Oil and water just don’t mix; there is no point in trying. Both are needed for a high performance engine to run at maximum efficiency, but they have different functions. In banking, the oil is the bank products and the water is the non-bank products that are becoming essential for meeting today’s consumer demand while providing fee income to the bank. If traditional and non-traditional financial products are properly positioned, success in the form of substantial fee income is a direct outcome.
The banking business is no different than any other; banking has changed tremendously over the last thirty years. In the past, the majority of bank income came from Interest Income, but the trend continues to shift towards fee income. With deregulation in the form of the Depository Institutions Deregulation and Monetary Control Act (1980) and the Depository Institutions Act (1982), and repeal of the Glass-Steagall Act in 1999, banks responded by offering alternative financial services. In the 1990’s, increased consumer awareness led to customer demand and banks saw investment programs increase dramatically. However, many banks have had difficulty successfully integrating investment brokerage and insurance into their institutions.
The radical difference in products, delivery systems, and sales cultures has prevented many banks from maximizing the potential offered by these additional financial service opportunities. Some banks use “Dual Employee” structures, while others use third party marketing arrangements. Other issues include differences in compensation structure, “one-way” referrals, and the different risks associated with non-bank products, as opposed to FDIC insured instruments. Additional compliance concerns only exacerbate the gap between bankers, brokers, and insurance agents.
This is not a new problem, and much has been written on this subject. The question is simple; what can a bank do to successfully integrate non-bank product sales more effectively? Fortunately, the answer is also simpler than you think. The following six steps are critical in having compliant, successful, and profitable non-bank sales units:
1. Do all you can to learn about non-bank product sales
2. Work to incorporate non-bank product sales units into all bank events and meetings
3. Manage activities, not results
4. Have realistic dual expectations
5. Have regular two-way communication
6. Have a workable, mutually agreed upon business plan
Do all you can to learn about the investment business
Many bankers do not have experience in non-bank product sales, and as a result often spend little time on it or ignore it entirely. You need to make a concentrated effort to understand the culture and structure of non-bank product sales units. Many broker/dealers offer “Banker – Broker Conferences.” In addition, many banking trade groups provide educational meetings and resources. Take advantage of these opportunities to help you better understand the differences in delivery systems and cultures employed to sell non-bank products.
Work to incorporate non-bank product sales units into all bank events and meetings
The more you include non-bank product salespeople and their colleagues in bank functions and meetings, the more cordial and productive their interactions with your bank officers and staff will be. Encourage them to become familiar with your bank’s marketing and product emphasis, so they refer you appropriate business. The more they feel a part of the bank, the better ambassadors they will be for you when they are out in the community, and your cross-selling results will soar.
Manage activities, not results
Often banks have expectations of their investment and insurance sales units, but have limited knowledge of what activities are required to generate those results. If bank management does not have a working knowledge of the alternative product sales process, they are reluctant to participate actively in the management of these programs. If your program is set up with duel employees, do all you can to learn about the activities required to maintain it successfully.
If you utilize a third party marketing firm, ask them for guidance on what is expected of their reps and what you can do to assist them in the management of the program. Regardless of the compliance firewalls between your bank and a third party firm, the public perception is that they a “part” of your bank, so a hands-on approach will pay off.
Have realistic dual expectations
When non-bank sales programs are installed, each party establishes certain expectations with which to gauge success. Often those who have a vested interest in the program’s installation deliver these expectations. Make certain your bank considers statistical averages for the type of program you have in your bank. Banks should examine the production and revenues of their programs compared to national averages, as well as averages from their program’s broker/dealer or insurance companies.
Also consider expectations related to marketing activities, such as referrals. A common complaint of non-bank product sales people is that they don’t get enough referrals and then upon further examination, it’s becomes apparent that neither party is maximizing the referral opportunities. Systems should be installed to monitor all referrals within institutions. Following compliance regulations and guidelines related to cross-sales marketing efforts prevents regulatory issues.
Have regular two-way communication
While banks have a variety of tools to maintain interdepartmental communication, non-bank sales units frequently receive less attention than is prudent. Regular reviews of sales activity are more common, with marketing reviews occurring less frequently. Banks should examine their current communications strategy to insure that they are highlighting non-bank products sales units effectively, addressing both the sales and marketing sides of the business.
Have A Workable Business Plan
A solid, comprehensive business plan is absolutely essential for the maximum success of your non-bank product sales efforts. Broker/Dealer firms, third party marketing firms, and insurance companies provide assistance to their bank partners in building a plan. This plan should cover all critical aspects of operation of a non-bank product sales unit, including marketing, sales, service, administration, training, and cross-selling. Review these plans on a regular basis, looking for new opportunities as well as areas that need improvement. Outside strategists can also provide guidance to help you take advantage of opportunities within your bank. Historically banks have excellent financial controls in place to monitor progress in attaining the institutions objectives. Use these standards to evaluate to progress of your non-bank product sales departments.
Oil and water do not mix, and trying to do so is futile, but the effective integration of alternative financial services into a successful bank is not only possible, but readily achievable. With proper planning and execution of these six steps, your fee income will increase substantially.
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