Client Acquisition and Retention

Welcome to my blog! My name is Prince Varma and I am a Senior Client Partner - Portfolio Growth and Client Management Strategies with Baker Hill, a part of Experian. 

I have over 20 years of experience implementing performance, workflow process and sales management practices, the last fourteen specifically working with financial services institutions – both banks and credit unions. I deliver practical and proven approaches to effective adoption and change management strategies (at both the strategic and tactical levels), as well as the implementation of sales information and process management technology solutions.

Some of my other areas of expertise include:

• Process workflow analysis;
• Performance and incentive compensation programs;
• Sales process management and client relationship management; and
• the implementation of enterprise wide technology solutions.

• Which clients are likely to need additional products or services?
• Has your top 15 percent changed?
  • If so, who has dropped out and who should be added?
• Which of your clients have a high potential of leaving your financial institution?
• When do you shift from client retention to credit risk management? 

• Investigate how your sales organization manages and provides oversight on referrals and new opportunities
  • Are you aware of what is going on in these critical areas? 
• Document how your process ensures that pre- and post-funding conditions on credit facilities are fulfilled
  • Are critical requirements falling through the cracks?
• Ask how your financial institution makes sure that your credit facility and its related collateral remain in good standing
  • Are your processes (that ensure you stay on top of financial information, UCC filings, borrowing bases, insurance, etc.) effective?

• Engage in relationship reviews
  • These are a way to proactively outreach key clients
  • This is NOT the "annual credit review"
  • They must be objective in order to map and identify future opportunities
  • Think in a longer-term perspective such as a 12- to 18-month duration

• Have you purchased a “list” from a third party in the past 12 months?
• Did you include any of the following elements in the data that you retrieved
  • Commercial Intelliscore/PayDex Score
  • Combined Trade Balance
  • UCC Counts
  • Industry segment
     
• What method did you use to distribute the names (manual or using technology such as a customer relationship management tool)?

Good day all. My last blog revolved around practical approaches to effective client relationship management. It time to get back to a “risk” type conversation.

I recently told my wife that if I hear the phrase “…in this economic environment …” uttered as a caveat one more time, I’m going to scream. I have truly come to anticipate the beginning or introduction to interviews and articles to lead in with this sentiment and it’s driving me nuts.

In these economic times (you can tell I’m from the sales side, I cleverly changed the phrase), it is clearly not business as usual within most financial institutions. Conversations with CEOs and bank presidents over the past two months have usually followed the same theme, “I’ve got money to lend, but I just can’t find a decent deal” or “I’ve got applications up the wazoo, but the quality just isn’t there.”

So, what is going on?
The obvious answer is that we are looking at applications more closely and the credit side (risk management guys) is deliriously happy because everytime they make a recommendation about “reviewing the opportunity further” they also don’t hesitate to mention, “in this economic environment.”

Really, what is the scoop and how do we adjust on the front line?
Clearly, we know that deeper reviews and management of risk is being undertaken. The problem is that the established standards are no longer valid. Yes, the basics ratios still need to be run, but let’s face it, in this economic environment a company’s historical performance is no longer an effective indicator as to their future performance. The playing field is no longer consistent. The past two to three years of financials are based on circumstances that no longer apply. This means that the analysts are having a difficult time establishing effective benchmarks from which to apply credit policy – and we know that those guys are the paragons of adaptability.

We are being asked to evaluate risk in an uncertain circumstance. We are looking at projected revenues and earnings and examining receivables. We are also comparing this business to others in the industry, determining which other market segments have a direct (and indirect) impact on the performance of this one, reviewing business plans and evaluating management depth and experience. And, at the end of the day, either saying no, saying yes but not so much or holding our breath and hoping that divine intervention shows us the way.

Does any of this should sound familiar to you?
It should. We see these type of deals all of the time and we call them the start-ups.

Ok, so what am I recommending? Quite simply, that we take a step back from our typical approach to the established business and engage with them the way we would a start-up.

When an opportunity or request presents itself, restrain the urge to go down the garden path. Slow down! No... stop! Take a deep breath, put on your “economic development hat ” and approach the deal the way you would if it were a start-up (and I don’t mean running away at top speed in the opposite direction screaming). You should: 

• look for or help them construct a short term (next four to six month) tactical action/priority plan;
• help them or review their 12-month business plan;
  o NOTE: If the business hasn’t realized that they need a short-term survival plan and a mid-term business plan… run! Run far and run fast!
• examine their market and have them explain why they will make it versus the competition;
• dig into their management expertise (think AIG);
• have them explain how their tactical and 12-month business plan will keep the doors open and the lights on (since its coming into summer we’ll cut them some slack on the heat); and finally
• review and revise their projections.

If at the end of this, you still feel that the deal has legs, it probably does, and you’ve done a pretty thorough job building the business case for the credit side.

Or, you could just lament that there really isn’t much out there in this economic environment.
 

Part 2

Two additional tactics that you should incorporate into your relationship management penetration strategy include:

• Conducting relationship reviews in addition to loan reviews; and
• Identifying and proactively monitoring changes in client behavior.

Relationship reviews
Relationship reviews are a comprehensive and thorough examination of the client’s business and should be the foundation for your relationship management process. They seek to provide both the client and the relationship manager with a roadmap for the upcoming 14- to 16-month period by identifying specific goals and concerns, as well as constructing a snapshot of the client today. The purpose of a relationship review is to understand the broader direction.  Bluntly put, an annual loan review is not a penetration activity. Its primary focus is to verify the ongoing credit worthiness of an existing deal in the books. More details will come about this topic in a future blog.

Monitoring changes in behavior
Monitoring changes in client behavior through the use of “activity thresholding” is quickly becoming a mainstay in the financial industry. The idea isn’t new; however, the application of the concept to penetration is. Instead of having changes in credit score trigger an alert related to risk management and mitigation, we would instead look at thresholds related to line usage, number of deposit transactions, changes in average deposit amount and credit card transactions.

These kinds of client behaviors and activities provide insight into what is occurring within a clients business and as such, allow us to provide recommendations for products and services that are meaningful and appropriate.
 
 

Part 1

Ok, it’s me again, your business development guy in financial risk management clothing. In my first blog, I promised that I would start providing specific tactics related to optimizing penetration and retention efforts.
 
So, in “non-consultant” speak, we’re trying to figure out:

• how we are going to get deeper with existing clients;
• keep the (good) business we have; and 
• find new opportunities.

Today, we’ll focus on client penetration strategies. Some of this should be pretty self-explanatory.  If it is, that’s good. If it isn’t, you have a lot of work to do.

First, let’s recognize that not clients are going to be suitable candidates for increasing the existing relationship. Secondly, we can’t focus strictly on those “A” clients in our portfolio (assuming that you’ve implemented even the most rudimentary sales segmentation strategy, which is categorization into three to four tiers based on total relationship). There simply aren’t that many and if you’ve done your job effectively, there shouldn’t be many more “A” clients to add.

Getting deeper requires a defined approach. It doesn’t just happen. Clients will not call you on a regular or on-going basis and tell you that they need more services (well not usually). Rather, the responsibility rests on our shoulders to uncover changes in their operations and to look for signs that indicate growth, changes in direction and/or priority or changes in their day-to-day activities.

Sounds simple right? So, how should you do this?

One approach might be to engage in a “client call/touch routine” that will have you contacting the upper 65 percent of your portfolio on a pre-defined schedule or frequency. The rationale being that continued and consistent interaction with the client base will result in both uncovering possible “new” needs as well ensuring that in the event there is a competitive effort underway, we will have the opportunity to provide our recommendation.  

My next blog will feature two additional tactics to include in your relationship management process.
 

Hello. My name is Prince Varma and I’ve spent the better part of the last 16 years helping financial institutions (FI) successfully improve their in business development, portfolio growth and client relationship management practices.

So, since the focus of this blog is to speak to readers about risk management, many of you are probably wondering what a “sales and business development” guy is doing writing a piece related to mitigating and managing risk?

Great question!

The simple fact is that the traditional or prevailing sentiment or definition related to risk management – mitigating credit risk -- is incomplete. A more accurate and comprehensive approach would be to recognize, acknowledge and address that “risk” cuts across the entire client relationship spectrum of:

• client penetration/growth;
• client retention; and
• client credit risk mitigation.

How do penetration and retention count as “risk factors”?
(this is where the sales guy stuff comes in)

From a penetration perspective, the failure to recognize potential opportunities either within the existing client base or in the operating market, introduces revenue growth risk (meaning we aren’t keeping our eye on the top line). Ultimately it impacts the FI’s ability to add assets (either deposits or loans) and also has a direct affect on efficiency and deposit to loan ratios.

From a retention perspective, the risk is even more obvious. Our most valued clients are the ones that we must continuously engage in a proactive manner. Let’s face it. In even the smallest markets, there are no less than four to six other institutions waiting to jump on your client in the event that you grow complacent. There is a huge difference between selection and satisfaction. And, if we aren’t focused on keeping a client after securing them, our net portfolio growth targets will be impossible to achieve. 

Considering the current market environment, now more than ever, effectively managing these three elements of “risk/exposure to the FI” is crucial to an institutions success both practically and pragmatically. Everyone internally at the bank is focused on the “credit risk mitigation” piece. The conversations that are occurring outside of the bank’s walls however are focused on the “L” word or liquidity and getting credit flowing again.

How many times have we read or more frankly been beaten with this comment from business owners “…there’s no one making loans anymore…” or “…its impossible to get credit…?”

That should be read as … penetration and retention

Striking a balance between effective and appropriate credit risk exposure and deepening or growing the portfolio has been a challenge facing those of us in the front office for as long as I can remember. The “sales revolution” is effectively over. We’ve learned the critical lesson that we need to evolve beyond being strictly a credit officer (you did learn that right??!!). And, you didn’t/shouldn’t become a “banking products generalist” with no analytical depth. Knowing all this, it is important that we return to the guiding principles of effective lending which include:
- evaluating the scope of the opportunity;
- isolating the risk and identifying a reasonable and realistic recovery/mitigation remedy;
- determining what other alternatives the borrower might be considering; and
- being willing to let the “bad deals” walk.

In subsequent blogs, I’ll provide you with specific tactics aimed at optimizing penetration and retention efforts and implementing effective and practical client management strategies.

After all what would you expect from a business development guy…