Imagine you have given two commercial relationship managers (RMs) at your bank the same potential deal to work on.
Same credit worthiness. Same opportunity for cross-sell. The market is the same, the internal approval process is the same. So is the pricing technology they’re using.
Would the two RMs produce the same result?
Probably not. Even with all conditions being equal, the RMs working on it are not.
Some RMs are just better than others.
But how much better? Earlier this year, PrecisionLender looked for that answer. Our findings were published online in our report: “Measuring RM Performance: Proving Impact and Dispelling Myths.”
We delved into our database, which includes commercial relationships (loans, deposits and other fee-based business) from over 200 banks in the United States, from small community banks to the top 10 institutions. In addition to size, these banks are also geographically diverse, with headquarters in 35 states and borrowers in all 50.
We found three things.
- The best RMs matter much more than we hypothesized.
- They win on all fronts, without costly trade-offs.
- They share common traits and tactics.
Right now it’s assumed that to gain in volume, an RM must give on price. By that logic, RMs with the thinnest margins should have the largest portfolios. Yet we found the RMs with the biggest portfolios aren’t compromising on price.
When normalizing for loan mix and looking at RMs in one line of business pursuing similar borrowers, we found the RMs winning the most volume were also earning the highest risk-adjusted spreads.
We found a similar lack of compromise when it came to risk. Some of the top RMs we studied managed to negotiate higher spreads on a higher-quality portfolio than their peers achieved on weaker-rated books.
Winning On Fees and Price
Most banks we looked at displayed a tremendous dispersion in fee incidence across their RMs. While market aggregate fees showed variance by product type, deal size and term, perhaps the most significant factor in fee performance was the RM.
That performance matters, because RMs who included fees achieved consistently higher risk-adjusted return on equity than those who did not.
To get those fees, top RMs didn’t have to give on price. In most sample banks, there was a positive correlation between spread and fees, largely due to RM talent. Those ranked at the top for fee penetration had above-average spreads. Those ranked near the bottom for fees were also the low performers on spreads.
With today’s thin credit margins, banks often lead with credit to win more ancillary business. RMs routinely justify below-target credit pricing by including an anticipated cross-sell.
Putting aside whether those cross-sell promises are fulfilled, it would be easy to assume relationships with non-credit revenue carry lower spreads. We found the opposite.
Our data suggests relationships with above-average cross-sell revenue tended to carry higher credit pricing than those with below-average cross-sell revenue. RMs often cited the strength of the relationship—thanks to a track record of delivering value—as the biggest reason.
How Do Great RMs Do It?
The evidence we’ve collected points to a set of best practices that top RMs have in common.
- They act like trusted advisors instead of order takers.
- They deliver tailored solutions.
- They know what matters to the customer and the relative priorities.
- They provide alternatives.
- They maintain meaningful, ongoing communication.
- They explain their pricing.
- They leverage internal resources.
- They implement performance-based pricing.
- They are proactive in managing renewals.
- They negotiate well.
Some RMs manage to achieve volume, add fees, cross-sell and minimize risk, without conceding on rate. Look closer, and you’ll find a common set of tactics and strategies.
Banks that understand what makes their top performers great can turn a best practice into a common practice.