Financial planning is like working out; we all know we should do it, but we probably don’t do enough of it. What if your bank was that financial personal trainer? Banks are in an ideal position to offer financial advice, and your bank can start on the most basic level. If you are looking to increase brand loyalty, satisfaction, and cross-sell opportunities while decreasing risk, helping a customer with budget planning is the number one thing your bank can do.
The concept is to have a central, defined specialty to rally your bank around. Budgeting is such a theme that is defined, is demanded by both retail and business customers, and a skill that you can easily train your employees around.
In an Accenture poll, 74% of respondents said that they would like their bank to help them with basic budgeting. This holds true for retail and business customers alike. While only 25% of customers will pay for such a service, it doesn’t much matter because the result is greater cross-sell, greater balances and a more educated (plus loyal) customer.
Choose Your Partner and Channel
To take this a step further, there are a variety of applications to help in this effort. This might be a full personal financial management (PFM) system such as MX, or Geezeo or it might be working with Quicken, Money or other applications. Teaching customers how to access and use these applications is a huge step forward and allows your bank to not only help with budgeting but to garner the data from account aggregation as well.
Next, work with the client to understand priorities and long term objectives so you can help the customer determine the difference between required spending and discretionary spending that could be reduced. Retirement, education, business goals, vacations, and other important objectives should all be tracked and prioritized.
Choose Your Data
Once your bankers have an understanding of where the client is and where they are going, pulling in some common ratios help, as does benchmarks. For example, excluding mortgage payments, debt-to-income should not exceed 15%. Discussing credit scores and credit score improvement is also a tested conversation that both consumers and businesses appreciate. Looking at benchmark data in the PFM or using data from Survey of Consumer Finances (they update this next in 2019) and Bureau of Labor Statistics, or from a hundred of other sources for specialty data (apartment owners, etc.), can help the customer understand if their spending is too low or high in any given area.
In 90% of the cases, both businesses and consumers don’t save enough, which is where you can directly benefit. Setting up subaccounts, alerts or other functions if your core system allows is helpful, as is setting up an automatic sweep to move, say 10% of the direct deposit into a savings/investment account is usually a financial improvement.
Choose Cross-sell Opportunities
This is also the time to help solve a variety of other problems if your bankers are so versed. Insurance, mortgage refinancing, wealth management, tax planning, college financing, business lending or any other areas are optional discussion points for the initial meeting or in the future.
Banks should stratify their customers and decide the appropriate amount of time to invest in each category, with typically 40 minutes to 10 hours per year being common depending on the complexity of the customer. Internal benchmarks for the program should also be set. Here, most banks strive to increase products-per-customer sold with this process to be three or more over the course of a year.
This should equate to about a 30% increase in profitability depending on the type of products and customer. Most importantly, a benchmark such as savings balances achieved, satisfaction increase or net worth growth should be documented and measured since the whole point is to benefit the customer. It is also important to note that the information and plan should make it into the customer's record in the bank's customer relationship management (CRM) system.
Putting This Into Action
Too many banks overlook this one single process that can boost customer profitability more than any other endeavor. We have found that the mere offering of the product helps drive brand loyalty as it places your bank into the realm of a trusted advisor. While tons of budgeting and financial management information is available, bankers can impart the discipline on their clients to actually utilize the information and hold them accountable. This is similar to having a personal trainer, but one that can help your customer and your bank become more profitable.
Submitted by Chris Nichols on February 06, 2019