A Commercial Banking Retirement Wave ... or Tsunami?

A generation of commercial bankers is rapidly moving toward retirement. In this episode The Purposeful Banker, we look at the what the industry can do to lessen the impact of this impending talent crunch.

  

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Questions? Comments? Email Jim Young at jim.young@q2.com

Transcript:

Jim Young:
Hi, and welcome to The Purposeful Banker. The podcast brought to you by Q2 PrecisionLender, where we discuss the big topics on minds to today's best bankers. I'm your host, Jim Young, senior content strategist at Q2. And I'm joining you today by Dallas Wells, SVP of product at Q2. Today, we're going to talk about the graying of the commercial banking workforce. The implications for the industry and steps FIS are taking to smooth out what could be a bumpy transition. But before we get to that Dallas, we should probably address the slight change in our introductions. Listeners, at least the ones who actually listen to my introductions will note that the podcast is now brought to you by Q2 PrecisionLender, as opposed to just PrecisionLender and they'll note the changes to our job titles. So Dallas, I'll let you start. PrecisionLender joined the Q2 family more than two years ago, this isn't like breaking news here. So why the naming change now? And what's up with your new title?
 
Dallas Wells:
Yeah, So you're right. This is not breaking news, but we are pushing to integrate everything a little tighter. So, Q2 was wonderful through the acquisition and let the PrecisionLender business unit, kind of, operate as a free standing unit just to continue the momentum that we had and to be really thoughtful about how we put the companies together. So those of you, which will be quite a few who have done M&A stuff on the banking side, you understand how tricky those things can be. And when you put a couple of complex businesses together, there's some inevitable friction in that. So we wanted to be slow and thoughtful and intentional about how that combination happened. It's gone really smoothly, and so we're making several changes beyond just the podcast to really, kind of, combine the two entities and look for a little greater good here as we combine resources.
 
So I think what you'll hear, is some more voices because we've got access to a lot of experts doing a lot of different things in banking and FinTech world that I think will be relevant for listeners. So you'll get to hear from some new perspectives, which I think will be really useful. My title is different. So it is SVP of product across Q2, which means I do more than just PrecisionLender stuff, now. Again, we've always done this podcast.
 
I think the goal has been to not make this about product or to make this a 20 or 30 minute commercial that we put in your ear every couple of weeks, but instead to talk about things happening in the industry. So that won't change, we'll continue to do that, but I think we'll have a little, maybe, broader view of some stuff that's going on. We have more customer stories. We have more problems that banks and credit unions and FinTechs are working on that I think will be worth talking about. So I don't think you'll see a drastic change other than maybe some things that are... They'll be adjacent to the topics we've always talked about, but maybe, some new topics as well.
 
Jim Young:
Yeah. And I think you hammered on probably, the only point that I can make is really, let's be honest. Nobody cares about the change in my title at all, but my title expands beyond just PrecisionLender to more of the Q2 commercial products. And as you mentioned, this podcast cast, isn't going to change fundamentally in what it is, but I think you will start seeing a few more topics outside of purely, commercial lending. And to be honest, we've done that quite a bit already. But you'll probably see just a little bit more in those areas or except see but hear in the coming weeks and months.
 
Okay. Now that we've gotten that housekeeping out of the way, back to our regularly scheduled programming. The article, that's the basis for today's conversations from American banker and it's titled, "How banks are preparing for a wave of boomer retirements." And we'll have a link to it as always in the show notes, but Dallas, can you, kind of, first start us off with some broad brush strokes about the issue at hand here?
 
Dallas Wells:
Yeah. And I very much appreciate you bringing me on one and calling it the graying of the workforce. I feel like that was pointed directly at me.
 
Jim Young:
Well, we do these on zoom. And for those of you if did a while we posted these, any of you who have seen these video recordings will know that I have significantly more gray than Dallas does.
 
Dallas Wells:
Yeah. So I think what the article's talking about is, even though Jim and I have some gray, when we are out talking to clients and prospects, there's maybe, even a little more gray in most of those rooms. So the workforce in general, the demographics are, again, is not a new topic. It's everywhere in the economy. It's part of what's driving all of the difficulty in filling job openings is, there's a whole bunch of retirements happening and that causes, kind of, a domino effect throughout the workforce. And so this article tackles that, and then also, how specifically for the banking industry, this is maybe even a little bit more of an issue. So probably this is succession and filling empty spots and institutional knowledge. These are things the article talks about. And it's probably something, every single financial institution, we encounter, is wrestling with in some way.
 
Jim Young:
Yeah, I think there's going to be... As we're going to get into it though, I think there's some additional complications in the banking industry that other industries aren't facing. And even within the banking industry, I think there's some additional ones that commercial banking specifically are facing. And that's, it's hard not to notice that midway through the article, they take the time and space to say, "Hey, this is really an issue with commercial banking." I've tentatively titled this podcast, a commercial banking, retirement wave, or tsunami. Am I too dramatic for the sake of a catchy headline or do I have some legitimate cause for concern here?
 
Dallas Wells:
I think that's a hundred percent legitimate. That's not too much drama at all. The demographics say that there's boomers retiring at something on the order of 2 million a year that has picked up the pace a little bit through the pandemic. There's not a lot of specific stats in the article, but there's some anecdotal evidence of the banking industry is worse than that. There's one institution in particular, talking about 40% of their workforce is 50 or older saying that's pretty typical for savings institutions in the Northeast. An interesting part of this is, that it's not just the fact that there are a lot of retirements coming up. It's that there's this kind of air pocket underneath those senior folks in that age group. And this is another follow on effect of the financial crisis. In 2008, 9, 10 for several years after that, banks weren't hiring because a lot of them were still trying to shrink into their new, reduced capital base and meet the new capital standards and work through all the losses that they had.
 
And it was just an ugly time, this was not a growth phase for the industry. And when they were hiring, they didn't exactly have a lot of highly talented, qualified folks banging on the door to get in the industry either. So you had a pretty good long stretch where there was not a lot of new incoming talent. And so those would be the folks that would be the natural, next up for some of these management positions at these institutions. And they're just simply not there. Banks, kind of, got back to hiring and growing and expanding. Gosh! Probably 2016, 17, before it really, kind of, got back to normal. And so there's absolutely, kind of, almost a little generation, many generation gap there across the industry. And it's really starting to show now, there's just not a next level of management or ready to take the reins from here in a whole bunch of places.
 
Jim Young:
All right. Let's say though, that this is, as with most things, that it's going to fall somewhere in the middle, it's not, "Hey, no problem. We got this covered." But it's maybe even though I'm believing now that I've gotten your, go ahead, I'm absolutely using my headline of a tsunami, but maybe it's not a complete disaster. So assuming like at a commercial bank, let's say you're losing, I don't know, six or seven commercial RMs in the next couple of years to retirement. And you're only through regressive recruitment or poaching, maybe one away from your competitors, that, sort of, thing. You're able to bring in maybe three or four. What's that ripple effect like? What does that do if you can't do a light for one replacement of everybody that retires? What's the ripple effect?
 
Dallas Wells:
So you've seen this inaction for a long time now, which is the assets per employee across the industry, just skyrockets. And it has, by a ton, that's part of the issue. You used to have 30 relationship managers to cover your commercial book. Now that book is bigger and maybe you have 20. So everybody's load gets a little heavier. They have more customers to support. You really have to wrestle with that. And I think that's where you see a lot of banks trying to figure out, how do we get more efficient with this? And how do we provide the same kind of white glove service that we've told the marketplace that is our differentiator forever and ever? For decades at this point, how do we keep providing that with just less humans around to do so?
 
So you have to invest in the technology to make it happen. You have to be smart about how you use support staff for those fewer remaining senior level employees to really be able to, kind of, maximize their time, actually interfacing with customers and serving them. So this is why you see so much frustration and why the whole digital transformation process has so much friction in it. Is, banks are at a high level saying, "Well, we have to invest in technology to make this all work." And so they do that, but then, their experienced senior level employees are entering 38 fields into Salesforce to open a new sales opportunity. This doesn't feel like what we were really after. So the execution of this is difficult and there's a whole lot of institutions that aren't doing great at it. And so I think you're seeing some service levels go down.
 
And I think that's why you're seeing what all the survey data shows is, customers less loyal than ever before to their commercial banks. And some of it is because new options are easy to find. And some of it is because maybe, the service isn't what it used to be. And when you call your banker's cell phone number, he's less likely to answer. And maybe he can't get you in to meet and discuss something for two weeks instead of two days. These things have real consequences that are hard to measure. And I think we're seeing them, it kind of turns banking into a commodity in a lot of ways that I think we should be fighting against.
 
Jim Young:
All right. Wow. You've actually forced me now as the glass half empty guy to actually try to put some positive-
 
Dallas Wells:
We're going to trade here, aren't we?
 
Jim Young:
Yeah. We'll put a spin on here. Right? You may recall that Carl Ryden, our old co-founder or PrecisionLender, sometimes had a little bit - or at least this was what it was told to me - let me put it that way ... as someone in marketing, that there was a philosophy of, kind of, intentionally running lean on a workforce because that, sort of, forces you to figure out what's most important, right? You can't do everything. So when you run lean, it forces you to know what's important, and then it forces you to identify, okay, now this is the real pain. So this is where we do need to address this. So could this shift have that maybe unintended, but, possible, positive effect. Just as an example, you mentioned about, for banks that have signed, have been able to, kind of, make, do with the old way of doing things, you lose a few more RMs, and suddenly you say to yourself, we have to do more digital transformation. We don't have a choice. So could there be a possible, positive effect out of this?
 
Dallas Wells:
I think for banks to survive against the competition that they now face, they do have to fundamentally change, right? And again, this is not a new take from me or that you'll see somewhere else. Right? But this is another one of those forcing functions. So it causes you to be slow when you have plenty of stuff around to handle most of the things that you want to get done, or that you feel like are needed. All the compliance stuff, all the regulatory issues, all the safety and soundness, all the credit stuff, everything feels really important. So you staff up to cover it all. And even with all the cost cuts that have happened, banks are not exactly lean and efficient. They're not. And it's somewhat the nature of the industry for all those things that I just mentioned.
 
You don't have a lot of room to make mistakes. So you have to have people around, kind of, on watch. But I think Carl's philosophy here will absolutely play out where there's just not enough folks around, both budget wise and because of this demographic issue, there's not going to be enough experience folks around to do all the things. And so it may not be necessarily like you can't just turn off compliance because you're too busy for it, but maybe you don't do all things for all people, right? So you can't be generalist financial institution anymore. You can't do mortgages, and boat loans, and commercial loans, and wealth management, right? You're going to have to maybe pick the things that you are especially good at and can actually offer some sort of differentiated service and do that exceptionally well.
 
I think you're seeing more and more of that happen in the industry for lots of reasons, but this will be one of them. It forces banks to pick a path instead of covering all the paths. We're going to pick one and we're going to do that well, and we're going to have to choose to throw some things overboard because we can't continue on like this. So I think that's what you'll see, hopefully, rather than banks getting sloppy is you'll see them getting very intentional with their path forward. All right. So now that I've gone, maybe slip back in my more familiar role here of glass half empty person here. And yeah, welcome back.
 
Jim Young:
Yeah. Thanks. This felt harsh when I wrote down this question, but I'm going to ask it anyway. In the article, they quote CEO of a Massachusetts based community bank, a Stoneham Bank and says, "My boss always embedded in us that you're training your team to take your job." And I guess what I'm wondering is, is what if the younger bankers at your financial institution don't want that job that the senior ones have, or at least the version of it that they have? And on the other side of that is, what if the job that a senior banker could train a younger one for, really will no longer bear a resemblance to the job that they're been performing in the coming years?
 
Dallas Wells:
Yeah. Well, I think your question feels harsh because it, kind of, sums up the problem here. And that it's not just a recruiting problem, but it's also a retention problem. So the article opens with this exact same bank talking about, they used to, kind of, get a feel for people's feelings about career paths and their happiness with wherever they were, and flexibility, and stuff and exit interviews. So as people were leaving, you, kind of, get a gauge on that. And they're like, "Maybe we ought to do that while they're still here and figure out some of those things." But I think that's absolutely part of the issue is that the talent that banks want in those spots don't necessarily want that type of job done that way. They're looking for things that move a little faster, they're looking or more work life balance. They're looking for places where they can be more creative and more innovative.
 
So I think the old days of you, kind of, choose your era apparent and you spend the next five years and they tag along to all your meetings. And there has to be some of that. Right? But what you're exposing them to is not like you have to do the day to day exactly the same way I did the day to day. Instead, it needs to be exposing them to like, "Here's how you make decisions at this level. Here's how you manage at this level of the organization. Now you're managing managers of people instead of managing individual contributors." Those sorts of skills that I think are universal and applicable. And I think some of the younger folks will be more excited about than the, kind of, nuts and bolts and do it exactly the same way.
 
So mentoring, training, these things are going to have to be approached differently. And so I think you're going to see banks investing some in this and putting together some of these training programs, bring in some outside expertise to help with this transition from one group of leaders to the next. And especially now that you're hearing more and more banks, kind of, getting on board with this idea of, "Hey, we're actually more like software companies than we ever... We are actually technology companies and the technology we're is actually access to your money. That's where all of our investments are. That's where most of our customer interactions are. Let's just face up to it. That's who we are."
 
That means you have to manage and grow employees in that same way too. So it'll be a culture change for a lot of banks, but it's not like this has never been done before. Right? There's lots of companies that have figured out how to do this. It's just going to be, how do you do it within the existing culture that you have that some banks will figure out and some won't and those that do figure it out are the ones that are on the acquiring side rather than the acquiree and all those M&A transactions.
 
Jim Young:
All right. Well, finally, so you tackled that pretty well. I got to tell you from a developing and nurturing talent within the ranks point of view, but, kind of, circling back to, sort of... I think was a part of the initial part of this, which is the recruiting, bringing in new blood into it. So I'm going to put you into the role of banking, talent recruiter. And you got, let's say you got talented, smart candidate. We'll give maybe an econ degree. They're not going to be some political science person like me out there, but you've got to convince them that they should join your commercial bank as say an RM in training, as opposed to say, taking a gig at a tech startup. What's your pitch? Or as we like to say in our marketing sales bids, what's your differentiator? How do you peel them away from, not just FinTech, but tech in general for a lot of these guys.
 
Dallas Wells:
Yeah. Your competition is no longer just the bank across the street or around the corner. It really is, if you look at the dollars poured into FinTech over the last, Gosh! Even just five years, you're talking about hundreds of billions of dollars of new investment. And where that money goes. I can tell you from being a part of some of these companies that have been on the receiving end of some of that funding, it goes to hiring people. That's what the money is being used for. It's to hire up people to build products and build companies and write code and go find new ways of, frankly, stealing your lunch.
 
And so the banks have all new competition here, and I think they can't go with the old pitch, which was, "Hey, look, I get that that seems exciting. They may not even be around tomorrow. Come work at the bank. This isn't just a job where it's going to be fun for a few months till the funding runs out. This is a career and it's 40 years. And as long as you, kind of, keep your nose down and work hard and do what you're supposed to, all will work out and be fine." I don't think that's going to be the winning pitch very often. And if it is, you, kind of, have to wonder, is that really the selection bias there is? That really the kind of employee that you feel like you need to take you over the hump here and to compete in this new world.
 
I think what you have to pitch instead is, "Look, this industry is undergoing massive change. Come be a part of that. Come help shape what banking looks like in the future. There's going to be tons of money to spent, tons of opportunity. There's lots of senior folks leaving. You will have a chance to make a difference, have your hand on the wheel and help us figure out where this thing goes. And along the way, you can help a lot of people, you can actually do good in your community and you can do good for your customers." I think all of those things are true and they are appealing. And that's how we need to go about recruiting into this industry rather than just, "You'll have a nice gold watch and sail off into retirement in 50 years." That's, first of all, less true than ever. And second of all, I just don't think it's as appealing as it once was.
 
Jim Young:
Yeah. And to be honest, if you told someone that they wouldn't believe you. So yeah, right. This current crop of people, don't try to tell them this is where you'll be 30 years from now. They're they're not buying that one, so, right. Yeah. All right. Well, not a bad recruiting pitch. There're also, I will say, on this and they have mentioned also as well that yeah, you're going to have to be competitive with your salaries, right?
 
Dallas Wells:
That's right. Yeah.
 
Jim Young:
We are in a money industry. And that part of it is evolving and changing for banks as well. Is that the compensation's got to be competitive out there.
 
Dallas Wells:
Yeah, absolutely.
 
Jim Young:
Yeah. All right. Well that will do it for this week's show. So Dallas, thanks again for coming on.
 
Dallas Wells:
You bet. Thanks Jim.
 
Jim Young:
And want to remind everyone, I probably should have mentioned this because you might have been thrown off like, "Hey, didn't you guys do a podcast last week. What's up with coming right back with another podcast."
 
And the reason for that really is, is the holiday season. So, we're going to have this one and then we'll be off next week. And that allows us to come back, start of the new year. I believe January 3rd will be the next podcast to be on the lookout for. So first off, thanks for sticking with us through all of 2021. And looking forward to seeing you guys in 2022. And now for a few friendly reminders. We want to listen to more podcasts or check out more of our content, visit the resource page, PrecisionLender.com, head over to our homepage to learn more about the company behind the content you like. What you've been hearing, make sure to subscribe to the feed and in Apple Podcast, Google Player Stitcher, love to get ratings and feedback on any of those platforms. Until next time. This is Jim young and Dallas Wells, and you've been listening to The Purposeful Banker.

About the Author

Jim Young

Jim Young, Director of Content 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 Jim 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.

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