Do You Really Have Your Customer’s Interests At Heart?
Recent banking scandals should remind us to keep our customer's best interest first
Earlier this morning Charles Green, writing in the Coleman Report, asked, “Are you trustworthy?”
He cited a recent Gallup poll suggesting the “…baby-boomers, more than any other category, doesn’t trust bankers.” He continued, “That should really come as no surprise since of all the generational age groups, none other has interfaced more with banks than them. They are also the largest segment of U.S. taxpayers, many of whom are still fuming about the banking bailouts.”
There have been a lot of big banking scandals over the last few years, the Great Recession being helped along by one of them. Looking back, I have to wonder, were customer’s interests or fat commission checks the root cause? Let me explain why I ask.
Prior to 2008 I was in the advertising business working with financial institutions marketing Home Equity Credit Lines, and other financial services. Zion’s Bank in Salt Lake City was one of our customers. Even though their competitors were advertising what they called HECLs (Home Equity Credit Lines) as a great option for anything from home improvement to financing the cruise of a lifetime, Zion’s President Scott Anderson felt there were only a few things he felt a HECL should be used for: anything that would improve the value of your investment (your home) or financing something like a college education (something with a long-term potential to improve your financial situation, like an education). He felt like other potentially “frivolous” uses of the equity in your home had the potential to be financially disastrous. As it turns out, I think he was right.
Although this might be an over-simplification, he wanted to make sure the financial services his bank offered their customers was something with the potential to benefit their customers and wanted to avoid anything with the potential to put a customer’s financial situation at risk.
There are a number of financial instruments which offer potential benefit to small business borrowers. Some are more expensive than others, some offer short-term solutions while others are better suited for longer-term applications, and some even offer greater financial reward to lenders at the expense of what might be best for the small business owner. In light of the scandals Green mentions in his piece, I applaud those lenders that put the small business owner first, and wonder if it should be our responsibility to do a better job of educating small business borrowers so they can make more informed decisions regarding the wide range of loan products available to them.
For example, I’m not suggesting that loan products with a higher cost of capital are bad, in certain situations they are just what the doctor ordered. What I am suggesting is that we do a better job of making sure the small business borrowers know exactly what they’re signing up for, what is the best use case for the loan product their looking at, and how they can leverage that financing to positively impact their business.
“You probably didn’t cause any of this and even given the chance, probably would have avoided all of it,” writes Green when talking about the banking scandals of recent memory. “But you still have to do business every day with the weight of all these sins around the business you do.”
What do you do to make sure you put your customer’s interests first?