A surge in alternative lenders and intense competition among banks has forced community bank lenders to further differentiate themselves and their institution. Many lenders are switching their professional focus from being a salesperson to being a trusted advisor. Recent teaching from St. Meyer & Hubbard to our relationship managers are reinforcing this point and giving our team more tools to bring value to the client. In this article, we share our views on what it takes to be a trusted advisor in banking, and we share one recent, interesting client scenario that challenged a specific banker’s understanding of trust.
Bankers As Trusted Professionals
First, we need to accept that bankers are not well regarded by the public and our customers. In fact, younger people have an exceptionally low view of bankers. The graph below from Statista 2018 shows a ranking of America’s most and least trusted professionals. Bankers are more trusted than politicians, car salespeople, lawyers, and real estate agents, but less trusted than some other professions such as building contractors.
There are various reasons for this relatively low perception of bankers, but we also know that not all bankers are the same. We work with thousands of community bankers across the country, and the vast majority are highly professional and try hard to serve their clients and their employers. Not all bankers want to be trusted advisors but without any doubt, bankers that can become trusted advisors do much better for their clients, for their employers and their professional development and achievements.
What is a Trusted Advisor
A trusted advisor is someone who understands what clients want and how to help them get there. However, the easiest way to quantify the trusted advisor role is to use the trust quotient developed by David Maister. In the book “The Trusted Advisor,” the author addresses the components of trust and generates a simple but very efficient tool to create a process for professionals to transition to become trusted advisors. The trusted advisor role is not a squishy soft concept, but instead a clearly defined and action-oriented mindset. Bankers can use the trust quotient to help them understand the role of the trusted advisor and shape their actions to become better bankers.
The trust quotient is very simple and includes just four variables: credibility, reliability, intimacy, and self-orientation. The equation is shown below.
The trust quotient is a number just like an IQ that can benchmark banker’s trustworthiness as measured by these four variables. The four variables are defined as follows:
Credibility defines a professional’s understanding of the subject. For example, bankers should be experts on underwriting, finance, loan structuring, credit pricing, interest rate, and credit risks.
Reliability defines the actions that a professional takes. For example, if a banker says that he can deliver funding by a specific date, then that loan will fund by that date – this is a level of dependability that bankers earn through experience, understanding their institution, legal constraints, and anticipating unforeseen variables.
Intimacy refers to the security the client feels when sharing information. This goes well beyond confidentiality. For example, a client may share information that a banker may use against the client. A client may share information that the banker can use to deliver a service that the client does not want – but the client lacks the information to make an informed decision. Trusted advisors do not use information against the customer’s interest.
Self-orientation refers to the banker’s focus. Is the banker focused gains for herself or the client? No banker can be completely client oriented and every banker will show some self-focus, however, clients do not trust professionals who want positive outcomes for themselves at the expense of positive outcomes for the client.
This equation has one denominator and three numerators. Increasing the value of the factors in the numerator increases the value of trust. Increasing the value of the denominator, self-orientation, decreases the value of trust. Self-orientation is the most essential variable in the trust quotient. A banker with low self-orientation is free to completely and honestly focus on the customer. Such a focus is rare among salespeople (or people in general). But here is the key take away:
You succeed more at banking when you stop trying to sell and focus on helping prospects, even if they buy elsewhere. In the long-term, customers trust you more and buy from you.
Recognize that the trust quotient is almost entirely personal, and not institutional. Customers rarely trust institutions; they trust other people with whom they deal directly. In fact, intimacy and self-orientation are entirely about people and not the institution. We recently came across a scenario where the community banker’s trust quotient was challenged by a borrower request.
A borrower approached his lender, asking to amend the terms of the loan. The $2.5mm loan was originated about three years ago and is secured by a commercial office building. The customer asked for a longer amortization period and/or interest-only period to maximize personal cash flow. The customer had valid reasons to ask for a 30-year amortization period, but the bank’s policy is to amortize commercial loans over no longer than 25 years. After failed attempts by the lender to convince management to accommodate the borrower’s request even after showing how the loan’s low loan-to-value (LTV) would be acceptable credit risk at 30 years or even longer amortization terms, the lender had to consider his trust quotient. Other banks in the area would make the same loan to this customer on a 30-year amortization period. As a trusted advisor should the banker convince the borrower to stay with the bank but not receive the longer amortization period – but perhaps offer other incentives for the customer to stay? Alternatively, should the banker explain the existing competitive landscape and indicate that some banks may offer a 30-year amortization for commercial loans, even though his bank will not? Or should the banker make a referral to a lender down the street who would make this 30-year amortization loan without hesitation? What would you do? We have a strong view on this, but every situation is different, and every banker must make their own decision.
We believe that to be an effective and successful community banker requires us to be trusted advisors. Trust is not some ephemeral concept but a quantifiable concept that allows bankers to measure and constantly improve on their trust factor. Salespeople succeed when they stop trying to sell to their prospects and start advising them selflessly.
Submitted by Chris Nichols on June 12, 2019