Back in early 2016, Bank Director’s annual compensation survey included some very interesting findings about the hiring – or more accurately “attempted hiring” – of commercial lenders.
- 40 percent of the respondents said recruiting commercial lenders was their top priority in 2016.
- 43 percent said there aren’t enough talented commercial lenders available.
- 34 percent said they’re actively recruiting millennial talent but were having trouble attracting them.
(Note: For consistency purposes, we’re going to use the term Relationship Managers or “RMs”, in place of commercial lenders, throughout the rest of this piece)
We wrote a piece back then about the importance of banks keeping at this difficult task and then moved on to other banking issues. The topic got our attention again earlier this year when CEB Commercial Banking Leadership Council included this stat in a presentation on Sales Enablement.
In the space of just four years, the average tenure for an RM had dropped dramatically.
Clearly, banks are feeling it on both ends. They’re having difficulty attracting new talent to fill their open commercial relationship manager positions. And they’re having a tough time keeping the commercial relationship managers they already have.
It’s a problem that can’t be swept under the rug, because having talented RMs at your bank, really, really matters.
The Outsized Impact of Top RMs
Banks already know this on some level - thus the strong desire to hire more RMs. But when we ran the numbers on the RMs at our client banks, the results were even more glaring.
We ended up writing a blog post on it, titled “Your Best Lenders Matter More Than You Know.”
Here’s what we found.
To get a sense of the best RMs’ impact, we first used the simple metric of portfolio size to determine what the top, or “Alpha,” performers would look like. Obviously, portfolio sizes vary greatly depending on the bank, so we measured size relative only to the other RMs in their bank.
Here’s what Dallas Wells wrote in that post:
“We expected top-heavy production, but frankly, the degree of that top heaviness was surprising.
“In most of our client banks, the top 20% of commercial lenders produce about 60% of the total commercial portfolio. But, the really impressive part is that they not only produce more volume, they also produce more profitable deals as measured by risk adjusted ROE.”
We then drilled down further to see what this might look like on the individual bank level. These are the numbers for a client bank with approximately 200 commercial RMs. We divided them into deciles by volume. Here’s what the production looked like for the top three groups.
The Top 20 RMs are clearly outperforming their counterparts in these two key metrics, generating superior ROE (13.2% vs. 9.3% and 8.1%) while also producing bigger portfolios ($139M vs. 57M and 26 M). And this is just a look at the top 20%. You can imagine the variance between the top decile and the bottom 2-3 deciles.
What RMs Want
To recap thus far:
- Banks are having trouble hiring new RMs.
- Banks are having trouble retaining current RMs.
- Good RMs have an outsized effect on the commercial bank’s bottom line.
What’s a bank to do?
For starters, they need to understand there is no one magic bullet. Attracting and retaining top RM talent is instead a combination of multiple efforts, including competitive compensation (recall the Bank Director survey noted that banks are willing to invest on this front) and sophisticated, focused recruiting. But for the purposes of this blog we’re going to look at another key area: Making the RM position something that young talent wants, and something they’ll keep wanting several years after they’ve started.
In this era of employment – and particularly with this generation of employees – that means paying more than lip service to the concept of empowerment.
This was the focus of Daniel Pink’s recent bestseller, “Drive: The Surprising Truth About What Motivates Us.” Here are a few quotes of note:
“Control leads to compliance; autonomy leads to engagement.”
“Human beings have an innate inner drive to be autonomous, self-determined, and connected to one another. And when that drive is liberated, people achieve more and live richer lives.”
Those may sound like New Age jargon and out of step with the serious world of banking, but humor us and think about how this idea of autonomy over control might play out at your bank, with your RMs.
Autonomy > Control
For many RMs, their work experience is about following a strict set of guidelines. The bank uses a model, or sometimes still just a rate sheet, to tell them how they should price each deal. If they can’t fit the deal within those confines, RMs then must go ask for an exception. They’re often left feeling like either an order taker — simply checking off “Yes” or “No” —or a middle man, shuttling between their customer and their manager to see if they can find common ground. Neither of those make RMs feel “autonomous” or “self-determined.” And they certainly don’t feel “connected” to their customers.
At one time, perhaps banks could throw enough money at an RM to get them to stay in place, grit their teeth, and garner enough experience to eventually become an Alpha producer. Nowadays RMs with potential are much more likely to leave the bank and head to a tech company that’s more modern in its views about employee empowerment.
But what if your bank could give its RMs a different, better way to work?
The first steps depend upon transparency. The bank’s RMs need to know more than just their targets; they need to know the thinking behind how the targets were set and how this fits into the bank’s overall strategy. And then they need to know how their fellow RMs are faring. This fosters both a sense of community and competition.
The RMs need that transparency down at the deal level as well. When they can see the effect that every deal term - not just rate and maturity – can have on profitability, they can then put together structures that meet both the bank’s needs and the customer’s. They’re no longer order takers. Instead, the RMs able to find creative solutions – provided they meet those targets the bank has set (and explained).
Speaking of the customers, the RMs need to be able to have transparency here as well. They need to be able to have an open, frank conversation about what they’ll need from the customer in order to make the deal work from the bank’s end. This in turn, leads to more trust and transparency from the customer, a better conversation about the deal, and the sort of human connection that fuels job satisfaction for young RMs.
Freedom … Within Reason
This all hinges on banks’ willingness to give power to their RMs. They need the freedom (and the tools) to be able to shape their deals when they’re most malleable – when RMs are sitting down at the table with the client. Give the RMs a target to meet, then let them choose their path to that goal. There’s no need for exceptions — either the deal works or it doesn’t. But there is room for autonomy and potential for much greater job satisfaction.
Banks face a stiff challenge if they’re going to increase the number of talented, experienced RMs on staff. But the potential rewards are worth the effort.
Banks that create a work environment that empowers their RMs will wind up with a loyal, experienced, and productive sales force. And that is an invaluable competitive advantage.
About the Author
Jim Young, Director of Communications at PrecisionLender, is an award-winning writer with experience in a range of positions in media and marketing, from reporter to website editor to content marketer. Throughout his career has focused on the story – how to find it, how to understand it, and how best to share it with others. At PrecisionLender he manages the many ways in which the company shares its philosophy on banking and the power of relationships Jim graduated Phi Beta Kappa from Duke University and holds a masters degree in journalism from Columbia University.More Content by Jim Young