Jeff Judy

Jeff's Thoughts - February 1 , 2012

Is "Advisor" a Dirty Word?

Your business customers have teams of advisors, both formal and informal, who influence their business decisions and ultimately contribute to their success (or failure). They certainly have legal and accounting advisors, at the least, but there may be many more players whom the business owners rely upon to help them see opportunities, head off threats, and make better decisions.

Do you count yourself among those advisors?

I can remember a time when the phrase "financial advisor" was in every commercial banker's vocabulary. We didn't just process applications, quantify creditworthiness, and communicate decisions. We pointed out actions that would strengthen the business and enhance their credit worthiness. We shared insights that we gained through our analysis of their business and their industry.

We helped the business owner run a better business, and we were not ashamed to admit it!

These days, you don't hear bankers volunteering to be "advisors" to their customers. The main reason for the change is probably the emergence of lender liability as a separate, and creative, field of legal activity. Banks went from wanting to influence the behavior of borrower management to, as they say, "plausible deniability" in case the business went downhill. They became much less interested in taking some pride in the success of their customers and much more interested in avoiding blame for any deterioration in the customer's performance.

The effect? For all the talk about building relationships with customers, this change in the bank's own perception of their role, and the subsequent changes in banker behavior, helped move banks from trusted advisors in long-term relationships to service providers, merely vendors offering a commodity (credit) that customers value mainly on cost and convenience.

To put it another way, they reduced their arsenal of competitive advantages. Instead of offering superior value, in the form of valuable information that could help the owners/management run a better business, they were reduced to competing on price and terms and speed of decision. Having better people working with your business customers no longer conferred a significant advantage. Pricing and automated systems became the basis of the "relationship" with the business customer.

Now, I'm not suggesting you start promoting yourself loudly and explicitly as a "financial advisor" to your business customers. Lender liability remains a very real source of risk, and we'll never go back to the way we talked in the old days, whether those were the "good old days" or the "bad old days."

But we do not have to completely give up that role. "Advisors" do not have to give "advice," they do not have to suggest what a business owner "should" do.

Some of your customers' advisors are valued because they are sources of information. They help the business owners see what is happening, what has happened in the past, what might happen in the future. Their management still decides what actions are appropriate to that information, but they make better decisions with the help of an additional expert perspective.

As you evaluate their business plans, their financial statements, their industry trends, and all the other factors that go into a good borrower analysis, you may see things that they have overlooked. You may see areas where financial management practices are wasteful or ineffective; identify threats to future success that the borrower may have underestimated; or at least generate questions about anticipated shifts in the business environment and industry conditions, questions that the owner would do well to think about.

I believe you can provide valuable information without taking on a fully advisory role, and the benefits are significant. First, you strengthen the relationship and gain competitive advantage by offering value your competitors do not. Indeed, the value of your insights may offset a competitive disadvantage in, say, pricing.

Second, with more and better information, most (not all) of your borrowers will make better decisions, leading to enhanced financial success. And that leads to more opportunities for you as their preferred bank.

It is a fine line to walk, I know. But I believe too many banks are walking too far on the wrong side of that line. We can safely serve our business customers, and our own interests, better.