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Relationship Managers hold a very important position within the bank and their success determines the bank's success. But hiring and retaining strong RMs has become increasingly difficult across the industry. Jim and Dallas sit down to discuss these rising challenges and ways banks can foster environments that make RMs thrive.
Helpful Information
How To Attract & Keep Top RM Talent At Your Bank
2016 Compensation Survey: Where Are The Lenders?
Podcast Transcript
Jim Young: Hi and welcome to The Purposeful Banker, the podcast brought you to by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, Director of Communications and Precision Lander, and I'm joined again by Dallas Wells, EVP of Banking Strategies.
Today we're going to talk about the front lines of your commercial bank, the relationship managers. Specifically, we're going to the questions that quite frankly are causing headaches at banks. How do you get talented RMs to come to your bank? And once you get them there, how do you keep them? This is a topic we've talked about and written about quite a bit in the past few years, and most recently it was in a blog called "How to Attract and Keep Top RM Talent at Your Bank."
Within that post are links to three or four other articles we've written about RMs in the past couple of years. Dallas, can you first explain to our listeners why we're a little obsessed with this topic?
Dallas Wells: Yeah. Why are we so obsessed with relationship managers? I think what it comes down to is two things. Number one, if you just take your customer list and sort it from most profitable to least profitable, what you'll find at both ends of that list are your commercial customers. So, they will be the most profitable, and they will also be the biggest headaches in the bank that are causing you major issues. So, it's a critical thing to get right for the success of your bank.
The second piece of it is that for all the parts of the bank that we have digitized and automated through technology, putting together a commercial deal and sourcing a commercial deal are still very much a manual and complex task. So, it takes a person to do it and it takes a very specific skillset to do it.
Relationship managers are key in that they have a rare skill and whether or not they're good at what they do is extremely important to the success of your bank. We've looked at it from size of deal flow that RMs bring through, and the dollars of return that they generate, and for your most productive lenders in any bank, it's a big number. Even if you're paying them quite well, it's a big multiple of their salary.
So, it's hugely important and we think that a lot of banks tend to maybe undersell the importance of relationship managers, how important it is to have good ones, and how important it is to give them the right kinds of tools and the right kind of environment in which to operate.
Jim Young: Yeah, that's true. I would also say there's also this group that has a sense that it's important and gets that part of it, but just doesn't quite know how to address the issue. I think that really came up in a survey, that 2016 Bank Director Survey that we linked in that blog post. It had some interesting findings. It said 40% of the commercial bankers that responded said that recruiting commercial lenders, and we'll be using commercial lender and relationship manager interchangeably in this podcast so bear with us.
They said recruiting those guys was the top priority for 2016, and 43% though then said there aren't enough of them talented ones around, and then 34% said they wanted to recruit millennials which also plays a role in this, but were really having a tough time attracting them. Oh, and 43% also said they'd be willing to pay highly to bring in those relationship managers.
So, basically they're willing to pay the money, they know it's important, they can't seem to attract them. So, Dallas, if money isn't the issue here, then what is?
Dallas Wells: Well, I think banks are willing to pay and almost all of them that we talk to they're like, "Cost isn't the issue. We will write whatever check we need to if we can just find the right people and they're willing to actually move." It's the classic thing of if somebody's willing to and begging to come work for you, maybe they're not the ones that you want.
Jim Young: Good point.
Dallas Wells: Yeah, so prying somebody away who's being successful somewhere else is really tough, and sometimes it's not about the dollars. What it's about, and what this comes down to is I think if you are a relationship manager and you back away from just the monthly paycheck, that's important, but if you look at what the value of your career's really based on, your long term success, your currency is really the relationships that you have with your customers, the following that you have of customers, and your ability to get things done for them.
So, you need to be a bank where relationship managers feel like they can best serve their customers, and they can respond to them in a way that makes them happy to get up and they have a purpose every day in getting up and going to work, and helping their customers succeed in what they're doing. If they're good at that, then that following is very loyal and it grows over time. That's how a relationship manager really generates value. That's how they have value in the marketplace is with that following.
So, it has to be a place basically where you can get deals done and it's not like pulling teeth. It's not a root canal every time that you do try to get a deal down the conveyor belt and get it done.
Jim Young: All right. I'm going to back you up a little bit here, 'cause you're getting ahead of me on the script here, Dallas. A little bit inside baseball here, 'cause that is the next thing, is even if you do attract them, then the issue is keeping them there, and you've already touched on that, which has a lot to do with what the job is then like day-to-day. That is probably a bigger challenge, because we came across a really eye-opening stat from the good folks at CEB which is now part of Gartner, that showed that average RM tenure dropped from five years to three from 2010 to 2014. That's a 40% drop in tenure. Am I doing my math right on that one? I'm not the bank guy.
Dallas Wells: Yep, yep. You got it.
Jim Young: Boom, nailed it. 40% drop in just four years. Kind of go back to a little bit what you were talking about there with these next two questions. Why would RMs be so unwilling to stick it out at their bank? Then the next question is, how much does this matter, or are we in this new reality where banks just need to adjust to constant RM churn?
Dallas Wells: I think if we back up a little and look at why that drop is happening, I think there's a couple of big factors there that's important to understand. One is as you hinted at there, there is some kind of this is the new reality in that. Used to you would have a lender who would come to a bank and they would work there for 25 years and then they'd leave with the gold watch, and that's just not the way it works anymore.
The typical millennial, I've seen tons of stats on this, will have 12+ jobs in 5+ different industries, things like that.
Jim Young: Right. Just to clarify that, that's not on banking, that is across the board. That's just the nature of the beast now.
Dallas Wells: And the other thing that you have that's a little bit unique to banking, and some of this is again, big picture demographics, but I think it's really accentuated in banking, is you have sort of an aging talent base here. You have relationship managers, commercial bankers, who are nearing the end of their careers and so some of them are starting to ride off into the sunset.
Banking as an industry has abandoned all these training programs that they used to have which built the next crop of commercial lenders, where you'd come in and you'd be an analyst for two years, and then you'd work in credit, and then you'd be a junior lender, and put together deals with training wheels on. You were well down the road before you were doing this on your own. Those training programs don't exist anymore, so when somebody does leave and hang 'em up for good, now banks turn and look for, "Well, who do we replace them with?"
There's no young talent, there's no young pipeline of talent coming through the door to replace them in that seat, so you've got to go elsewhere to find them. It creates this cycle where banks are picking off each other's lenders, and so that's why you've seen the salaries go up and that's why you've seen the tenure drop.
So, back to your question, why would they be unwilling to stick it out? Some of this is still reverberations from the financial crisis where banks really had to do the turtle reaction. They had to duck inside and clean up some messes and you saw the pendulum swing from it was really easy to get a deal done to now it's really hard. It was a necessary thing for risk management and dealing with regulations and all those things. Survival mode just made it hard to do business.
Some banks have found it hard to unwind that. So, it is difficult to get deals done, and so relationship managers feel like they're spending more time negotiating internally than they are sourcing deals and negotiating externally. Their biggest headache is not competition down the street. It's not finding viable deals. It's getting them through the process at the bank, and getting it through there in a smooth enough way that they don't tick off their customer along the way.
So, that's one of the reasons why they might be unwilling to stick it out, and also again, just all those demographic issues. There's good offers out there because all banks are looking for this kind of talent. If you're good at this, there's no shortage of opportunities for you. Does it matter? Heck yes, it matters. Again, you're talking about your best, most profitable customers and these are your most complex deals that some of them have a lot of hair on them, a lot of moving parts.
So, continuity matters. If you take your best customers and every third time they come in and deal with you, there's a new face across the table, they're going to shop those deals. Why would they have loyalty to you when you don't have it the other way around? So, definitely very important.
Jim Young: Okay. So, we've established that this is a problem and as you just pointed out, it is a problem worth solving, or at least improving upon. As you mentioned, there's going to be some demographic stuff and some cultural shifts that may not make it possible to return to what we had, and have guys, a bunch of 25 to 30 year tenure RMs at your bank. But as the Bank Director Survey pointed out, it's not a problem that can be solved by money alone. Money is at least part of the solution, certainly that's the case.
Dallas, I want you to put on two hats here. You're now the Chief Lending Officer at a bank, but you're also the Head of Recruitment there. What are you going to do, given the context you've given us, about the industry and about the demographics et cetera, but also about the importance of having RMs that stay around and get better improved? What are you going to do to bring that talent in the door, and then what are you going to do to keep it once it gets there?
Dallas Wells: Feels like a job interview. I hope I get this one right. So, this is a really tough one, but I think what it really has to start with is a foundational approach to relationship managers. There's still a ton of banks, and we talk to them every day, that have almost an adversarial relationship with their frontline bankers.
So, essentially they're saying, "Look, we've got to have them. This is our sales force," but we hear terms like they're coin operated, right? You just pay them for what you want them to do, and then don't let them do anything dumb. Put lots of boundaries around them, give them to what they call where I'm from, the mushroom treatment. Keep them in the dark and feed them a load of crap, just like keep them doing the basics of what you need them to do with lots of restrictions so that they can't do anything dumb.
It goes back to if you, one of the links in that blog post was our discussion about Zipfian distributions and how banks tend to spend a lot of resources in trying to keep their least productive lenders from making a mistake on the small deals that they do. What they end up doing is handcuffing their very best, most productive lenders who are working on the biggest, most important deals at the bank.
So, getting the balance right is really important, and the banks that do it, and treat their relationship managers like what they are, which is skilled professionals who are representatives of the bank to your most important customers. They should be friendly, right? Not adversarial, right? You should be their biggest supporter. Instead of feeling like you have to keep them in line.
There are some banks that are really good at this. One of the first ones that comes to mind is Pinnacle in Nashville. They have really good, experienced lenders with big books, knocking on their door wanting to work there. It's not just because they pay above market salaries. They do pay well, but so does everybody. They have this reputation where, "We only hire very good bankers and then we let them do what they're good at." So, if you can get that reputation by walking the walk, that I think is the biggest first thing you can do, is just make the right kind of environment.
Give your bankers the right kind of tools to allow them to succeed. You're bringing in banks, you're paying them big six figure salaries, big bonus payments, and then you're going to nickel and dime them, give them cheap equipment to work with, say, "We don't do iPads because we don't want to spend 800 bucks on you." Little things like that that really make it hard for people to do their job, those are the kinds of things that build a bad reputation and make it hard to recruit.
I think that's the foundation you start from to get RM talent in the door, is just the right kind of reputation with customers, that you are flexible and responsive, and you're going to be doing that by enabling and empowering your bankers. Once they're there, it's more of the same. Give them insight into what you're doing and why. Be transparent with them. Tell them what's going on, let them see the inner workings of the bank, why you're doing what you're doing, so that they can be, again, a proper representative out to your very best customers.
Jim Young: I get this. I'm going to play devil's advocate here. I get this, this sounds wonderful. Empowerment sounds like a wonderful thing. Who doesn't want to be empowered? But there has to be some risk involved in, for lack of a better word, giving up that sort of control. Is there a scenario in which that could outweigh potential reward? Or, put it in other ways, is it possible that in return for the other part of that question is, you know what, I'd rather have more control and just accept that I'll be perpetually churning and hiring? Is that an acceptable alternative?
Dallas Wells: Well, I think you're right in that either one of those can be outrageously expensive, right? The constantly churning and hiring is expensive reputationally and dollar wise, and so is letting the inmates run the asylum, right? That can be dangerous, too. I think the important part of that is there will be lines that can't be crossed, right? This is a highly regulated, thin margin business. You absolutely have to put some clear boundaries in, but you can put those guardrails in place and say, "All right, this is out of bounds, but everything that is in bounds, between those lines, you have some freedom to make some decisions there."
You have to have RMs who understand the business and you have to clearly articulate for them what those risk and return trade offs are. So, yes, this is taking on more risk but here's the cost associated with that, here's the potential return from that. Let them see, "If I'm putting this kind of deal on, here's what I need to get paid to do that." Banking is the business of risk, right? It is not avoidance of risk. That is the very essence of the business is we take well considered risk and we get compensated appropriately for it.
So, let your skilled professionals figure out what that risk is in that particular deal, and tell them what the return needs to be to be compensated for it. As long as they can get that, let's get it, right? And put those deals on the books. You can adjust what that return has to be and that's how you do this, is transparent measurement of what those things are worth. Let the bankers exchange those things with your customers. Kind of wash, rinse, repeat, right?
As the balance sheet changes, the market changes, you can make adjustments to that, but give them that information, explain to them why you're doing what you're doing, and we've seen banks that do that do really, really well. Their bankers love it and they start to get much better production out of it.
Jim Young: Yeah, that's great stuff, Dallas. One thing also I would point out is that we spend a lot of time here talking about machine learning automation type stuff. That is the hot topic that's burning up the industry, but we've spent this entire podcast talking about humans and humans and the importance of humans, and the importance of handling and managing those humans. Giving those humans the right emotional environment, so I think in some ways while this is a very tough topic, it's also a little bit reassuring because it is still so important that humans play still such an important link in the commercial banking relationship management industry.
Dallas Wells: Yeah. It's a little bit of a cliché maybe but it is a relationship business and it is a people business. So, all of the technology, the automation, the machine learning, we spend millions of dollars building and developing that stuff, but it is to put it in the hands of people who are having conversations and negotiations with other people across the table. So, it's to help them do those things better, and especially in the commercial banking world, that's what it's all about.
Jim Young: Absolutely. All right, well that will do it for us today. Thanks for listening. If you'd like to learn more, visit our resource page at Explore.PrecisionLender.com. If you like what you've been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, Google Play, or Stitcher. We love to get ratings and feedback on any of those platforms. Until next time, this has been Jim Young with Dallas Wells and you've been listening to The Purposeful Banker.
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