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Innovation | Strategy | Leadership

Financial services

Best Ideas from the Best of the ABA

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After exploring my inner geek the week before at the Microsoft Research TechFest2012 and the GeekWire Summit, it was time to put the pinstripes back on this past week (figuratively, at least) as I headed to Scottsdale for the American Bankers Association Wealth Management Conference.

There were more suits and ties and fewer jeans (and no North Face or Marmot jackets), and more pads and pens and fewer iPads and utlrathin notebooks, as I might have expected. I didn’t have live Twitter conversations about the carpeting that looked like QR codes; but just like last week, I still found some bright and engaged people trying to navigate turbulent and uncharted waters to engage their customers and grow their business. Here are the highlights:

Best quote:

“Watching the stock market last year was like watching a chicken try to fly.  

Too much ballast and not enough lift.”

–  Dr. David Kelly, Chief Market Strategist, J.P. Morgan Funds

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Back to the Future: 

“Go back 10 years to 2002– the key question was when to get back into technology stocks? No one was asking about REITs, commodities, emerging markets, gold, or any of the things that have outperformed since. U.S. stocks have out-performed BRIC (Russia, Brazil, India and China) for 4 years straight, but no one is interested.”

–Richard Bernstein, founder, CEO and chief investment officer,

Richard Bernstein Advisors, LLC

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Ready and Willing, but Unable?

“Fifty percent of high net worth clients are willing to interact with their advisors via mobile, but only 18% have it available to them.”

 –Eileen VanScoy, Executive Vice President of Product Management, SunGard

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What Drives Client Loyalty? It Depends:

What Drives Loyalty To Advisors:

  1. Trust
  2. Proactive communication (1x/month)
  3. Quality of advice

What Drives Loyalty To Firms:

  1. Quality of advice
  2. Service
  3. Value for money

(Note that clients think advice is a firm’s responsibility- Top driver of loyalty to the firm, third driver of loyalty to the advisor)

–Michael Kostoff, Partner, WISE Gateway LLC,

former Executive Director of the VIP Forum

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What Drives ‘Brand Love’ and Trust?

  • Integrity
  • Intent
  • Capabilities
  • Results

Define the desired service experience, make culture a verb and make sure everyone in the organization understands and lives the desired experience as “The way we serve”:

  • Starbucks- the “third place”, as comfortable as your living room.
  • Ritz Carlton- re-create the home of loving parents.
  • Zappos- “wowful happiness”

–Joseph Michelli, PhD,
Author and Organizational Consultant

Do you have what it takes to succeed as a business developer?

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Nice post, reblogged from Financial Sales Pro:

Click here to read the entire article: Do you have what it takes to succeed as a business developer?

Excerpt:

What’s the activity level?  So you’ve got a great plan, now what?  Implementation is the key.  We all know BDOs who spend days, if not weeks, sitting in their office fine-tuning marketing materials, letters, etc.  In my opinion, this is clearly not the best use of a BDO’s time.  If a BDO’s activity level doesn’t match what’s been laid out in the initial plan, then you may be heading in the wrong direction.

I have long subscribed to a very simple sales management process:

  1. Activity: Always start by ensuring that advisors are getting out of their office and meeting with enough clients and prospects. Nothing else in sales management much matters if not.
  2. Effectiveness: If advisors are conducting enough meetings but their close ratio is low, they may need specific skills coaching. Practice sessions and joint calling can be effective techniques.
  3. Efficiency: Your top 20-25% producers are probably fine on activity and effectiveness, so often the key is finding ways to free them from non-selling activities and get them more time in front of clients and prospects.

Do all of your BDOs have what it takes?

ABA Wealth Management Conference

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Here are the sessions I am looking forward to over the next three days at the ABA Wealth Management Conference in Scottsdale, Arizona. I’ll be back here next week with observations and potential implications on the intersection of leadership, advice an technology. Let me know if you’re going!

1) Financial Services in a Mobile World
Jon Bluth, Senior Vice President of Product Management, SunGard
Eileen VanScoy, Executive Vice President of Product Management, SunGard
The mobile landscape is rapidly evolving, and the financial services industry is striving to keep pace. Similar to the Internet’s early days, fragmentation, security concerns, legacy infrastructure, monetizing solutions and ROI considerations present challenges and opportunities that must be analyzed and addressed to fully capitalize on the sweeping changes brought about by an increasingly mobile world. This presentation looks at financial firms’ emerging and actual opportunities and risks in deploying mobile technology, and discusses various approaches they can take to cost-effectively and responsibly leverage its many benefits to their business and their clients.

2) Leveraging Operational Benchmarks To Achieve Sustainable, Profitable Growth
Michael Kostoff, Partner, WISE Gateway LLC
In these difficult economic times, it is clear that wealth management executives must “do more with less”–they must drive increased revenue growth while simultaneously reducing costs. This presentation will outline how managers can leverage operational performance benchmarking to accomplish this goal, and deliver profitable growth that is sustainable in any kind of economy.   Strategies for improving staff productivity, ensuring support structure cost efficiencies and enhancing sales performance will be discussed.

3) Family Wealth Management
Pat Armstrong, Senior Vice President and Managing Director, Family Dynamics, Wells Fargo
Arne Boudewyn, Senior Vice President and Senior Director, Family Dynamics, Wells Fargo
This breakout is designed to explore strategies for engaging high net worth families in conversations about the qualitative, non-financial dimensions of wealth, sometimes referred to as the human, intellectual or social capital.  Drawing on research and best practices in the area of family dynamics, the presenters will focus their discussion on challenges and opportunities facing wealth advisors as they work with various family profiles on a range of business and estate planning concerns.   The presenters will illustrate how to surface and leverage family motivators through an interactive discussion with participants, highlighting conversation starters that can enhance the planning process.

4) Luncheon with Speaker

The Art of Vision
Erik Wahl

Your best sustainable edge in business is your ability to visibly differentiate yourself from your competition. The Art of Vision is an entertaining and highly practical program that uncovers new ways to make your organization more creative and ultimately more profitable. It is no longer enough to have good customer service and a good product. The truly great companies have altered the landscape to create a unique experience for the customer. Whether its sales, service or leadership principles; professionals at all levels can achieve superior performance by creatively differentiating themselves from the competition.

5) Expert Teams Produce Extraordinary Results

Stephen Doty, Investment Executive, Northeast Division, U.S. Trust, Bank of America Private Wealth Management

David R. McCune, Region Director, Wells Fargo Wealth Management Group 

HNW client demands are clear – they want to be served by a team of professionals. Clients seek a team of advisors with specific roles and complementary skills and talents, aligned and committed to a common purpose of putting the client first, and who consistently exhibit levels of creativity and collaboration that produce extraordinary results.  But how do we get teams to perform at this level? How do we integrate uniquely qualified individuals to think and act as a team? This interactive session will explore the philosophies that make the team approach successful and share actual experiences of a winning team.

6) General Session
Making it Personal – Relationships and Wealth Management

Joseph Michelli, PhD,
Author and Organizational Consultant

Delivering financial performance for your clients is not enough.  Learn the tools that will engage, retain, build loyalty, and grow referrals.

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7) Client Acquisition in a Wired World
Kathleen Pritchard,  Director, Head of Program Marketing and Customer Insights, Legg Mason
In today’s competitive business landscape, financial professionals who fail to leverage the power of the Internet to acquire new clients are doing themselves a serious disservice. By cultivating an online presence that showcases your specific expertise and service offering, you not only create opportunities to meet qualified prospects, but also build credibility and rapport that increases your chance of winning their business. Key topics include best practices for websites and email campaigns; building a network of contacts to facilitate referrals, both as an individual and a professional; using online search tools to identify potential clients, understand their individual needs/interests and use that information in initial meetings to open more new relationships; managing your online reputation; delivering a consistent message that reflects your value proposition; recognizing compliance concerns; and more. Also featured is a discussion on how financial professionals can enhance their client acquisition efforts by using popular online “social networking” services like LinkedIn, Facebook, and Twitter.



Top Ten Geek Week Sneak Peeks – Part 2

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Today: The GeekWire Summit

Startup technology news site GeekWire held its first birthday party on March 7 with the GeekWire Summit. Speakers included former Microsoft Chief Software Engineer and Cocomo co-founder Ray Ozzie, former Swype CEO Mike McSherry, Hulu CTO Richard Tom, T-Mobile CMO Cole Brodman, Rhapsody President Jon Irwin, venture capitalist/serial founder Oren Etzioni and other great technology minds. Nothing was focused on FinTech per se, but nonetheless here are some highlights and potential implications on the intersection of leadership, advice and technology in financial services:

“How do large companies innovate? They buy small companies.”

– Oren Etzioni

  1. On the rise of social collaboration in the enterprise, Ray Ozzie paraphrased Ethan Zuckerman (who also has a lot of interesting things to say about how we tend to interact with people who are most like us, but that’s another post) in describing the “scopes of voice” as public/private/secret/self :“I think when you get into enterprise and business scenarios, there are some organizations where speaking publicly in a public voice is very useful. Professional services firms promote an internal culture where speaking openly and being known as the professional who knows something about something works a lot better than certain manufacturing company, where the internal norms might be different in terms of secrecy and confidentiality.”  There is still lots of opportunity, but also lots of work to do, since only 27% of financial professionals use LinkedIn, and less than 4% use any other social media methods at all.
  2. Do you think that building a massive base of clients/users/followers is in direct conflict with customizing your messages to be relevant individual users or subgroups? Consider that Hulu  has 1.4 BILLION ad impressions per month, but they offer some innovative ways for users to customize their ad content. Ad Selector allows viewers a choice of three ads from one brand or one ad from a selection of three different brands. Ad Swap allows viewers to find ads that are most relevant.
  3. Great discussion on the state of mobile technology. All on the panel had praise for the Windows Phone platform, but noted that they have a long way to go with a 4.4% market share to Android’s 49% and Apple’s 30%. (IMHO, I think that RIM’s enterprise-centric 15% share is the most vulnerable to Windows, and it’s already down 2% in the last three months.) Former Swype CEO Mike McSherry said that Apple’s Siri natural speech style will help improve text entry over time too. This evolution to more natural interfaces and input styles was also noted at Micosoft Research on the prior day.
  4. Startup investor and advisor Hadi Partovi noted that the cost of sequencing the human genome has gone from $1 billion to $1,000, and predicts it is heading to $100. If that can be democratized, how naive are we about “big finance”?
  5. Facebook’s Director of Engineering Jocelyn Goldfein said that the company rolled out the new Timeline with a team the size of a startup. Facebook video chat? One guy. In Seattle. Although, that may be taking the lean approach a bit too far. (As someone retorted on Twitter “That explains a lot.”) Still– how many consultant engagements, project managers and steering committee meetings do we need to make meaningful change in our business?

“It’s not enough to encourage employees to innovate.

You have to protect them from the cost of failure.”

– Jocelyn Goldfein, Facebook

(P.S. – I live tweeted my new startup idea from the conference: Embedded QR codes in public carpeting. Remember, I get a 20% Founders Fee.)

Yesterday: Microsoft Research TechFest 2012

You Do Realize This is a People Business, Don’t You?

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Bankers sometimes have a hard time understanding why their industry has satisfaction ratings right down there with utilities, cell carriers and bankrupt airlines. Maybe it’s because they sometimes have more in common with these business models than they would really care to admit. Companies and industries that score poorly in customer satisfaction tend to treat customers like replaceable cogs in their profit machine, rather than empowered consumers with unmet needs and lots of alternatives.

Source: flickr.com via David on Pinterest

David Armano has an amazing knack for boiling down sometimes complex concepts to compelling and easy to grasp infographics. And while the one above was intended to depict a much broader economic view, I think it works just as well in the narrower context of financial services.

It’s not a Wonderful Life any more

Financial institutions have long since evolved from the folksy image of It’s a Wonderful Life‘s Bailey Building and Loan. Competitive forces drove the financial industry to embrace consolidation, standardized underwriting, securitization, more consolidation, credit cards, ATMs, broader product offerings, specialized segmentation, data analytics, even more consolidation, and countless other changes. Over the long run, much of it was good, and the industry has improved efficiency and profitability over time.

But somewhere along the way, too many institutions (and too many advisors) came to believe in that seductive fiction that has fooled so many other industries– that customers are easily locked in with real or perceived monopolies, contracts, terms and conditions, EULAs, whatever– and that the path to profitability is to leverage that servitude with a cascade of new (and usually involuntary) revenue streams from the indentured.

Many bankers are truly puzzled by the virulent public reaction to their attempts to defray the costs of delivering deposit accounts. After all, they have cost accounting on their side. It has been a well-known fact amongst bank executives for at least 25 years that most checking accounts are unprofitable in a fully-loaded cost analysis. A similar Pareto Principle has long existed across client cohorts as well– the “vital few” subsidize the “trivial many”.

Why recapturing costs alone doesn’t work:

So why not focus on reducing the unprofitability of a large percentage of your clients? Managing the cost to serve is a very real issue for most firms, and I am a firm believer in the need to focus marketing efforts on clients who have a high probability of being profitable in reasonable amount of time.

What I think most firms and advisors misunderstand is that many clients at every tier actually are willing to pay more– if they receive something of value in exchange. And here’s where it get’s a little tricky– the clients get to decide what provides value and what does not– and not every client will choose the same things.

What does work:

This is where data analytics can really add the most value. Finding clients who will willingly choose to consume additional services for additional cost. (If you do it right, you can add $5 in revenue for every $1 in added cost.)

Firms that really do it right focus their efforts across all of the client segments, not just on reducing unprofitability in the lower tiers. Further improving the profitability of the top 20-25% of your clients can improve their subsidization of the masses and reduce the temptation to annoy the majority of your clients. (Banks and checking accounts may have been the original “freemium” business model.)

Let’s go back to the airlines. The ones thriving, both in customer satisfaction scores and in profitability, are improving the customer experience for all of their clients while they simultaneously raise the bar for their most profitable clientele. Doing only the latter creates ill will that will never be offset by increased profitability for the subsidizers.

You do realize that this is a people business, don’t you?

Why Bankers Need to Think Like Private Fixed Income Investors

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Banks are in the business of taking and managing risks. Get that wrong and you go out of business, and there are many recent examples.

I have sometimes worked with advisors who view loans as just another product to sell. This type of advisor also tends to view anyone in the credit underwriting and approval process as being in the “business prevention department”. In these situations I try to explain how lending literally involves transferring some of the firm’s capital to a client, on which we expect a return of principal and a return on principal over time.

No matter how much profit the client makes as a result of a loan, a lender’s best case is getting a full return of principal, plus the contractual interest, and not a penny more.

$1 million loan x 2.00% spread = $20,000 of pre-tax, pre-provision revenue

The lender’s worst case is a complete loss of principal and expected interest, plus collection and litigation costs.

The firm that charges off that $1 million loan needs $50 million of new loans to get back to even.

And that excludes income taxes, labor or overhead costs needed to originate the loan, any loan loss reserves set aside, the cost of funds raised to lend out or any time-value of that money (i.e., liquidity issuance premium).

With that kind of mismatched upside/downside risk, it is necessary to view lending like the private fixed income investment that it truly is.

How advisors should think like fixed income investors:

  • They must seek an attractive risk-adjusted after-tax return on capital
  • They should expect low loss rates and low volatility of returns
  • They have to achieve these goals through disciplined management of controlled risks
  • Borrowers typically do not have public debt ratings, so individual underwriting must be performed
  • Borrowers typically do not have established market values, so risk-adjusted pricing must developed
  • Bankers must mitigate these risks through disciplined underwriting, appropriate credit structure and active portfolio monitoring and management.

Advisors that balance the needs of their clients with the long-term health of their firm win in the long run.

How Sticky Are Your Relationships?

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It’s Valentine’s Day– have you told your clients lately how much you love them?

Yes, it’s already February the 14th, and you know what that means. Gentlemen, it’s the day to leave the office early to pick up some cellophane-wrapped flowers from the grocery store and grumble about the picked-over selection of torn cards and mismatched envelopes. Ladies, it’s the day to bask in the warm glow of your superior planning and thoughtfulness. I can neither confirm nor deny that these lighthearted stereotypes may possibly emanate from my own personal experiences…

It is also a great day to reach out to your clients.

By the way, so was January 13th. And January 26th. Or January 25th. Or last November 3rd.

Any day is a great day to reach out to your clients.

Whether you are self-employed or work for a large firm, whether you receive a direct commission or a flat salary, your book of clients is your practice. Your practice is only as valuable as the recurring revenue stream from your clients, and if you aren’t retaining your clients and adding new ones, you aren’t adding value.

Contact Increases Stickiness

I have seen scores of client research reports and I cannot recall one that didn’t show a positive correlation between advisor contact and client satisfaction and retention. To cite just a few recent examples:

  • The J.D. Power and Associates 2011 U.S. Full Service Investor Satisfaction StudySM found that one of the key best practices of client service was “Proactive advisor contact regarding new products and services or accounts four times in the past 12 months”.
  • The AdvisorImpact 2009 Client Index revealed that only 63% of clients strongly agreed with the statement “My advisor is proactive in managing our relationship.”, despite 80% of them describing that attribute as ‘critical’.
  • The VIP Forum‘s 2008 study Boosting Advisor Productivity reported that 80% of new business for advisors came by referral.
  • I recall a proprietary client satisfaction survey for a large U.S. financial institution that showed even clients who were contacted more often than they preferred were statistically more loyal than those who were not contacted.

What do I say?

Worried that you don’t have a concrete reason to call your clients? Many advisors are quite proficient at coming up with great excuses to avoid making proactive contact:

“I don’t have any news”

“The market has been too volatile/flat/unpredictable”

“I don’t want to upset the apple cart. If I call, it will just give them a chance to complain”

To some degree, it doesn’t much matter. In 2010 The Oechsli Institute discovered that less than half of financial advisors performed well at what they called Engagement Competencies, with only 46% scoring well with clients at “Caring more about me than just my investments”.

I once inherited a client that I could not seem to interest in meeting so I could get to know her and see if I could add any value. I made it a personal challenge to call her quarterly. I could never reach her, so I left her brief  voicemail messages saying that I was just checking in to see if everything was going OK and to call me if I could help in any way. Within a year I got a call from her saying she needed my help. She and her husband were selling their business and they really weren’t sure what to do with the $3 million they were getting in cash.

The surveys are right. I was very satisfied to get that call.

Even Better? Ask Questions.

Ask questions to understand your clients’ pain points, their unmet needs, their unrealized goals. Find out what’s keeping them awake at night and offer a solution. The current economic and market landscape offers endless possibilities. Questions can lead to actually giving advice, where the real stickiness begins.

In 2011, another VIP Forum study, Building Business Owner Loyalty showed a lift in client loyalty anywhere from 8% to 19% by providing advice around key personal financial issues. (Number one? Personal retirement planning.)

Regardless of how it goes with your significant other today, make this a day to improve your client relationships and improve the value of your practice. Just skip the torn card and grocery store flowers wrapped in cellophane. Not that I have any direct experience in that area…

The Intersection

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The Intersection

Welcome to my blog!

I’m here to explore the intersection of innovation, strategy and leadership to improve financial services.

 

Innovation

I’ve been a fan and early adopter of technology for as long as I can remember, but technology is just a tool. I can barely a wire light switch and I have never written a line of code in my life. When I was in high school, my “Computer Math” class consisted of entering strings of arithmetic into what was essentially a programmable calculator with a paper tape. The only thing I remember from that class was that every string was supposed to start with “To (0): Load”, whatever that meant. That, and the time my friend Jim and I conspired to slow down the smartest guy in the class. We each occupied one of the two available “computers” while I switched the + and x keys and then volunteered my keyboard to our unwitting victim. It took him two days to debug his formula.

Computer classes in college consisted primarily of carefully rubber banding slippery stacks of IBM punch cards lest they get out of order and cause you to spend the night in the computer lab. At least, that’s how it appeared to me. I avoided computer classes like I avoided brussel sprouts. Even though my engineering major roommate was easily able to infect me with lustful desire for an Apple IIe (with pen plotter) or even a Tandy TRS-80, my main technology fix at that time came from synthesizers and audio and lighting equipment.

After college I discovered the IBM PCjr, with MS-DOS 2.0 and SuperCalc on 5 1/4″ floppies. My job at the time required me to do simple but repetitive arithmetic with pen and paper to calculate a payroll budget. The mere fact that my results were being printed in stunning dot matrix grey on green and white tractor-fed 14 7/8″ paper seemed to quadruple my credibility compared to the same numbers on the old handwritten sheets. I was forever hooked on the possibilities of technology to improve jobs and lives, and a lifetime of exploration lay ahead.

Strategy

Most of my professional life has been in the financial services industry, I have seen a lot of fads and trends pursued in the quest for growth and profit. Acquisition binges justified by “the need to diversify” followed by divestitures justified by “the need to focus on our core business”. An increased emphasis on variable advisor pay and commissions to “pay for performance” followed by flatter fee and pay structures to “better align interests” (or sometimes simply to “cut costs”). The optimistic splurges on technology to “revolutionize the client experience” (and/or “increase advisor productivity”) followed by the inevitable crash to the reality of disappointing ROIs. None of these strategies are necessarily misguided, but the key driver has to be advice.

Whether you are a bank teller suggesting that a customer might want to open a savings account to hold some of that excess cash in their checking account, or a superstar CFA portfolio manager recommending the latest structured hedged debt solution to improve alpha and reduce volatility, if the person on the other side of the desk from you doesn’t perceive you to be a trusted source of true advice that will solve their problem or achieve their goal, your personal success will be limited.

In my opinion, one of the leading authorities on the art and science of being a Trusted Advisor is one of the co-authors of the book by that very name, David H. Maister, and it seems like every financial firm I’m familiar with has had their advisors read the book. Not that it’s typically very apparent to their clients.  True Trusted Advisors remain as elusive as four leaf clovers in the vast meadows of financial services. Many advisors remain either salespeople or reactive servicers.

Leadership

Innovation and strategy don’t just happen on their own, they take a leader to make them happen. I am particularly fascinated with the research and writings of Marcus Buckingham who describes himself as dedicated to “…understanding what makes world-class managers tick, bottling it, and sharing it with the world.”  As the co-author of Now, Discover Your Strengths, he helped create StrengthsFinder to help people look deep within to find their unique combination of inherent talents.

(My Top Five:  Strategic | Achiever | Futuristic | Learner | Communication)

I have been lucky to work for, with and around some outstanding leaders (plus a few clunkers), and I’ve learned a lot from each of them. The best leaders know their strengths and leverage them to get outstanding results from themselves and from others, yet they know how to access different styles within themselves to provide the right leadership in the right situations. They harness the power of Strengths-Based Leadership and Situational Leadership. Regardless the industry, regardless the challenge, the need for effective leadership is always a critical ingredient for success.

 

About Me

I consider myself an “embedded entrepreneur” with a day job with a Fortune 150 financial services firm, but everything here is my own work and my own opinion. I have been an individual contributor, a manager and a senior leader, and I have always thought of myself as a serial intrapreneur. I love to build high performance teams to create and execute winning business plans. I’ll do my best to share the best thinking of those whom I feel are making important contributions to the intersection of innovation, strategy and leadership. I invite you to join the conversation.