Rx for Comatose Accounts

By Steve Klinkerman

The best way to deal with idle accounts is to look beyond them, to customer relationships.

Dormant accounts can pose a serious problem for a financial services provider, as underscored in recent research by Boston Consulting Group. Compared with an average 14% margin generated on investment accounts held by wealthy clients, for example, an account whose balance falls to half of the norm goes deeply underwater, to an estimated 29% negative return on revenues.

That's an extreme example, but it does speak to the high ongoing costs of maintaining accounts and relationships, and the risks involved in setting up facilities on speculation that clients eventually will use them to the extent needed to make them profitable. The exposure is growing, moreover, as depository institutions broaden their product sets and step up the emphasis on sales.

The best way to deal with idle accounts is to look beyond them, to customer relationships. On the front-end, for example, selling remains problematic at most financial institutions. Training inadequacies, fixations on short-term profits and skewed incentives can conspire to smother clients with unneeded products. While some executives view account relationships as an investment in the future, others are beginning to say that limiting the number of accounts is the best way to improve customer satisfaction and relationship economics in some market segments, most notably at the low end of the profitability scale.

Trying to define a customer relationship by what happens during the sales process is like trying to define a marriage by what happens during courtship — things tend to change, often dramatically. One implication is an ongoing need for client interaction and attentiveness. Systematic monitoring of account activity can yield valuable clues as to where people are going, says BCG, and a rich, ongoing customer dialogue is essential. But there's a fine line to be walked between the proactive and the intrusive.

The heart of the matter is spotting the full range of mutual opportunity between provider and client, and this requires knowledge of relationship economics. For example, McKinsey & Co. says efforts to optimize relationships with customers who are increasing their spending can be up to 10 times more valuable than efforts to prevent customer defection, and equally as valuable as efforts to curb account diminishment.

But what's going on inside clients' heads when they chart new directions? Understanding customers' attitudes, needs and (dis)satisfactions is essential in dealing with their changing behavior. Making the most of the opportunity, McKinsey adds, requires a series of steps that include targeting active clients, building emotional ties, increasing relationship "stickiness," fixing things that foster dissatisfaction and focusing on customers' emerging needs. This positions accounts as the offshoot of an actively-managed overall relationship, instead of the other way around.

Along with a proactive approach to the customer comes a need for internal discipline. For example, does the institution truly understand the fixed and variable expense characteristics of its products, and have these considerations been factored into marketing, sales and pricing strategies? Distribution and efficiency dynamics also must be considered, since these things directly affect convenience and pricing — and therefore customer usage.

These perspectives suggest that dormant accounts are but a symptom of a larger problem, which is institutional misalignment with customers. The tactical impulse is to compile a list of idle facilities and try to treat each situation. Behind each account is an individual customer in motion, however, and refining relationships is a much larger exercise.

Mr. Klinkerman is editor-in-chief of Banking Strategies.

Copyright © 2003 by Banking Strategies, published by BAI.

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