As we go down the path of trying to improve relationship banking delivery, we stumbled on the question - what does being a “relationship banker” mean? This seemingly simple question proved difficult to answer. When we asked ten different banks, we received ten different and nebulous answers. After giving it some thought and speaking with the industry’s top relationship banking coaches, we have arrived at the below framework that might help your bank better define what being a relationship banker means, hopefully providing a platform to improve your execution and training.
Why This Matters
As we pointed out in the past, the easiest and most profitable model to execute in banking is being transactional. It is cost-efficient and easy to train for. The main requirement for staffing the model is to hire and retain a banker that has basic product knowledge, sales ability and has customer connections. It is no surprise that most of the top performing banks are transactional in nature.
That said, more than 90% of community banks claim they practice the “relationship banking model.” As we found out, few can define what that exactly is, fewer have the framework to support it, and fewer still train to relationship banking-appropriate benchmarks. We highlighted our journey to develop a best practice platform in the three previous iterations of this series HERE, HERE and HERE.
In talking with more than 200 banks on this topic, we found that it was easier to pull off a relationship banking model if you are a $300mm total asset sized bank. In this size range, management teams with their personalities and leadership alone can help execute well on the model. Training and control are relatively easy at that size. However, above that size, calling officers and teams start to get dispersed, and management of the model becomes difficult. It is easy to mentor when your office is next door; it is geometrically harder to do that when the new calling officer you hired is in another office two hours away.
What usually happens is that the process, which was in place when the bank was small, gets watered down because it was never formalized. As a result, having a relationship banking model works against a bank’s profitability goals as management and execution become more ineffective.
Hiring, for example, becomes a challenge. Without a clear vision of the skill set required, bankers often fall back on heavily weighting a potential calling officer’s ability to bring over new business instead of hiring for their skill in developing and managing relationships on behalf of the bank.
A Relationship Banker Has More Than Just Customers
Note the difference. Hiring a banker with a lot of connections and a book of existing business doesn’t make him or her a good relationship banker. Through sheer time on the job, you can gather a gaggle of clients that will follow you assuming you are a halfway decent banker. Having an existing book of business doesn’t prove that you understand the sales process, can prospect or can properly structure a loan for long-term value. It is far better to hire someone that has the proper process in place that someone that just has clients. One day those customers will not be around, and the banker will not have the tools to adapt.
A Group of Relationship Bankers Does Not Make A Relationship Bank
Of course, if you can hire a banker with both the relationship development skills and a book of business, so much the better. However, that brings up another conundrum. There is a difference between a relationship banker and a relationship-driven bank. A group of relationship bankers does not make a relationship bank. If the bank does not support their relationship managers and relies only on their skills as a banker to drive business, then the bank is really transactional in nature.
For a bank to be a true relationship bank, in our opinion, it must not only hire bankers that have the skills to be relationship-driven but must have a process in place to support those relationships. In addition to a process, the bank must also support the process with brand, marketing, tools, vision, and leadership.
One Relationship Banking Model
All that said, we did find almost two dozen banks that pull off a relationship banking model nicely. In almost every case, the bank has had specific intent and put in place a formalized system in which to develop and manage relationship bankers. These banks have a sales process in place and have tools that banks can use for prospecting, relationship management and adding value.
One of these differentiating factors is “typing” or labeling the relationship manager regarding the value that they bring to their commercial customers. That value period looks something like the graphic below.
Level One – Banking and Product Knowledge: To be a calling officer, the minimum level of knowledge is an understanding of the basics of banking: the core concepts of how banks make money, credit, loan structuring, deposits, pricing and bank products. Level one calling officers must be able to at least understand the customer’s challenges and what banking product will help to meet those challenges. Alternatively, instead of being a generalist and understanding the basics of all banking products, a calling officer may be a specialist and understand a single product more in-depth such as lending, treasury management, wealth management or mortgaging. These banks will likely be part of a “client action team” composed of other specialists and led by a generalist. In general, it usually takes two to five years of experience before becoming an effective Level One Relationship Manager.
Level Two – Network Connections: Once a banker understands the basics of banking, the next way to add value to a relationship is to be able to connect the client with people and firms that can add value. Being able to introduce commercial clients to desired and qualified CPAs, lawyers, tax specialist, real estate brokers, event planners, marketing agencies and other specialized servicers can add real value. This, of course, is a two-way street as each of these professionals is also a “Center of Influence” (COIs) that can also introduce the bank to their connections as well. It usually takes three to ten years to develop a qualified stable of connections for which the banker can draw. For banks, the question is, what are you doing to help facilitate those connections? Below are eight ways banks can add value to their relationship managers to make them, and the bank, stronger in this area.
Level Three – Business Experience: Once bankers have enough experience and training, they can start adding value to general business operations. Advising seasoned operators requires experience and advertising, but banks have had success in assisting with marketing, production, import/export, finance, accounting, capital raising and other challenges. We know one bank that defines being a relationship bank as when their bankers are in the top three professionals called for any problem. To reach that level, banks need a cadre of season bankers with ten or more years of real-world business experience. To facilitate Level Three development, banks must hire bankers with experience outside of banking and bring in COIs to assist in training.
Level Four – Specialty Knowledge: After about 15 years of experience, bankers not only obtain all of the above but also get to know the workings and best practices of a particular industry. This takes skill and experience because bankers are attempting to add value to seasoned owners and professionals. The advantage that bankers have is that they get to work with a variety of companies within the industry. These varied experiences allow bankers to bring perspective. This perspective is invaluable, and banks can augment this industry knowledge by hiring bankers with previous target industry experience. These bankers can provide the necessary training, subscribe to industry-specific content to gather internal knowledge, and invest in content that can be leveraged to send out to customers. Buying the rights to compensation surveys, performance benchmarks, valuation reports or similar has served our bank and many other banks well.
In addition to vertical industry knowledge, bankers can impart horizontal specialty knowledge. Instead of knowing an industry, they can know a function such as M&A, ESOP creation, recapitalizations, taking companies public, taking products international or similar. These bankers can work across the service areas to work with clients in a variety of industries to impart value.
Putting This Into Action
The key takeaway here is that becoming a relationship bank does not happen by hiring bankers with customers. A relationship bank is made on the backbone of intent, by having a sales process and providing support. The above framework isn’t the only successful framework to think about how your bankers can add value to commercial clients, but we have found it to be one of the better ones.
No matter how many levels or ways to add value, the critical factor is to make sure your bank is proactively providing enough support to not only help your relationship managers be successful but to also help the bank retain those relationships over time. Banks that do follow a cogent relationship bank model will find themselves adding value at every turn and will be in the enviable position of turning away customers. Wouldn’t that be nice?
Submitted by Chris Nichols on August 01, 2018