Let’s Eradicate Spray and Pray
I’m not taking about weed control in the garden! I’m referring to a sales technique that’s most often employed by well-intended but untrained employees who are trying very hard to do exactly what their employers have asked them to do—-SELL! These employees have their hearts in the right place. They really do want to please their bosses and help their customers, but no one taught them the skills they need to do something other than Spray and Pray.
Just so we are clear, Spray and Pray consists of asking the customer a question about their knowledge of a bank product. (e.g. Has anyone told you about our great low interest credit card?) The question is followed, usually in a very polite, friendly manner, with a list of features of the product (without taking a breath) and then asking if the customer is interested. (That’s the spray part.)
If we could hear inside the head of the well-intended employee we would hear them saying something like, “Please say yes to this product. No one has said yes all week and I’m getting desperate. I know there’s something here this customer must need, if only I could figure out what it is. Please let them say yes! Oh, I know that look, they are trying to be polite but look she’s actually taking a step back from me. How could she not want this great product? Everyone who has it loves it. I must not be good at this selling thing, I have so little success. P-l-e-a-s-e, say you are interested.” (That’s the pray part.)
One of the most effective things you can teach your staff is how to identify clues that a customer might need a product or service and to follow up on the clue by asking a question or two that would further confirm that the customer may find a specific product/service helpful.
Steps to Eradicate Spray and Pray
Teach your staff the clues that indicate a need for a product or service—including noticing on a customer profile that the customer doesn’t have the product/service. (e.g. the teller sees the customer talking on a smart phone and notices on the customer’s profile that they don’t have mobile banking.) The teller asks the customer, “How would you like the convenience of being able to do your banking from your smart phone?” Notice that the questions included a benefit that the product/service offers the user. A benefit expresses what the product will do for the customer, not how it works. Features describe how the product works.
A question that highlights the benefit of the service is far more likely to cause the customer to consider what’s being asked. Most often the customer will immediately engage by answering the question with another question, such as, “The convenience would be great but how safe is it?” Or, “Yes, it would, I just have not had the time to download the app.”
Now you have the beginning of a conversation. (A two-way dialogue.) You will listen carefully, answer questions, and before you start talking about the features of the product/service, you’ll ask a few more questions to ensure that the product you have in mind really does fit the customer’s needs.
“Your question about safety is a good one. I see that you are an online banking/bill pay user. Our Mobile Banking product is governed by the same high-security technology and personal safe-guard features as our online-banking/bill pay products. Our security measures for these electronic products are audited regularly. Do you have additional questions? No, then I’d be happy to help you download the app while you are here so you can begin enjoying the convenience of mobile banking today.”
Spend time at your next sales meeting reviewing clues that indicate financial service needs. Teach your staff the life events that typically lead to financial service needs. Teaching your staff how to uncover needs and how to engage in conversations with their customers is time well-spent. You staff will develop the skills they need to provide truly excellent service.
Opportunities Created by SEC Money Market Mutual Fund Reforms
Staff Article by Kevin Maas, Director, Wealth Management Compliance Alliance
The management of cash, regardless of the products or means used, is all about stability, liquidity and yield. Unfortunately, the long-standing industry-wide belief in the stability and safety of money market mutual funds was challenged by events early in the financial crisis. Most notable for money market mutual funds was the “breaking of the buck” by the Reserve Primary Fund, a money market mutual fund offered by Reserve Funds1. When entire marketplaces are shaken2, regulatory changes are sure to follow. One result of the financial crisis is regulatory reform which is aimed at protecting the safety of money market mutual funds. The increased awareness of the inherent risks associated with money market mutual funds and the regulatory reforms which diminish some of the features of money market mutual funds have combined to motivate trust organizations to increasingly for alternatives to money market mutual funds.
The regulatory changes following the financial crisis have taken form in the context of the investment of cash as amendments to Rule 2a-7 of the Investment Company Act of 1940, which the Securities and Exchange Commission (“SEC”) announced on July 23, 20143 Rule 2a-7 governs money market mutual funds. The SEC’s amendments to Rule 2a-7 make structural and operational reforms to address risks associated with investor runs in money market mutual funds4.
These regulatory reforms challenge the cash investment marketplace perspective on the trifecta of stability, liquidity and yield that has been the foundation and competitive advantage of money market mutual funds for decades. A floating NAV affects stability, the ability of a fund’s board to implement gates and fees for redemptions from a fund affects liquidity and, going forward the many changes to money market mutual funds will likely hinder yields and their spread relative to bank deposits. As an unavoidable result, the regulatory reform intended to stabilize money market mutual funds in times of stress has “destabilized” the value of money market mutual funds to investors and financial intermediaries.
Cash Investment Background
Many financial products can be involved in cash investment including bank deposit accounts, certificates of deposit, treasury bills, repurchase agreements and direct investment in money market investments to name a few. However, money market mutual funds have historically been the most common cash investment product for retail and institutional investors due to their principal stability, liquidity and payment of short term investment yields. A money market mutual fund is a type of mutual fund which is a registered security under the Investment Company Act of 1940 (“ICA Act”) and regulated under Rule 2a-7 of the ICA Act. Money market mutual funds pay dividends that seek to match short-term interest rates, are redeemable on demand, and, unlike other mutual funds, have historically sought to maintain a stable NAV, typically $1.005
There are several types of money market mutual funds, including funds that invest primarily in government securities, tax-exempt municipal securities, or corporate debt securities. Money market mutual funds that primarily invest in corporate debt securities are referred to as “prime funds.” Compared to prime funds, both government and municipal money market mutual funds are considered to offer greater safety of principal and as a result tend to pay lower yields. In addition, money market mutual funds are often designed to be marketed to different types of investors. Some funds are marketed to individuals and intended for “retail” investors, while other funds that typically require high minimum investments are intended for “institutional” investors.
Money Market Mutual Fund Reform
After the events of the financial crisis, the SEC adopted a number of amendments to rule 2a-7 in March, 2010. An underlying reason for money market mutual fund reform is the increased awareness that money market mutual funds are subject to risk in the form of market risk (both credit and duration), counter party risk and liquidity risk.
These amendments were designed to make money market mutual funds more resilient by reducing the interest rate, credit and liquidity risks of fund portfolios. Although the 2010 reforms were an important step in making money market funds better able to withstand heavy redemptions, based upon additional analysis the SEC proposed alternative reforms in 2013. After making numerous changes in response to comments received, the SEC in July of 2014 adopted final rules6that further amend the rules that govern money market mutual funds.
Below is a summary of the main elements of the SEC’s amendments to Rule 2a-7 and observations on the likely practical effect of those changes for trust organizations:
Fund Type Definition
A “government” money market fund is now defined7 as any money market mutual fund that invests 99.5 percent (formerly 80 percent) or more of its total assets in cash, government securities and/or repurchase agreements that are collateralized solely by government securities or cash.
Effect: The elimination of the ability of mutual fund companies to support the yield on government funds by investing as much as twenty percent of the fund’s balance in higher yielding non-government securities will reduce or at least restrict the yield on government funds. Moreover, this will occur at the same time as the flow of cash from some prime funds to government funds driven by the new floating NAV for institutional prime and institutional municipal funds. Thus, not only will issuers of government money market mutual funds be dealing with a large inflow of cash which will increase demand for government securities, thereby likely reducing yield, but at the same time, by virtue of the restricted ability to invest in non-government securities, the ability to compensate for a reduced yield on government securities will no longer be available.
A “retail” money market fund is now defined8 as a money market mutual fund that has policies and procedures reasonably designed to limit all beneficial owners of the money market fund to natural persons, including trust accounts.
Effect: The change to the definition of “retail” is generally supported by market participants as a helpful clarification. Nonetheless, intermediaries such as trust organizations and broker dealers who invest their customers cash using an omnibus account will face challenges in making the definition workable. Intermediaries should expect mutual fund companies to require explanations and certifications as to the nature of clients investing in a retail fund. Compliance effort and costs will increase for both the mutual fund and the intermediary.
Floating the NAV
Institutional prime and institutional municipal money market mutual funds will no longer be able to maintain a stable NAV9. Amortized cost to value the securities held will no longer be allowed, except for securities that mature within 60 days. As a result, daily share prices of these money market mutual funds will fluctuate along with changes in the market-based value of their portfolio securities. Additionally, institutional prime and institutional municipal funds which have been allowed to “penny round” their share prices to the nearest one percent (to the nearest penny in the case of a fund with a $1.00 share price) will be required to “basis point round” their share price to the nearest 1/100th of one percent (the fourth decimal place in the case of a fund with a $1.0000 share price).
Government and retail money market funds will be able to continue to quote a stable NAV.
Effect: Investors, such as trust organizations subject to a fiduciary duty, that cannot tolerate any share price movement (loss) for their cash investments are left with little choice but to move cash investments out of institutional prime and municipal money market mutual funds to other cash investment vehicles that better protect the invested balance. The potential of a loss in value of cash invested in those funds subject to the floating NAV is compounded by the fees and gates requirements which could limit the ability to redeem cash investments in time of stress by imposing additional fees for redemption and by delaying the ability to redeem cash investments at the very time that market conditions are a concern and the NAV is falling.
Furthermore, trust organizations tend to invest cash via a sweep arrangement . Sweep arrangements regardless of the product or investment that the cash is swept into depend upon stability of, and a return of principal invested. A floating NAV removes the stability and predictability that trust organization sweep arrangements require.
Liquidity Fees and Gates
The liquidity fees and gates amendments apply to all money market mutual funds, except government money market mutual funds10. This provides a money market mutual fund’s board with the ability to impose liquidity fees and redemption gates (“fees and gates”) in certain circumstances. The new rule allows a money market mutual fund board to choose to impose a liquidity fee of up to 2%, or temporarily suspend redemptions (also known as “gate”) for up to 10 business days in a 90-day period, if the fund’s weekly liquid assets fall below 30% of its total assets and the fund’s board of directors determines that imposing a fee or gate is in the fund’s best interests.
Additionally, a money market mutual fund board will be required to impose a liquidity fee of 1% on all redemptions if its weekly liquid assets fall below 10% of its total assets, unless the board of directors of the fund (including a majority of its independent directors) determines that imposing such a fee would not be in the best interests of the fund.
Note that while government money market mutual funds are not subject to the new fees and gates requirements, government funds may voluntarily choose to apply the fees and gates as long as that choice is disclosed to investors in advance.
Effect: Some investors may be unwilling or unable to invest in a money market mutual fund that can impose a fee or gate. For trust organizations, the cash currently invested tends to be in sweep accounts due to the primary focus on investing in a diversified market based return rather than holding significant cash positions. Thus, a fund that could impose a gate or a fee would create an unacceptable limitation on the ability to redeem at any point in time. It is precisely in times of market distress, when funds are most likely to impose a gate or fee on redemptions, that trust organizations as fiduciaries may be duty bound to redeem invested cash. As a result, the new fees and gates are a significant concern for trust organizations.
Stronger Diversification Requirements
The amended rules require funds to treat certain entities that are affiliated as one entity. Additionally, municipal funds must now limit the values of securities that could be subject to guarantee or demand features from a single institution to 15 %, from the former 25%. Similarly, for all money market mutual funds other than municipal funds, the diversification limit for guarantors and demand feature providers would be reduced from 25% to 10%11
Effect: The stronger diversification requirements force funds to seek additional issuers of securities. If the credit qualities of the investments were similar, there should be no net effect on fund risk and yield. However, given that the investments currently held in a fund are the result of a detailed analysis and selection process, it is likely that the forced liquidation and then repurchase of assets from different issuers due to the new diversification requirements will result in the selection of funds with a different risk and yield profile. As funds are forced to include issuers they have not selected in the past, this reinvestment could allow issuers to pay a lower yield than they would absent this artificial increase in demand12. Whether the pressure on yields resulting from the change in supply and demand balance will persist over the longer term is not clear at this point.
Money in Motion
Regulatory changes can clearly create business and practical challenges, but regulatory changes can also create opportunity. The opportunity in the context of money market mutual fund reform is twofold. First, for investors the opportunity is to reconsider outdated assumptions about money market mutual funds and alternative cash investment products. Secondly, for financial intermediaries, such as trust organizations, the opportunity is to shift the cash investment market away from securities such as money market mutual funds toward bank- offered products in the form of the money market deposit accounts that are the heart of FDIC insured deposit sweep programs. In fact, with a focus on FDIC Insured deposit sweep programs, much of the money put in motion by money market mutual fund reform will likely seek a home in banks like yours, and in your bank if you are seeking additional deposit sources. Investors and trust organizations are already looking for alternatives to money market mutual funds.
The shift in market preference from prime to government funds is very real and is already starting as evidenced by Fidelity’s decision13 to convert some of its prime funds into government funds, including the $114 billion Fidelity Cash Reserves which is the world’s largest money market fund. A similar move has been taken by Federated Investors, Inc. one of the nation’s largest investment managers, which announced on Feb. 19, 201514 its plan to restructure its line of money market mutual funds. Federated will continue to offer Treasury and government money market mutual funds but will change existing prime and municipal money market mutual funds to either institutional or retail funds. Additional changes are planned for money market mutual funds offered in both the retail and institution fund categories.
Trust organizations have the current opportunity and responsibility to consider alternative cash tools such as money market deposit accounts facilitated by an FCIC insured deposit sweep program to provide the stability, liquidity and yield that trust organizations as fiduciaries require for their cash investments. The SEC’s amendments to the money market mutual fund rules will reduce the stability of cash investments in certain funds by introducing a floating NAV, the ability of a fund’s board to implement gates and fees for redemptions from a fund reduces liquidity and, the many changes to money market mutual funds will likely reduce the ability of money market mutual funds to compete on yield. As evidenced by newsworthy changes to money market mutual fund offerings by firms such as Fidelity and Federated, changes in the cash investment marketplace and the movement of cash are well underway.
Bank money market deposit accounts facilitated by a sweep program provide the safety and stability of FDIC insurance coverage, daily liquidity via same day settlement, and a yield which has tended to exceed that of government and prime money market mutual funds while at the same time presenting the trust organization with a product that supports the discharge of their fiduciary duty. Moreover, FDIC insured deposit sweep programs provide to the trust organization the opportunity to generate revenue without an upfront investment or lengthy delay in implementation.
1 Reserve Primary Money Fund Falls Below $1 a Share, By Christopher Condon, BloombergNews – September 16, 2008.
2 Prior to September, 2008, investor losses in money markets were extremely rare. However, that changed when Lehman Brothers Holdings Inc. filed for bankruptcy. On Tuesday, September 16, 2008, Reserve Primary Fund, broke the buck when its shares fell to 97 cents, after writing off debt issued by Lehman. There was concern that investor anxiety triggered by this incident would cause a run on money market mutual funds. In response the Department of the Treasury established the Exchange Stabilization fund to insure the holdings of covered money market mutual funds, so that if a fund were to “break the buck” the fund would be restored to a $1.00 NAV.
3 SEC Press Release 2014-143 issued July 23, 2014 available at: http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370542347679#.VOEpxpUtFHs
4 SEC Release No. 33-9616, IA-3879; IC-31166; FR-84; File No. S7-03-13 (Money Market Reform; Amendments to Form PF.)
5 This report relies heavily upon SEC Release No. 33-9616 for not only discussion of the rule amendments, but also for historical background and context within which to consider the effect of the rule amendments.
6 SEC Release No. 33-9616, IA-3879; IC-31166; FR-84; File No. S7-03-13
7 17 CFR § 270.2a-7(a)(16)
8 17 CFR § 270.2a-7(a) (25)
9 17 CFR § 270.2a-7(c)(1)
10 17 CFR § 270.2a-7(c)(2)
11 17 CFR § 270.2a-7(c)(3)
12 SEC Release 33-9616 Section III.I, page 502
14 http://www.federatedinvestors.com/FII/daf/pdf/about_federated/press_releases/2015/021914_ Money_Fund_Product_Line.pdf
Satisfied Customers are Great Referral Sources
Do You Have Satisfied Customers? Could They Do More to Build Your Business?
Satisfied Customers are great referral sources. Telling your existing customers that you appreciate their business and asking them for referrals is an often overlooked opportunity. Here’s how that works: When you’ve helped a customer with an issue and you are thanking them for their business you can add an additional comment. “Mr. Jackson, it is always a pleasure to help you. I’m always available to assist anyone you may know who would appreciate the kind of service that we offer. Here’s one of my cards, perhaps you’d consider passing it along to a friend or family member?”
Proactive Outreach Calls
Picture this- It’s a hot summer day and no one is in the bank. Check your customer lists, do a quick review of their accounts and pick up the phone and place a call.
Validate the Service Quality
Hi Mr. Shannon, this is (your name at your organization’s name), I have not seen you in a while and I’m just checking in. Inquire about the customer’s well-being, family news, etc. State the purpose of the call. The reason for my call is that we are reaching out to valued customers to do a very short service survey. There are only a couple of questions. Do you have just a few minutes to help me with the survey? Great, on a scale of 1-10 (1 is the low end of the scale) how satisfied are you with the service you are receiving here at (your organization’s name)? If the answer is 8 or above, thank the customer and ask what he/she especially likes about the service. If the answer is below 8 ask what’s not happening that should be? Help me understand what you’d like to see that would raise your opinion of our service. Listen and ask more questions. Tell the customer that you appreciate his/her feedback and that you will be passing along the comments. (You will need to pass along the comments.)
Uncover Unmet Needs
After you’ve asked for feedback on the service question, ask if there are upcoming financial issues you might be able to help with. You might select a particular area for discussion such as:
It seems like in the spring and summer many of our customers are planning home improvements such as major landscaping projects, roof replacement, bath or kitchen remodeling. What’s on the horizon for your family? (Listen) If there’s a need, this is an opportunity to recommend a home equity line (loan). If there’s no need, state your interest in helping any friends, family members or business associates who might have a need. Offer to take a name and phone number and place the call to the person they suggest may have a need.
I’ve noticed that at tax time many of my customers appreciate having a discussion about their retirement savings plans; education savings for children or grandchildren; money-saving options that may be available by re-financing their home loan. Select the topic that you believe would be of most interest to the customer. Should we schedule a time to do a review of your financial situation and your financial goals ?
Ask for a Referral
I’m always interested in helping new customers get established with our bank. If you know of someone who could use my help, I’d appreciate it if you would pass along my contact information. Is there someone that comes to mind? (Obviously, if there is get the information.)
I’ll put a card in the mail so that you will have my information at hand.
Thank the customer for his/her time and set the next follow up.
Was it a Successful Call?
Successful prospecting calls require that you meet at least three of the following call objectives. Let’s review our approach in relationship to these objectives:
* make contact and identify satisfaction with service
* discuss business (their needs and/or our
questions related to what we see as potential needs/our products)
* learn more personal information to enhance the relationship and our ability to serve the
* define the next activity (our follow up call)
In this example, we met all four call objectives. As you can see, just a few minutes on the phone with an existing customer can have some solid payoffs. At minimum, you’ve made a personal contact with a customer you have not seen in a while. You’ve probably learned something valuable to enhance your next conversation with that customer. Your customer feels valued because you took the time to reach out and chat with him/her. You have at minimum planted the seeds for referral business, and perhaps even addressed an unmet customer need.
Take it One Step Further
Write a short note to the customer expressing your appreciation for the customer’s time and providing valuable feedback about service. Enclose two business cards, one for the customer and one for him/her to pass to a friend or relative.
When You Receive a Referral
When you receive a referral consider it a gift and always take the time to write a thank you note to the customer who referred someone to you. This demonstration of good manners will stick in the customer’s mind and you are likely to be “top of mind” the next time they hear of someone with financial service needs. They will think of you and refer to you again and again.
Remember: we refer to those we like and we trust.
The Last Word
with LOYD POHL
A foolish consistency?
The quote from Ralph Waldo Emerson, “A foolish consistency is the hobgoblin of little minds….” is oft used to justify “doing it my own way” or “why I need the flexibility to do it my own way.” I would like to take a stand on the side of “consistency is critical to business, management, service and sales.” (That is a Loyd Pohl quote!)
We all know how the analysts like consistent earnings and it is clear that top performing organizations have consistent performance from their lines of business.
Management consistency is critical to organizational success. The best managers are (and are perceived to be) consistent in how they manage people and processes. It is our observation that management consistency is a huge factor in employee morale – no one likes working for a manager or organization that is inconsistent in how they treat people.
Service (the way we define service) is all about consistency! If you go into a business and are treated well once, that might be “luck of the draw.” If you go into a business and are treated well every time, by a wide range of people in that business, it is probably because they are well-trained and have defined processes within which to handle customer situations – CONSISTENCY!
Consistent and strong organizational sales results are always a result of consistent management of the sales process. Organizations can have sales heroes or have a sales person who might have good years every other year, but that is not a sign of consistent management of a defined sales process. We see this over and over again. A Sales person has a good year- either hits a big deal and/or depletes their pipeline, then the next year they “start all over again.” Organizations with a single sales hero are often not producing new business at the rate the organization needs. Why? Because the rest of the team doesn’t have a consistent sales process nor are they consistently managed from a sales perspective.
A couple years ago I wrote about Sara’s and my experience as prospects for a high end time share in New York. The sales person was trained and the whole sales process was clearly defined to lead a prospect to the point of making a decision.
Do your sales people (part time and full time) use the same language about sales?
Do your sales people use the same sales process and the same language about the steps in the process?
Are all your sales people consistently producing sales results that are going to help you meet your organizational goals?
Do you know the answers to the above questions? Have you been out on calls with your people enough to know – really know how they sell? How consistently they sell?
These are really important questions! Call me if you want to talk about the answers.
Chief Executive Officer