our twenty year old daughter who had a checking account with them. As far as I knew, our daughter had no home to borrow against.

I applaud Sovereign for being pro-active. I have often spoken of my fourteen years with my prior bank where I received no phone calls. Not one in fourteen years. At least my daughter’s bank reached out to their customer.

Sovereign’s approach is fairly typical today, in my experience. It is similar to retail department stores. We want customers to buy our wares. But unlike a coffee maker or a well-tailored suit, financial services are intangible and very personal. According to Bruce Clapp and Nick Vaglio, authors of Shift Happens: The New Age of Bank Marketing, “buyers of complex intangible services are buying specialized expertise.” The accompanying video SNL skit is a funny rendition of what might be the public’s perception of our industry’s expertise. With this in mind, is our approach to “sales” the right approach? Do customers pull our products from the shelf, like they are depicted in Progressive Insurance commercials?

I suggest they are not. Financial services are more complex today than ever before. Sovereign has dozens of personal and business products and services listed on their website, from the simple to the complex. The Investment Company Institute measures over 7,600 mutual funds (see link below). To the business person and consumer, this could be very confusing.

Look no further than the recent mortgage crisis, where many borrowers were sold mortgage loans they did not understand and could not pay long-term, especially in a down economy with declining real estate values. Mortgage brokers, private mortgage buyers (primarily large banks), investment banks, and Fannie/Freddie utilized the hot potato rule of investing: the last one holding the paper loses. This trading mentality versus an advisory mentality permeates our industry, although less so at community banks.

Can you recognize a trading mentality at your bank? I suspect if your branch personnel ask for a promotional rate to grow deposits or your lenders price loans aggressively to “get the deal done”, then you have the foundation of a trading mentality. Each transaction is a trade, and the customer attributes no value to your bank as opposed to a competitor.

Imagine how things would have been different if an advisory culture dominated the banking industry. Instead of borrowers going through mortgage brokers, they would seek their banker to discuss the size of mortgage they could afford. Perhaps with such an evaluation, the customer would have purchased an elegant yet affordable Cape Cod, instead of a McMansion, leaving excess cash in the bank and additional monthly cash flow to weather a recession. This customer would value the relationship with the banker, bring a greater percentage of their personal (and possibly business) financial business to the bank, and not be quick to abandon the bank for minor rate variations.

Terry Zink, EVP of Fifth Third Bancorp in a recent BAI Strategies article regarding traditional cross-sale balderdash (see link below), stated “we’re having a great deal of success in cross-selling savings products, because people realize they need to have a better savings base.” I say we should have been advising them of this all along, Terry.

What do you say?

- Jeff

Investment Company Institute January 2010 Trend Report

Making the Cross-Sale in Difficult Times (may require subscription)


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