When Your Bank Should Consider Hiring a Consultant
No doubt, every bank CEO in America thinks his or her institution is richly blessed to have such a talented leader. But what happens when talent alone isn’t enough? “In life, you need many more things besides talent—things like good advice and common sense,” said Hack Wilson, baseball’s all-time single-season RBI leader.
While CEOs also believe they also have a corner on common sense, getting really good advice is sometimes overlooked, not sought at all, or deemed too expensive (at least, according to that CEO’s unfailing common sense!).
I should know. As CEO of one of the top performing community banks in the nation before becoming a consultant myself, I for years wasn’t inclined to shell out hard-earned dollars for professional advisers. To me, hiring a consultant also seemed a veiled admission that I somehow wasn’t up to the challenge. Then without warning, a disruptive event occurred, and I quickly changed my tune. I proposed to my board that we bring in a consultant who had experience in addressing such disruption.
We engaged a highly capable firm that, after assessing our situation, laid out a series of reasoned adjustments to our strategic plan. Our board members and executive team unanimously embraced and implemented the proposed adjustments. At first, it all seemed painful. However, within weeks, our ROA and ROE soared, and my bank suddenly ranked in the top 2-5 percent of all U.S. banks in those categories for eight successive quarters.
Not every consulting engagement will yield such a dramatic windfall, but there are certainly a wide variety of circumstances when a bank should consider engaging experienced subject matter experts. Let’s look at a few of them:
In order to enhance the customer experience, almost every financial institution is currently trying to understand how to break through barriers to digital transformation in the rapidly evolving FinTech age. This is a daunting task. Developing a cost-effective approach that is fully customized to the bank’s operating model and competitive environment often surpasses the skill set and overall resources of an institution.
A 2018 survey on North America banking operations by Accenture revealed, not surprisingly, that nearly 40% of respondents said that their limitations of legacy systems are among the top three impediments to digital transformation. Changing or adapting these systems can almost be “rocket science”, and may be best suited for an experienced consultant who is intimately familiar with the universe of both legacy iterations and FinTech innovation. A consultant can also help the bank tailor its FinTech interface with its business model.
Core processing can represent the single greatest expense for many banks. As with FinTech, a good consulting firm can play a useful role because their technicians are conversant in the numerous system features and costs of most processing vendors. These specialists are also aware of individual vendors’ internal infrastructure limitations and reasons for vendor reputation.
Moreover, a consultant has the knowledge and skill to negotiate terms and service levels of the core processing contract, often capturing huge savings. To spend a little money (with a consultant) to save a lot of money (with a vendor) can make perfect sense.
The payments industry is undergoing massive secular and structural change. Consequently, the enabling powers of technology are creating new opportunities and revenue streams related to mobile and digital transformation.
From front-office strategy to back-office operations, consultants can often assist banks with such things as card issuance, merchant acquiring/acceptance, third party payments and emerging payments (e-commerce, mobile, P2P, digital currency, etc.). Paying for such professional expertise can help banks to leverage market opportunities, address critical challenges and key issues in order to adapt, innovate and successfully transform their payments business.
More banks are coming to recognize that the way forward requires a proactive approach to connecting new banking channels, capturing customer loyalty and getting the most from its employees and its backroom operations—all the while controlling costs.
With objective, “fresh eyes”, seasoned consultants with state-of-the-art knowledge can provide an assessment of an institution’s existing corporate strategy, as well as its best practices, performance, products, lending, technology, sales, channel effectiveness, etc. Performing the assessment can also identify holes in the organizational structure, branding, corporate culture and other elements of the operation.
Consultants can help banks find practical steps that will generate demonstrable progress in exploiting strengths and addressing deficiencies.
While the number of banks with compliance-related issues has dropped considerably from the Great Recession days, compliance risk was still ranked second only to cybersecurity risk according to bankers polled in the 2018 Risk Survey by Bank Director.
The use of seasoned consultants can add value to institutions that may be proactively beefing up their Compliance Management System (CMS), as well as to banks that are struggling with their CMS or are under a regulatory order.
A merger or acquisition is perhaps the most obvious reason to engage a qualified consultant. There are many questions that need to be satisfied before proceeding on that path. A consultant can advise on every aspect a transaction, from merger viability to documentation to non-financial considerations, such as ongoing management, cultural issues, and systems integration.
Every merger is fraught with pitfalls, and the experience of a trusted M&A-practiced consultant can make all the difference for an institution’s stakeholders.
These are just some of the circumstances in which a consultant can be an indispensable partner. Consultants can advise on virtually any aspect of banking. Those consulting firms that usually do it best are the ones employing both former banking executives with proven track records in strategy and execution, and technicians who have demonstrated industry achievement in complex specialty areas such as technology, lending, compliance, etc.
Remember, consultants remain in existence only because they create value for their clients. Consultants draw on their collective deep experience and specialized resources to advise their clients, but only after eliciting specific client goals and assessing current progress toward those goals.
Bank CEOs and boards would, therefore, do well to remember another of ballplayer Hack Wilson’s admonitions, “Kids, don’t be too big to accept advice.”