A personal relationship with your banker is everything. Being a good customer1 has its rewards but also comes with responsibilities.
Last week, I had a meeting with a local banker. She told me how much she enjoys personal interactions with her clients. She shared a story about a customer who had stopped by her office to just say hello and drop off a cup of coffee. A few weeks later that client called for help on an unexpected matter, and she responded immediately. His request required critical information and needed higher management approval. However, based on her knowledge of and relationship with the client, she was able to address all his questions while he was still on the line.
So many times we expect bankers to react to our requests at a moment’s notice. However, given higher demands and the need to service many clients, the ability to respond swiftly is often directly linked to the strength of the bond between client and banker.
So what does this mean?
1.) Given Dodd-Frank regulations—yes, they’re still in place—and the need to “Know Your Client,” strong communications between banks and entities are a must. No matter who initiates the call, please respond as soon as possible. Both sides need to get in the habit of responding quickly; that’s especially important when an unexpected need or emergency occurs.
2.) It’s healthy to meet with—or call—your banker at least once a quarter. This can be a challenge if you have multiple bank relationships. Make your primary bank and/or lending institution your top priority; secondary banks require only an annual meeting and review.
3.) Call, email, or stop by every once in awhile to just say hello. Let me assure you, as a former banker, such a greeting, with no requests attached, goes a long way. Those friendly touches will be remembered if and when you have to make special request later on.
4.) When there are significant changes at your office, notify your bankers. Provide any essential information as well as any forms the bank may need to keep on file. Don’t surprise your bankers well after the fact. This can cause mistrust and lead to delays when time is tight or the need is great.
5.) The right fit and comfort level are important elements to a healthy bank relationship. If you make an effort and you get little response back from your banker, then it might be time to consider a new banker.
Given our business, public service, higher Ed, and government banking experience, we believe in the strength of an engaging banking rapport. The value of a strong customer relationship with your banker(s) is everything, which will lead to better pricing, proactive deposit rate increases, and a quicker ability to respond to simple or complicated requests. And that will enable you do more for those you serve—your customers2.
Definition of customer (noun)-
1. Informal: A person one has to deal with or through.
2. A person who purchases goods or services from another; buyer; patron.
Origin 1400-50 late Middle English
At the end of last December, I made ten predictions for 2018. Two interrelated predictions were that (a) the U.S. economy would grow at a 4.0% pace and (b) short-term interest rates would top 2.0%. Both of these trends are well underway, leading to new opportunities that we’ve not seen in years.
Ever since the 2008 financial crisis, the economic recovery progressed at an anemic rate, leaving interest income at historic lows.
That is until 2017.
With the economy improving, short-term rates going up, and public entities’ cash levels on the rise, the elements for a strong second half of 2018—and into 2019—look extremely positive.
I predict short-term rates will hit 3.0% in 2019. This will yield incredible results for those entities that are proactively managing all their cash as an asset. However, it will cost more when borrowing for gap funding or capital projects.
I cannot bang the table hard enough to get our message out: Cash is an asset and, with a stronger economy, public entities and higher Ed institutions have an incredible opportunity to put their cash to work. Done right, it can lead to hundreds of thousands—or even millions—of dollars in new revenue from everyday cash.
At three+one, our liquidity analyses and ongoing data are pure and independent. Our message has been consistent throughout: Cash should be viewed as a revenue-generating asset that will lead to significant levels of additional income to your bottom-line. Since we are not a bank, financial advisors, or registered investment advisors, we serve no other interests than those of our clients.
This growth opportunity is happening just as I had predicted. It is now incumbent on you to take the first step to take full advantage of it. If you haven’t already begun the process, now’s the time. For those who are already using cash to its fullest, you will continue to be very pleased with the increases to your bottom line this year and the next.
Does the need for liquidity mean you have to leave a lot of cash in a low-interest-bearing checking account? The answer is “no.”
To be clear, liquidity means that cash must be available when payments are actually being made. In many cases, entities are putting cash aside for “just-in-case” scenarios, thus leaving unneeded cash in low-interest-bearing checking accounts.
As interest rates rise, more options have become available to invest cash—while still allowing one to have liquidity when needed.
As we see it, liquidity means having cash available when at the moment you need it—but not any sooner. By applying this “just-in-time” philosophy, the options to put your cash to work expands from your bank account to Certificates of Deposits, Treasury Bills, State Liquidity Pools, and Government Money Market Funds with Constant NAV (where legally permitted). That’s just to name a few.
At three+one we can provide you with a liquidity analysis that encompasses all of your operating and non-operating cash. We can then tell you exactly when your entity will need cash and the value of your cash in the meantime.
Knowing how to use liquidity to full advantage will enable you to better manage your cash flow needs and maximize the value of your cash in the marketplace. By applying this kind of thinking, you’ll achieve higher-interest earnings on your bottom line.
We’d like to welcome Alex DeRosa to the three+one team! He’ll be helping out our clients in Western NY, Pennsylvania, and Ohio.
The phone call comes in on a Monday morning and you are informed a check for $60,871 was cashed by a major bank in Alaska, but not to the payee you had designated. Your signature is on the check clearing the main operating account from your local bank. The account number lines up and your money has been debited from your account. Your money is gone, the intended payee is still owed the amount, and your local bank says you have a problem. What a way to start a Monday morning and your week!
Who’s responsible? Your office, your local bank, or the large bank that cashed the check?
Ultimately it comes down to how you established your banking relationship and if fraud-protection services have been set up with your local bank. First of all, do they offer such services? Is your bank committed to protect your entity, no matter what? Does the bank have the capital to protect itself from such events?
When I led teams at two major banking Institutions, it was in our DNA to protect both our clients and the bank. On a normal day, our banking division would have over 2,000 attempts to defraud the banks through phone calls, check/credit card scams, and online hacking of bank accounts. It was our goal to be the body armor around our client relationships. The cost the banks was significant but necessary since, to us, our clients always came first.
Is that true for all banks? Unfortunately the answer is “no.” Not all banks are equal in the level of their fraud protection and even if they’re able to offer such protection. But in any case, I can assure you that banks of all sizes work feverishly to stay ahead of scams before they reach you—and potentially cost you a large sum of money.
Next week, in Part 2 of this blog series, we will offer several suggestions that can go a long way in protecting your entity or institution from fraud.
NYSGFOA Annual Conference
Pre-conference – March 20th, 2018
Annual Conference – March 21-23rd, 2018
Last week, Jamie Dimon, the CEO of J.P. Morgan Chase, discussed his bank’s major investment strategy in opening 400 new branches in several areas where it had not yet penetrated. The new locations are all in major metropolitan areas and include the cities and suburbs of Boston, Philadelphia, and Washington, D.C., among others. Bank of America is also showing signs of following the same strategy.
Is this a shift in direction from previous years where we’d seen banks closing their branches in large numbers? The answer is both “yes” and “no.”
First, the large banks are still closing branches in small cities and towns. The idea of using a corner bank branch to deposit and withdraw money through a teller is becoming a fading memory.
Second, the large banks are following the big money, which tends to be in major metropolitan areas. These locations will be staffed by small teams of wealth management advisors; there would also be interactive kiosks to manage typical financial transactions.
These big banks will follow the money flow, which is just as expected. The small community banks, on the other hand, will serve the smaller communities.
My only concern is that, as the banking landscape shifts, there will be a lack of banking competition—and that could lead to higher banking costs.
So how do you manage a lack of competition in the smaller markets? The answer lies in following:
1.) The need to develop stronger banking relationships is more important than ever. The greater the interactions you have with your banker(s), the more services that will be offered to your entity.
2.) Banks of all sizes want your general operating account and your recurring transaction business. They are not only interested in your entity’s deposits.
3.) Because your taxpayers and students come first, if you’ve been considering the importance of earning more on your operating cash, start identifying the rate potential your cash has and taking the steps to realize that interest on your financial statements.
4.) Increase your use of electronic banking and other advanced technology so your entity is not dependent on a nearby bank branch.
5.) If you are not receiving the best pricing, deposit rates, or banking services, then consider issuing a bank RFP to get them.
6.) If there is only one branch—or none—in your community, team up with other institutions or entities in your area to create a larger base of business. By creating a greater economy of scale, you’ll likely receive more banking services at better pricing and more attractive rates.
Banking continues to shift in a changing landscape. Because banks play an important role in managing your finances, they should be considered as strong partners but not sole providers. We live in a competitive national marketplace—and that can be used to your entity’s advantage.
The greater the competition, the better the pricing and rates you and community can receive.
Through a fair and independent process, three+one can help define your financial needs and ensure that banking’s shifting and competitive landscape works in your favor.