Change in the financial industry happens slowly. Or more to the point, it usually happens only after long periods of the status quo. And only after something makes a change absolutely necessary.
Sometimes that something can simply be a public outcry reaching a fever pitch. One issue that banks and bank advisors are certainly talking about succession planning, although it hasn't yet reached a fever pitch. I believe it will in a few years but only once a concrete business reason forces the issue. Until then, we'll have a few years of the status quo.
Bankers and bank advisors are certainly talking about succession planning, which, mostly seems to fall into two camps. It's either characterized as an inevitability and an issue banks need to get in front of, or it provokes snarky comments, mostly from bankers, that advisors don’t own their books of business and they need to realize it.
As for the former group, there are indeed a few banks that are creating their own succession programs. (See our other articles on two such examples, one from a big regional bank and another from a credit union.)
But many others aren't making such moves, even if they're talking about it. The problem? Bank advisors haven't hit retirement age yet. In fact, if banks don't act until that first wave of advisors retires, the oldest of the advisors may be left out, unfortunately. But once the clients of those retiring advisors begin to drift off, that's the catalyst that will absolutely require a change.
And that's where the big divide occurs. Many banks act as if they don't believe the clients really will drift off. This is where bankers start talking about "sticky customers," which means they'll endure minor inconveniences. I see two problems with this. One, banks aren’t very good at making their customers sticky; and two, even if they are, it's not a way to engender loyalty.
Chart shows averages for AUM and trailing-12 production for bank advisors at various points in the careers. Source: Bank Investment Consultant research
A few stats: According to a study earlier this year from RFI, about 12% of bank customers are "very likely" to switch banks in the next 12 months. Even more telling: More than 75% of bank consumers say their banks are not meeting expectations, according to a study by FIS. That doesn't mean they are disgruntled enough to change banks, but it's not a good position for any industry when three out of four customers aren't happy with your services. Granted, that sentiment captures more than just advisory services and customer stickiness, but it offers a 30,000-foot view that banks are falling short.
Moreover, two other key strategic aspects of customer retention are lacking for banks. One of those keys is a lack of competitors for customers to turn to (there are thousands of banks and usually at least a dozen in most cities); the other key is offering something truly unique (customers view banks as homogenous and, yes, there are studies that show this too.)
So we get back to sticky customers and loyalty. Banks' version of this entails selling more products to each client, which, in turn, will make the notion of leaving unpleasant enough that they'll endure inconveniences to avoid the pain of moving their accounts. But does cross-selling really make customers sticky? Not everyone agrees. Kevin Tynan, a senior vice president of marketing at Liberty Bank in Chicago, wrote about sticky customers recently for our sister brand American Banker. He said: "Bankers have a perverse attitude toward stickiness. On one hand, we see it as a positive. But on the other hand, it means we accept high levels of customer frustration as a matter of doing business. In effect, we celebrate the barriers we've erected to prevent customers from leaving."
So what does this have to do with succession planning? Plenty, a few years down the road. Once advisors start retiring in droves, we'll have the answer on whether customers are truly sticky. If so, they'll stay and just grumble how they feel like their expectations aren't being met. And bank advisors may need to get used to not having much of a succession plan.
But if those customers are not, in fact, sticky, then the grumblers may join those actively looking to change banks. And once clients start to drift off, then banks will act. Because they'll have to.
- Young Bank Advisors: On the Road to Success
- Rising Stars of the Bank Channel
- Succession: Look to the Bank for Potential Trainees