Financial Services Decathlon

Financial services are traditionally called "sticky" -- customers are reluctant to switch, providers are all much the same and switching is a hassle.

But the New Zealand financial services industry appears innovative and competitive. Product ranges, distribution channels and service approaches have changed greatly over recent years.

So what really happens when a savvy customer tests the market? Has anyone "got it right"? Or does the customer still have to work around attitudinal and technical barriers? I recently tried to find out.




(John Mendzela's article appeared in Financial Alert on 4th June 2003 and The Independent on 9th July 2003. If you use or quote from this material please attribute it to the author and publishers.)

I drafted a letter outlining what I was like as a customer. Key points included:

  • What my situation was and why I was thinking about change
  • The long-term loyalty I had shown as a customer
  • A fairly standard set of needs across banking, credit cards, insurance policies and investments
  • A pattern of high positive account balances, with relatively few transactions
  • Desire for a service package and pricing structure that
    • Was relationship-based, with continuity of key personnel
    • Favoured savers over borrowers
    • Rewarded loyal existing customers over new ones
    • Did not make unhelpful distinctions between "commercial" and "personal" customers
    • Customised and integrated services across three entities: a professional company, personal accounts and a family trust

Surely every potential provider would be keen on this "high value" customer! So what happened?

Previous conversations with my existing "personal banker" had generated just standardised responses. But being pragmatic, I gave them another crack. I sent the manager my draft letter, adding that a discussion could remove the need to send it elsewhere. I even suggested the manager refer the letter upwards.

What was the bank's response? Effectively, nothing -- just another unhelpful call from the same person. This lack of escalation demonstrated poor training, weak business processes and perhaps cultural problems. When a loyal and profitable customer takes the trouble to send a wake-up call, something more should happen!


Event No 1 -- Swimming: Train people to know when they are out of their depth and what to do about that. And encourage internal teamwork.

So I went to the marketplace. I contacted the other mainstream banks, several niche players and several insurance providers.

Each organisation recognised the opportunity. Each one sent information and brochures. And each one named a person to take discussion further. But things diverged from there....

One smaller Auckland-based bank outlined what seemed like a responsive package and identified a contact person in Wellington. I left two telephone messages with him, but never heard further. Strike them off!


Event No 2 -- Relay Race: Good sales leads are precious. Referral processes should reliably hand over a lead, not just throw it towards the next runner.

One mainstream bank sent some paperwork and followed up with a telephone call. But comparing the paperwork and the discussion with others, it was clear that this bank had little to offer "high value" clients. It was also clear they didn't know that! Another one gone...


Event No 3 -- Follow the Leader: Don't compete in markets you don't understand or can't service. A weak "me too" approach just does damage...

Analysis of the remaining offerings revealed a three-way split:

  • The three mainstream banks offered mainly standard insurance products aimed at the mass market.
  • Insurers who claimed to offer banking and credit cards sounded unconvincing.
  • The niche players -- insurance brokers, stockbrokers and smaller banks -- couldn't offer a complete package, though some claimed to.

I decided to do three things: split off insurance and consult a broker, check out some smaller banks, and (after that) talk to the three mainstream banks.


Event No 4 -- Medley: There is more to offering a comprehensive package of financial services than just offering a full product range.

The insurance broker understood my general and personal insurance needs. Staff offered knowledge, personal service and timesaving business processes. The discussion broke clear of the mass-market products I had been using.

But brokers can only broker what insurers will underwrite. Frustrating product limitations emerged, for example an assumption that a professional office had to operate from "commercial" premises. It was difficult to restrict cover just to major personal catastrophes. On the other hand policies excluded or limited important risks such as a requirement for specialised medical treatment overseas.

Apart from a few standard adjustments like burglar alarm discount and non-smoker premiums, there was no willingness to adjust pricing for long-term claim experience and habits. Excesses were too low. Product complexity was high, with many complex add-ons that must add to administrative and premium costs.

I concluded that personalised distribution channels didn't achieve much if insurers would not customise their offerings for individual customer needs. In the end I bought an improved package of general insurance but stuck with my existing personal insurance policies. I remain dissatisfied, and I will progressively "self-insure" rather than subsidise higher-risk customers. On to banking and investment!


Event No 5 -- Bespoke Tailoring: Insurers seem reluctant to "underwrite smart" and respond to non-standard circumstances. As more customers become selective buyers, profitability may be eroded.

Talks with smaller banks soon petered out. One had just the right sort of service and pricing package, aimed at savers. But it was only prepared to deal on that basis with "personal" customers. Yes, my company was nothing like most small businesses and its banking requirement was just the same as a personal account. But their policy was not to offer that package to "commercial" customers. Frustration!


Event No 6 -- Mixed Doubles: Many historic distinctions between "commercial" and "personal" products and customers are outdated. Business gains are on offer from a more holistic approach.

Each of the three remaining banks offered a good banking package. But investment services proved more difficult. To make available "high-value customer" banking benefits, the banks wanted agreement to a package of investment management fees calculated as an annual percentage of the value of investments managed. Yes, my particular investment strategy and asset allocations made those fees too high for the value added -- but the fees were part of the package. Yes, the fees would seem high if returns from investment markets stayed low -- but the fees would stay the same regardless of investment returns. And no, they could not administer overseas investments -- except through unit trusts that added unnecessary costs.

At this point I sidetracked. Perhaps a financial planner or a sharebroker would be a better bet? Why not split investment services from banking services?

Talks with financial planners soon changed my mind. Their asset allocation formulas seemed to rely mainly on the high returns of recent years. Product offerings were off-the-shelf, with high entry costs and annual fees. And while there were some opportunities to include direct holdings and overseas investments in "wrap accounts", annual administration fees were high and unrelated to returns.


Event No 7 -- Three-Legged Race: In lower-return investment markets, investment management fees will need to reflect more closely the value added. Managers and advisers may have to share risk with the investor, not just take a fixed return.

Discussions with a sharebroker started off well. I did not really fit her firm's top-end customer package or their "discount" services, but they were apparently keen to attract new customers like me. It looked possible to construct a mutually satisfactory package of services and pricing. She would get back in touch next week...

But she never did. Perhaps I was too small a meal ticket? I decided not to bother further with sharebrokers for now....


Event No 8 -- Representing the Team: Follow up to close the sale, or at least leave a good impression of your organisation and your industry.

So I was down to the last three runners, all mainstream banks. But suddenly my existing bank re-entered the race. The previous manager had gone, and my new "personal banker" seemed more capable. A chance conversation generated a visit from a senior adviser, who could now match the other mainstream banks with a new offering. Why trouble to move? I put my current bank back on the list.

But the adviser's contact suddenly stopped. Two weeks later a letter arrived. He had resigned to join a competitor. Thinking about that, I realised that a serious underlying problem with their service over the years had been turnover. And it was the people I valued most who had left to work elsewhere. Back off the list!


Event No 9 -- Rematch: A good recovery process can win back a customer, but not if that process reinforces the original problems.

Now one of finalists began to stumble. Yes, everything I wanted was available. But my "personal banker" would in reality have little flexibility to tailor a service package for me.

Her priorities, and her manager's, focused on short-term transaction revenue not long-term relationship profits. Internal success measures seemed driven by quantitative surveys and ratings. Casual conversations with business colleagues reinforced this perception of a bureaucratic culture. This bank was talking the talk of customer focus -- but not "walking the walk"....


Event No 10 -- Roadwalking: Incentives and measurements can help remedy bad service, but only the right culture can create good service.

Another finalist displayed a different problem. Their investment management service focused mainly on New Zealand investments, and the fee structure was costly. This disappointed me, since the culture felt good and the person concerned was knowledgeable and relationship-oriented. I did however appreciate his frank advice that I should probably go elsewhere, do some things myself or split my business between two providers. I left with a positive impression of his organisation -- and it will be my first port of call if I go shopping again.

The Bronze Medal: Financial services need to recognise a global economy, but professionalism wins customer respect and maybe future business.

Meanwhile the third bank was -- after some initial confusion -- winning on all fronts. The basic banking and credit card package was fine. A non-standard pricing package was offered even though that was more trouble for the bank. Willingness to invest staff time in set-up assistance impressed me.

My non-standard investment management approach was taken seriously, as an opportunity for creative thought rather than a problem. Even though their ultimate recommendation -- to do most things myself -- was no different from the bronze medallist's, they offered useful ideas and perspectives.

And above all, everyone really wanted to get my business. Decision made!


The Silver Medal: Going the extra mile to understand and meet customer needs should operate as a personal challenge for staff, not just a slogan.

And what came next? The changeover worked well -- it really isn't that hard to switch banks. Every initial promise was delivered on.

Not everything has been smooth sailing. I had teething problems with some systems. My pricing package generates extra transactions because inflexible processing systems automatically add charges that need reversal. And yes, my personal banker has just moved on!

But the overall service relationship is working. As long as that remains true and the basics get done right, I will stay a loyal and profitable customer. In fact the range of services I use has already widened, increasing that customer profitability.

The Gold Medal: Retention and growth of high-value customers is a better strategy than complex new products or expensive customer acquisition campaigns. And it's much cheaper!