Fearless referrals.

• Author: Owens, Gary
• Position: Feature

Regular customer referrals to the bank's investment services are a proven way to boost the bottom line.

But such actions don't happen by chance.

Success requires an organized training program combined with effective incentives.

There is one question that bankers rarely ask customers: "Would you be interested in learning about how we can help you reach your financial goals?"

The reason for this lapse is tragically simple: Most bankers don't know and recognize the enormous potential of investment referrals. Or if they do, they haven't followed up with a referral program that teaches bankers how to refer within the parameters of current law.

When it comes to building a successful investment business, most banks have half the equation tight. Over the past five years, billions of dollars have been spent through expansion and acquisition to broaden investment offerings and beef up investment staff. That's the good news. The bad news is banks have made a relatively small investment (in time and money) to broaden the knowledge base and comfort level of the referring bankers who fear overstepping their "advice giving" boundaries. For bank executives serious about winning market share from nonbank investment providers, attention to this part of the equation is imperative.

Review the facts

First, current law does not prohibit bankers from making investment referrals. It merely prohibits nonlicensed personnel from discussing or recommending specific investment products. Second, conservative figures indicate that on average, each and every investment referral that is made--including those that don't result in a face-to-face meeting or dosed sale--will add an immediate $80 to the bank's annual bottom line (see sidebar next page). Third, an investment referral program doesn't have to be complex in order to be effective. In fact, the ideal referral program is often the most simple and direct one. It lays out highly specific goals and highly specific steps for achieving those goals.

Perhaps the greatest obstacles to the implementation of such programs are lack of information and lack of incentive. The average retail banker doesn't know enough about the investment side of the house to make referrals with confidence, and many managers have not helped their team understand how to have productive conversations around investment referrals.

Making the most of referral opportunities

It is an unfortunate fact that in many banking institutions, investment referrals happen on a random, unplanned basis. For example, someone on the teller line may overhear a customer talking about closing a CD because the rates are low and refer them to the bank's investment department only after the decision has been made. Conversely, a new teller or personal banker may not be aware that an investment arm of the organization exists. These situations and others translate into lost investment referral opportunities.

Like any kind of referral, great investment referrals don't just "happen." Great referrals are created, and they are created through repeated, proactive effort. Perhaps the most critical (and most frequently overlooked) aspect of this effort is the profiling of potential customers. Bankers today are typically very good at profiling customers' basic banking needs, but when it comes to painting a picture of the customer's overall financial health--the very sort of picture that is needed to recognize and capitalize on referral opportunities--they tend to fall short. Why is this so?

Mostly it's because they're not being held accountable to ask the right questions. Their interaction...