ARE BANKS SO PARALYZED BY THE MORTGAGE CRISIS THEY ARE INCAPABLE OF DEVELOPING CREATIVE APPROACHES TO PRESERVING THEIR MOST VALUABLE CUSTOMERS?
Rapidly growing maturing consumer markets will combine to forge new and creative approaches to securing market share and profit.
By Robert E. O’Toole, MSW,LICSW
Banks and other financial institutions throughout the U.S. are facing a marketplace that is experiencing fundamental and long lasting changes. Consolidation, competition from other financial services providers, and federal and state banking laws are forcing banks to change the way they do business. Consumers are scrutinizing products and services more closely than before. They are changing the way they look at their bank. As mergers and acquisitions abound and banks seek to both, reduce costs and increase profit, customers are feeling alienated and even abandoned.
Coincident to these changes is the rapid aging of America. Every seven to ten seconds someone turns fifty in America. In 1996 50% of adult Americans were forty three years of age or older. Over the next seventeen years the over fifty market will more than double. Meanwhile the number of Americans under fifty will increase by only 1%.
The United States Census data estimates the growth of maturing consumer markets to continue at a phenomenal rate. Consider also that each day approximately 10,000 Americans turn 65 years of age. The current 50+ populations now exceed 97 million.
Those over age 55 control more than 70% of the total net worth of American households
They own 80% of all money in savings and loan associations
They have more discretionary income (wealth) than any other age group. The data shows that discretionary income rises and reaches its peak in the fifty-five to sixty-four-age bracket
Maturing consumers are now the most significant market for bank products and services. Changes in the overall marketplace and the age of current and future customers will require that community banks who intend to stay competitive must develop fresh, innovative approaches to marketing, sales, product development and service delivery.
Unfortunately, many banks that target maturing consumers take a programmatic or a tactical approach rather than a strategic approach to increasing market share.
Banks must develop business and service delivery system strategies to respond to the changing needs of maturing consumers. In doing so, marketers must position their bank correctly to take advantage of the coming changes that favor the bank with a knowledgeable, strategic, systematic and integrated approach to securing, serving and retaining maturing consumers.
Customer Satisfaction
While community banks and credit unions know that older depositors own 75 to 80 percent of their deposits, they do not understand the importance of reaching out to these customers or even why they need to develop new and different ways to communicate with them. Because they don’t know how to begin, they do nothing while banking giants like Wells Fargo prepare to draw these older, wealthier depositors away from their smaller competitors who are too timid to develop their own eldercare initiatives.
While most American banks remain asleep at the wheel when it comes to understanding their most important customers, Wells Fargo Elder Services founder Bill Sanden began several years ago to experiment with an approach that divides the energies of selected bank personnel between managing both their customers’ assets and their quality of life.
Wells Fargo started offering specialized services to older depositors very cautiously in the late 90’s. They started with a few branches in Minneapolis and as these programs proved successful, they have steadily expanded them. In July, 2010 they announced they were expanding their Elder Services program to the East Coast. The program is primarily a premium wealth and life management solution of Wells Fargo Private Bank.
But the bank combines wealth management services with assistance to help aging adults with everything from loss of a spouse to mobility and health challenges as well as investment management, ultimately helping clients maintain their independence and quality of life.
Keith Klovee-Smith, national manager of Wells Fargo Elder Services has stated that “Over the next 20 years, the U.S. population is expected to grow by only 18 percent, while the elderly population is projected to see 78 percent growth. We are now positioned to help serve clients from coast to coast as these needs increase.” Klovee-Smith added “Seniors often live far from relatives, and even when they’re close by, relatives may find personal and financial management challenging. We expect the need for Elder Services to triple over the next two decades, which makes our presence in the East so crucial. We are committed to serving our clients in all stages of their lives.”
A small increase in customer retention leads to significant multiples in profits for a bank. This is due to the higher cost of acquisition relative to the cost of retention. Also the ability to cross sell existing customers additional products such as reverse mortgages, long-term care insurance and annuities can improve the banks bottom line while protecting depositors from ‘lone rangers” who sell these products over the kitchen table.
Community Banks and Credit Unions Can Provide Protection from Financial Exploitation, The “Crime of the 21st Century”
The National Adult Protective Services Association (NAPSA) suggests that the “typical” victim of elder financial abuse is between the ages of 70 and 89, white, female, frail and cognitively impaired. She is trusting of others and may be lonely or isolated, although reports show that there is a very diverse population of victims.
“Elder financial abuse has been called the ‘crime of the 21st century,’ ” said Sandra Timmermann, Ed.D., director of the MetLife Mature Market Institute. “With the present state of the economy, older Americans are at a greater risk than ever of having their financial security threatened. And, for every dollar lost to theft and abuse, there are still more related costs associated with stress and health care and the intervention of social service, investigative and legal entities.
When a depositor gets a sales pitch in their home from an independent mortgage broker the compliance environment that exists in the bank is absent, making them more vulnerable to making a purchase decision that may not be suitable for them.
A bank that spends $250 – $500 to acquire a new customer, while only spending $50 or less to retain their existing customers is not optimizing profits. And if their customer retention program does not recognize the significant difference in needs of particular high value customer segment its can lose its effectiveness.
A bank, by providing an Elder Life Planning program, can build closer relationships with these maturing multi-generational families (aging baby boomers and seniors) in their customer base and communities and ensure a substantial increase in retention value and profitability. Cross selling opportunities for long term care financial products such as insurance, annuities and reverse mortgages are also available to the bank further cement the relationship with customers and produce new revenue streams.
A comprehensive, nationwide eldercare and family caregiver support program can be offered to bank customers, often for less than fifty cents per depositor, per month. Using the services of experienced eldercare professionals any bank or financial institution has the opportunity now to play the lead role in their community as the educator and supportive financial institution for elder care. The cost of the program will be shown to be lower than other most other retention efforts and yet is targeted on the most important customer segment.
The average age of a Wells Fargo Elder Service customer is 85. “They have so much to share with all of us and they have such great need,” Anderson said of her clients. “When we talked to our customers and asked ‘what keeps you awake at night, the answers were always health and money,” she said. What Elder Services does is use money, knowledge and resources to help people manage their health needs and concerns, she said. It’s a formula Anderson said could easily be replicated at any size bank so long as the service remains local and personal.
A clear and emerging crisis for maturing customers is the spiraling cost of long term care and the lack of most existing retirement plans to address it. The rules of the game have changed and customers need qualified assistance to deal with the resulting financial implications and decisions. They are seeking a trusted agent to provide easy to use and easy to understand consumer information. They want that information to be unbiased. The aging baby boomers are less trusting than their parents and they do their research, they use the Internet. They are very comfortable using self-help tools.
Important trends (such as recent Medicare and Medicaid changes) are influencing the development and sales of a host of elder care financial products such as: reverse mortgages, long term care insurance, life settlements and annuities. These products create fairly complex financial scenarios for seniors. If applied correctly these solutions can help a senior through a financial crisis. If applied incorrectly they can rob a senior of choices they might want to reserve for their long-term care. The sale of all these products influences the eventual location and value of deposits in local savings and loans. Not being involved with customers on these topics can be dangerous for a bank’s future market share.
Over the past decade, a burgeoning industry of poorly qualified, inexperienced, independent sales reps, agents and brokers has sprung up to fill the void left by banks who continue to sit on the sidelines, let deposits and profits flow out of the bank, while older consumers increasingly become victimized by the growing scandal of financial exploitation.
Wells Fargo has proven the concept of bank based elder service programs for nearly a decade. What the hell are the rest of you bankers waiting for?
Your comments and criticisms about anything published in this blog are welcome and encouraged. Please send them to me at bob@elderlifeplanning.com
