Editor’s Note: This is the second of two articles. The first article, Developing a Client Selection Strategy, addressed the development and implementation of a client selection strategy.
Financial institutions are developing client selection strategies to align with the institution’s risk appetite. If your institution has developed a client selection strategy, it can be used to guide the sales organization in client acquisition. With the implementation of your client selection strategy you may have learned that your financial institution has current client relationships that fall outside the acceptable parameters of your strategy. This article suggests an approach that can be used to exit those unacceptable relationships.
Step 1: Create a Report of Existing Clients with Attributes Identified
To begin the process, it is important to start with a review of the client selection strategy and the attributes that support the institution’s risk appetite. Working together with a data analyst, sales management requests the development of a database for the entire client base that pulls all of the attributes included in the client selection strategy. If the strategy includes 10 attributes, the database will have 10 columns containing each of these attributes for every client. The data analyst can prepare reports to allow sales management to sort and identify key attributes of concern. Furthermore, sales management can use the client database to weigh the attributes that are of greatest concern. By applying weights to the attributes, a score can be developed for each client. The resulting list of clients can be sorted by addressing the clients with the worst score before the clients with marginally better scores. The data analyst reruns the report with the requested weightings and sorts the output in descending order so that clients with the worst score appear at the top of the client list. For example, if a regional bank has a client selection strategy that prohibits doing business with clients who have operational centers outside the U.S., the database can weight that attribute more heavily than others. When the data analyst runs the report with weightings, any existing clients with operational centers outside the U.S. will appear at the top of the report.
Step 2: Understand the Revenue Impact
As sales management designs the database of clients with the data analyst, add an additional column that includes the revenue each client generates for the financial institution. Through sorting routines, compare the revenue generated to the weighted score of attributes. This will identify clients that return low revenues but carry a high risk because of their attributes. Having the risk weight-to-revenue comparison can be used to guide management’s decisions about clients whose revenue does not offset the risk those clients represent to the institution. In addition, as the list of clients is reviewed and decisions are made about which clients fall outside the institution’s client selection strategy, sales management should total the revenues those clients represent, so that the division’s revenue forecasts can be accurately adjusted. It is important to note that large revenues do not justify the risk. Instead, large revenues can support additional controls that may mitigate the risk. There will be clients who have attributes so far outside the institution’s risk appetite that no amount of revenue can support a decision to retain the relationship.
Step 3: Identify and Schedule an Initial Meeting with Key Stakeholders
At this point, sales management has a list of client relationships that should be considered for termination because one or more attributes are not in line with the institution’s risk appetite, and the revenues generated by those clients are not sufficient to support the controls needed to mitigate the risk those clients represent. The next step is to identify key stakeholders within the institution with whom the list should be reviewed. Consider the following stakeholders and the rationale for including them:
| Stakeholders | Rationale |
|---|---|
| Sales Executive Management | Identify the impact on revenue for the division and ensure alignment with the institution’s risk appetite |
| Corporate Banking and Client Management | Consider the entire relationship of the clients at the institution to determine if the risk-revenue ratio has bearing on the decision to exit the selected clients |
| Product Management | Identify alternative solutions for impacted clients which may include processing by other institutions or third-party processors or the Fed/other government agencies |
| Compliance | Review the list and offer support for the rationale used to risk score the attributes and the process by which clients who do not meet the strategy were selected |
| Legal or Contract Administration Team | Consider any contractual issues that are connected with ending an account relationship with the clients on the list |
| Customer Service or Customer Call Center Team | Create awareness of the project and allow management of this function to prepare for the account closure process and increased call center inquiries from impacted clients |
| Client Communications Team | Prepare written materials for distribution to clients who are impacted by this process |
| Regulatory Relations | Create awareness that a group of client relationships may be terminated and prepare for questions or concerns raised by any regulatory groups |
| Community Relations | Create awareness that a group of client relationships may be terminated and prepare for questions or concerns, particularly if a subset of clients is located in a small community or represent a sensitive customer base |
| Media Relations | Prepare responses for questions that may be raised through media outlets and via social media |
| Training Team | Throughout the process, training will be needed to prepare client-facing staff to handle each situation. Training partners are crucial to developing clear content related to why the effort is underway and how to manage situations that occur. Any changes in process or procedure should necessitate training staff impacted. |
Step 4: Identify Alternatives for the Clients to be Exited
No client wants to be told to leave a financial institution without some options. A strong product management team can identify those options. There may be other financial institutions that provide a similar product or there may be third-party processors in the business of supporting the needs of these clients. Finally, the Fed may offer a solution for the clients, for example, they may offer payments processing solutions. By sharing these alternatives with the selected clients, it will accomplish two goals: first, it removes the sting the client feels when asked to move its business, and second, it can shorten the timeframe the client needs to exit your institution and be up and running somewhere else.
Step 5: Create a Timeframe for the Clients to Exit
As a part of the project, sales management should set realistic expectations as to how much time is needed to exit the group of relationships. Consider two perspectives. First, how much time does a typical client need to move the relationship from your institution to another provider? Three months? Six months? Longer? A good rule of thumb is to consider how long the client onboarding process took at your institution to bring the client in. Then, add a few months for the client to negotiate a contract with the new provider—especially if the client needs to put his/her business out for bid. The second perspective is the number of relationships that need to be exited. When setting an overall project length, consider the number of staff available to work through the contract issues, the amount of time needed to close out an account and the complexity of the products the client is using. All of these factors drive the level of staffing needed to support the exit strategy project. Set tight, but realistic, timeframes for each team involved.
Step 6: Create an Escalation Process for Sensitive Clients
We all know that not all clients are created equal. Therefore, sales management must develop an escalation process for the front-line staff to use when a client puts up a strong argument to remain with the institution. The client may bring in other officers of the institution to plead his/her case, or may need additional time beyond the time allocated to make the change to another provider. The escalation process should allow appropriate key stakeholders to engage in the review of each client request. It is strongly suggested that the escalation process be thoroughly documented to provide a way to monitor sensitive clients.
Step 7: Meet with Customer Service to Plan Account Closure Process and Support Staffing Levels
As mentioned in step five, staffing levels to support the exit process need to be understood. That is especially important in the customer service unit and the group that actually closes the client’s relationship on various platforms. Include this key stakeholder early and often in the process. Customer service is part of the client-facing team and, as such, staff members may have developed close, day-to-day relationships with some of the impacted clients. Expect that clients will call their customer service representatives at the point they are notified. Not only does this increase call volumes, but if the customer service representatives have not had sufficient training about the effort, they will not field client questions appropriately.
Step 8: Create a Communications Plan
As with any complex effort, sales management should oversee the development of a communications plan. Clearly, clients need communication, but so do others. Consider the key stakeholders and provide a monthly report of progress against the goals and consider updates for the client-facing staff (e.g., relationship officers and customer service representatives). Include a plan to communicate with regulators if the project warrants such an update.
Step 9: Create the Reporting Process
Essential to managing this effort is the creation of a reporting process that tracks information that the sales management and the other key stakeholders need. Include detailed reports as well as summary reports showing the number of clients that need to be contacted, the dates the clients were actually contacted, the results of each client contact and which client relationships are in the process of escalation. The report should also track the number of accounts or relationships closed. A great suggestion is to create a dashboard with visuals to convey the information. Timelines and pie charts visually convey progress toward the goal. These reports become artifacts of the project and can be used to answer questions that may be raised during the project or following the completion of the project.
Step 10: Develop Training for Client-Facing Staff
The success of the effort relies heavily on how well the client-facing staff have been trained. They should understand the purpose of the effort, what questions to expect from the clients, how to handle a sensitive client relationship, how to close the accounts (if special coding is required on the platforms), the steps involved from the initial communication to the client through account closure and how to direct the client to other providers. Many well-designed projects fall to pieces by failing to adequately train staff members on the front line during the effort. Start early in the project by working with the training team. Prepare the front-line staff with questions and answers. Create scripts that can be followed for those who need a script. Exiting client relationships is not pleasant, so consider that the more training the team has, the more confident they will be in working with the clients.
These steps, which appear straightforward on the surface, can be complex as there are many moving parts. Essential to executing a successful client exit strategy is careful coordination, up-front planning and constant communication with the key stakeholders. Executed properly, an institution can expect pushback from the clients who are being exited. However, by considering alternatives and directing clients to those alternative solutions, it will cushion the blow for the impacted clients. By developing a timeframe for clients to exit and by coordinating efforts with the clients to move their relationship to another provider, the fallout and negative reputational effects can be minimized.
Remember, the identified clients do not fit the financial institution’s risk appetite. Continuing the relationships with those clients can affect the division’s alignment with the institution’s risk appetite and will expose them to risk that is not supported by the product lines or the revenues generated. Thoroughly preparing the client-facing staff with adequate training and communications gives them the tools to manage the termination of the identified clients. Keep in mind that although the client’s relationship does not fit your institution’s risk appetite, it may fit another institution’s strategy.
