Linking private and business banking
One way for banks to increase banker productivity and per-customer profitability is to better link their commercial and private banking/ wealth management efforts. Serving both the commercial and personal wealth requirements of a business not only builds revenue but also increases account stickiness and improves client retention.
Only after starting my own business did I realize how intimately linked are the business and personal financial requirements of a small business. Since then, I have often used the phrase “two pockets of the same pair of pants” to indicate how money flows between a small business and its owner. However, most bankers don’t seem to understand this fundamental fact of small business life or they just bemoan the difficulty of achieving internal cooperation between siloed units.
In my experience, here are the principal reasons that banks either ignore or just pay lip service to the opportunity to link commercial banking and private banking/ wealth management:
Working within a siloed organization takes precedence over the customer opportunity. Depending upon the bank, Private Banking, Small Business, and Middle Market banking will report on a straight line basis to two or three different managers, each with his/her own P&L. While top management may encourage cooperation between groups, the people running those groups typically receive more of their incentive based on their specific unit’s performance. Even if a bank’s culture drives employees to sell as much as appropriate to a client household, compensation often is out of synch with that goal.
This situation has existed for decades. One difference now is that, in some cases, these businesses report to just one or two senior managers. More of those managers are working together to insist that barriers fall also are aligning compensation to support cooperation.
Selling to both the owner and the business greatly increases job complexity. One of the major reasons that bankers fail to cross-sell is that doing so brings them into areas outside their “comfort zone.” Commercial bankers and private bankers are different; they have different backgrounds, different skill sets, perhaps different accreditations, and they look at clients differently. Expecting a commercial banker to be a private banker or vice versa is probably asking too much. As one senior banker told me, “Supermen are harder and harder to find.”
That is why a team approach needs to become the norm; the often prevailing attitude that a certain customer is “my” client has to transition to “our” client. Again, compensation can play a role here, encouraging new product sales and including an element tied to team rather than only individual performance.
Bankers do not trust each other. Bankers often avoid a team approach for one of three reasons: they really believe they, and they alone, are the best person to assist and support their clients; they want to maintain tight control, in part, to ensure job security; and they do not trust their colleagues to do a good job for their clients.
Unfortunately, in some cases bankers may be right about the capabilities of their colleagues. If that is the case, step one requires top management to be honest and upgrade staff. Typically, however, the banker’s argument is an excuse rather than a reality.
Few people like to give up control, and the risk to a referring banker (risk of loss of control or, worse, risk of loss of the client) may far exceed any monetary incentive.
Too often, top management denies this reality, but our experience supports the view that banks need to employ a multi-pronged approach, including training, explicit culture building, incentives and job changing, in order to create a true team environment. It is hard enough for banks to effectively sell intra-organization products and services, never mind those from a division in another part of the bank. This is where leadership, an often elusive quality at banks, plays an important role; top management needs to put a continual spotlight on this area, if they are to change old habits.
No value proposition exists. Even if the organization, compensation system, internal capabilities, and culture are in synch, the bank needs to articulate a clear value proposition to the target customer. Some customers are skeptical about the degree to which they wish to deepen their bank ties and tend to pigeon-hole their bankers as being good for certain needs and inappropriate for others. Banks need to demonstrate that they can compete against brand name firms in the private banking space. Banks that succeed here do so by segmenting opportunities, maintaining the highest ethical standards and leveraging existing client relationships.
Not all small business and commercial banking players have the capabilities or interest to pursue a private banking opportunity. However, those that succeed in doing so will create a profitable leadership position that competitors will both envy and be unable to replicate.