First it was Wells Fargo, now TD Bank employees have gone public with assertions that they have perpetrated unethical and possibly illegal acts to meet performance targets. The consequences are frightful - a 17% drop in share value at Wells, and a 5.5% drop at TD Bank. At Wells, both the Head of the Retail Banking Division and the CEO have “left” the company and the bank has eliminated sales targets altogether. We don’t yet know what TD will do.
All this damage to the brands, employee morale and shareholder value because of performance management gone awry. The focus on making sales and cross-selling targets based on number of accounts / products and the value of revenue generation – which has driven employees to engage in unethical acts to make seemingly unattainable goals – is now a C-suite issue at banks everywhere.
What went wrong?
Both banks are the poster children of great selling results in their respective markets. What went wrong? The answer is simple: people were given the wrong goals to begin with. These banks and many others relied on revenue and account volume metrics that don’t necessarily bring new money into the bank, such as number of accounts opened, number of products per customer, and / or revenue per customer.
Typically there were minimum requirements for products sold per day, daily profit, packages sold per quarter, quarterly partner referrals and/or the number of loans made per quarter
- Independent Directors of the Board of Wells Fargo & Company, April 10, 2017, Sales Practices Investigation Report, p 29-30
What did the staff do? They opened lots and lots of accounts, including new products the customer may not have needed or wanted. And sure enough, some staff went so far as to falsify account records or engage in “simulated funding” – transferring money into new accounts from existing ones belonging to the same customer - to meet the goals.
…funding manipulation, generally employees funding an account held by a customer with their own money or money from another account held by that customer…
- Ibid p 36
Measuring the wrong things
It should come as no surprise that staff will do what you reward them to do – performance metrics drive behavior. That’s why it is critically important to base rewards and other performance evaluation criteria on metrics that encourage the right behavior. The unit sales and revenue metrics these banks (and most financial institutions in North America) use to manage sales productivity are old, outdated and misleading. These metrics have been used for decades, primarily because they are easy to measure and technology solutions enabling customer centric measurement of product substitution, new money sales and lost money attrition have not been readily available.
The problem with the focusing solely on revenue and account volume metrics is they:
- Drive the wrong selling behaviors. Ensuring product sales are meeting real customer needs requires supervisory controls that appear to be failing or absent today.
- Fail to measure the drivers of growth. For example, opening new accounts is guaranteed to drive administration costs up, but does not necessarily bring any new money into the bank.
- Foster internal competition among product teams and business units. Internal competition does not create value to the customer or the bank. For example, cross-ales (new product for an ongoing customer) often involve cannibalizing an existing product’s balances. One product manager wins, the other loses yet nothing has changed at the bank level unless new money is brought into the relationship.
So, using traditional “accounts sold” or “products sold” performance metrics will drive the bank to incur new costs without necessarily resulting in any real growth or deepening of the customer relationship. Sometimes to the detriment of customer relationships.
“1,534,280 deposit accounts that may not have been authorized and that may have been funded through simulated funding, or transferring funds from consumers’ existing accounts without their knowledge or consent.”
- Ibid p 26 footnote 7
Profit-driven metrics are also fraught with problems for financial institutions because margins are variable across products and time, and are largely not controllable by the front-line staff (discounting excepted, more on that later). If customer profit is used as a target, there is pressure to push customers towards higher priced products rather than the products they need. Trust is the currency of customer satisfaction in the industry and the perception than bankers may not be working in the best interest of each client erodes this core brand promise. This leads to higher attrition rates, which in turn reduces revenue generated - the exact opposite of what is needed to grow the bank!
What to do?
So, we know account openings, cross sales ratios and revenue growth are poor performance goals for managing selling and cross-selling. What’s a banking executive to do? Wells Fargo chose to abandon sales goals altogether. In our view this is both extreme and dysfunctional: staff need to have goals to enable meaningful evaluation of performance. Instead of eliminating goals, banks and credit unions need to define goals that motivate the right behavior – for the customer, as well as the institution. Financial Institutions need goals and metrics, but they must be the right ones.
Real growth drivers
Revenue growth is all about balances and pricing. Balance growth results from acquiring new customers plus new money brought in by existing new customers, net of attrition. These are balance growth drivers that staff at the front line can – and should – influence.
Yet, it is not enough to measure the results. We need to understand how front line staff have added to the breadth and depth of the entire customer relationship, spanning product, business unit, and geographical silos. We need to understand how funds flow across products to enable reaction to and prediction of changing customer preferences and needs, to achieve the goal of customer centricity. Bankers have the data, it’s time we start to use it. This is an issue of changing culture - and technology is the enabler.
The FlowTracker solution enables any bank or credit union to analyze and report on the flows of funds between accounts, products and the outside world separately at the individual account level – the keys to managing sales, attrition and understanding changing customer needs. FlowTracker requires minimal configuration to conform to your product list, is platform independent and is available as Software-as-a-Service. Best of all, it only requires six fields of data you already have as input (Institution, Product, Branch, Customer, Account, Balance) and we provide our customers with an encryption tool to ensure data security.
FlowTracker’s analysis method is patented, and available only from FlowTracker Analytics Inc. Book a personal appointment with our experts today for a demonstration, proof of concept or just to learn more about how we can help you fix your bank’s sales goals… before you experience the problems Wells Fargo and TD have suffered.