Twenty years ago, the commercial banking relationship manager (RM) held a position of the highest prestige and power within most banks. He – and it usually was a he – found and cultivated clients, led the loan decision process and represented the customer’s interests within the bank, oftentimes challenging support staff whom the RM typically viewed as slow-to-respond or insufficiently customer-oriented. RMs really were the customer’s man within the bank.
Today, the power of this former alpha dog has faded. RMs have been largely relegated to sales officers, stripped of their credit signature and forced to focus more time than ever on compliance and related paperwork. As for loans, many RMs appear increasingly uncertain about the type of credit structures their banks will accept; some even cut off the credit discussion with customers by suggesting competitive lenders to borrowers whom they think may not make it through the credit hurdles of their bank. In the past few years, I have heard more than one RM refer to himself as having been emasculated by his bank.
Reengineering for Sales
To understand the current state of the RM and establish a case for rethinking and refortifying that role, we need to consider some recent history. As suggested above, RMs did it all 20 years ago: they found the prospect, conducted initial underwriting, took the pitch to credit committee, closed the loan, managed the relationship and, sold that customer additional products. However, the activities of the RM often differed significantly from banker to banker with each, in effect, creating his own job description. Too often, the surveys conducted by FIC and other consultants showed that RMs were spending the majority of their time on non-selling activities such as administrative tasks, most of which could be performed by a skilled (and lower cost) assistant and credit-related activities. RMs spent the limited time that remained on selling to current customers and new targets.
Understandably, bank management wanted to increase productivity and the sales focus. Therefore, many “reengineered” the RM’s job to free up time for sales and customer interaction. Banks such as the former First Union Corp. led the way in breaking up the RM job by moving credit-related activities to a senior credit specialist and administration/customer service to a banker’s assistant or para-banker. The intent and expectation was that this change would increase RM sales time from the level of 20% or less of time to 70% or more.
Unfortunately, by taking most credit authority away from the banker, this change also reduced the importance of the RM to the customer. Rather than being able to speak for the bank, the RM now often had to equivocate when asked about a credit extension. Internal communication between the RM and his credit partner was inconsistent and credit personnel had little interest in growing the loan portfolio, often resulting in an antagonistic relationship between credit and sales.
In the intervening decades since this shift occurred, another even more fundamental and substantial change occurred. Today, many RMs simply lack sufficient credit knowledge to make loan decisions in contrast with the past, when rigorous credit training played a critical role in creating an RM’s foundation. As a freshly minted MBA arriving at Citibank decades ago, I quickly began a training program that included six (excruciating) weeks of full-time accounting. Failing the course could mean dismissal from the bank. The entire program, about nine months in all, included interning in several areas and a stint in writing up credit packages. Few, if any programs as rigorous as this one exist today.
In recent years, as part of our work related to the FDIC shared-loss program, we had the opportunity to review hundreds of credit memos, mostly drafted by RMs in community and regional banks. They showed a lack of credit knowledge that would have been comical if it had not been so frightening. The current RM has a less robust skill base than the credit-trained and multi-tasking RM of 20 years ago. Further, while the RM job was redesigned to increase sales, bankers continue to be tied to their desks, largely because of time consuming internal and regulatory compliance requirements.
Even with the increased staff support, RMs still spend only a minor amount of time on sales. Today, most RMs remain saddled with too much paper work and lack the credit authority required to gain the confidence of their customers, a lose/lose situation. Most of our current bank clients complain that despite increased credit and admin support, RM productivity has not increased and, in fact, has actually declined as more administrative and compliance activities creep into the RM’s job. These tasks may be important to the regulators, but they are not important to the customer and don’t enhance the bankers’ ability to show value.
Back to Credit
Was changing the RMs’ job 20 years ago a mistake? No. In retrospect, change was necessary, but the nature of the job change undercut the banker’s capabilities and value to the customer. Rather than minimizing credit responsibility, banks should have redesigned the job to encourage 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 recast RMs as credit eunuchs.
Recent economic conditions have made the situation worse for RMs. Initially, post-2000, the reengineered RM focused on sales but that emphasis slowly changed as the economy worsened and portfolio monitoring and maintenance took precedence. Now, bankers are expected to sell but often lack the skill base and internal “power” to deliver for their customers. As outlined in the chart “Recharging the Relationship Manager,” our proposed revitalized banker is largely freed from administration to focus on generating revenue and understanding and structuring credit. In a sense, he is a credit product specialist as well as an overall RM. This focus allows the RM to demonstrate clear value to his customers as he helps them obtain the credit that is often the lifeblood of a small- or mid-sized company.
There are practical challenges, however. Banks would have to shift credit specialists to the RM role or team up credit experts with current RMs, with the RMs serving as apprentices regarding credit. While most banks cannot afford the Citibank training program of old, they can begin to redevelop the RM’s credit skills using internal expertise and third-party trainers. Some centralized and independent credit group will likely continue to be required both to assuage regulators and avoid the sins of the past.
As for administration, bank management has historically been ineffective at protecting the RM from increased internal and external information requests. Management needs to centralize all requests that would take the RM away from the customer and credit activities and set up a small central group to address the seemingly endless and time-consuming demands for more data. As part of this process, management must have the confidence and guts to begin to tame the compliance beast within its bank.
The first step to establishing a revitalized and customer-oriented RM requires bank management to bring together some of its best bankers and determine the RM model that will work for their institution. The goal of any change needs to center on 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 economic downturn and 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 from other players, grow revenues, and regain the respect and trust that so many banks have lost.
Mr. Wendel is president of New York City-based Financial Institutions Consulting, Inc. He can be reached at [email protected].