Built to Last

by Stephanie M. Shirley

Reprinted with one-time usage permission from LIMRA International. This article originally appeared in the Summer 2005 edition of LIMRA's MarketFacts Quarterly.

Building an effective platform program requires the same careful planning and execution that any other strategic area of the retail banking environment requires.

During the past 20 years, banks have made the awkward but inevitable journey from mere savings facilities to full-service financial organizations. This is evidenced by the dramatic subscription to an increasingly prevalent sales culture within the banking environment.

The process has been slow and difficult. The casualties have been both the bankers who were unwilling and/or unable to make the transition and the institutions that viewed the trend as no more than a passing fad. The banking industry has undergone significant consolidation. Natural selection and attrition have triggered a sizable number of mergers and acquisitions.

This has reduced a pool of thousands of small to midsize banks, savings institutions and independents to a finite number. And, this number continues to decrease annually.

With the population slowly increasing each year and the number of differentiated institutions rapidly decreasing, banks must continually strive to offer new products and services to remain competitive. For years banks have seen the difference that effective financial services programs can make to bottom-line profitability.

During the crunch of the 1980s, fee-based income derived from the sale of investment products often served as the only source of income for many banks and thrifts. In this inflationary period, institutions began favorably affording serious consideration to financial services programs they had once viewed with indifference and even intolerance. Initially, institutions contracted with independent broker-dealers to house turnkey financial representatives'relying on their expertise in the marketplace.

With the advent of deregulation and increased competition, financial institutions began establishing their own in-house programs for dedicated representative and platform personnel, the latter posing quite a struggle for a very conservative culture. As many institutions jumped on the financial services bandwagon, they proceeded blindly without a plan. In their haste, they neglected to give basic consideration to how and why certain elements affected the outcome of the process. There are five critical facets'products, people, management, training and incentive'that warrant special consideration, as they are instrumental to the success of the program. Let's examine each of these five platform facets.

The Product
Evaluating the products available to support and sustain an effective annuity platform program is a far greater task than one would anticipate. There are so many options to consider when selecting products to be inventoried that it can be an overwhelming task. Selection requires consideration of issues such as:

• Need for products:  Market demand, competition and profitability
• Nature of products:  Shelf, branded and proprietary products
• Origin of the products:   Recognition, strength and service

Generally speaking, most retail banking environments have a profitable retirement sector in which to market retail products. (Branches that are located in predominantly commercial areas and those located in economically challenged demographic areas may be exceptions to the rule, although retirement sectors can be identified even in these areas with a strategic marketing plan.) Having a financial services product menu that will accommodate this potentially lucrative and rapidly growing market is one of the first steps to building the program.

When creating that menu, decisions are often driven more by competition than market demand. Financial institutions become enamored of the bright lights, bells and whistles that differentiate the products. Financial institutions tend to focus more on what they will get out of selling the product than on matching product benefits with customer needs. The bells and whistles carriers attract institutions with often included higher-than-market interest rates, generous commission splits and modified expense arrangements.

On the surface, these can appear very attractive, and often mask the more important issue of product features. Finding the right combination of product features that will best fit the customer and the bank is the key. There are several basic product features that are critical to remaining competitive in the bank market. They include, but are not limited to, reasonable surrender periods, extended-care and terminal illness riders, availability of limited, non-penalized fund access, and'of course'guarantee of principal.

Though features and benefits will differ from product to product, the structure of the product and its relationship to the institution can be characterized by three basic classifications. These classifications of fixed retail annuity products allow financial institutions to select products based on desired involvement, competition considerations
and the needs of their respective retirement markets. Evaluating these factors will enable the bank to select the type of retail product that will best serve the needs of all parties involved.

First and most prevalent is a shelf annuity product. This generic product is not tailored to a specific market. It is essentially a 'one-annuity-fits-all' product. Insurance companies sell this product in multiple markets, whether direct or through brokerage and institution distribution channels. The same shelf products are available from institution to institution or market to market'with little or no differentiation. These products afford banks the least amount of flexibility. Additionally, the bank's only participation is in the fee-based income derived from the sale of the product on behalf of the insurance company.

The second type of annuity product is a branded product, often referred to as a private label annuity product. Insurance companies can offer existing shelf products or newly developed products to be branded by the financial institution. This allows for increased flexibility and, more important, name recognition and association.

This benefit is transferred to the customer in the form of security and familiarity. Bank annuity customers generally tend to be less receptive to brokerages and insurance agencies'and certainly less confident. The brand affiliation helps bridge that comfort-void for the customer. Bank customers feel that the product has been designed 'especially for them.' More important, the bank reaps the fruits of the branding and the differentiation through increased customer retention and, of course, financial reward.

The third class of product'and certainly the product of choice for many larger institutions'is the proprietary annuity product. This annuity is a result of extensive collaboration between a financial institution and an insurance company. The two become equal partners in the design, pricing and control of an annuity that is unique and proprietary to the bank's specific market. This annuity product allows for the greatest degree of flexibility for the institution. The participation and branding'though significant'pale in comparison with the even greater monetary benefit that a proprietary product provides. The financial institution, an affiliate, or subsidiary is charged with managing the annuity funds. Fund management generates a very attractive spread for the institution.

Profitability, control and flexibility are the key benefits of the proprietary choice. These benefits would appear reason enough to drive a financial institution's product selection, but there is a critical ancillary benefit to the bank's customer base, as well. Generally speaking, customers already trust their bankers to manage their deposits. The transition from entrusting the bank with the management and protection of account deposits to entrusting the institution with the management of annuity funds is a natural and reasonable progression for a bank customer to make. The greatest sales hurdle has already been overcome and the greatest customer concern'safety (perceived, that is)'has been satisfied.

When selecting insurance companies to provide products for your bank, talking with institutions in non-competing markets can be an invaluable resource. Seek out institutions of similar size and demographics to study. Talk to them about their methodologies for product selection and their experience with different carriers. Product and/or company choices can be made on industry reputation, ratings and strength. Service issues, however, may not be as visible. Look for insurance carriers with strong reputations for going the extra mile, especially concerning back-office, sales, marketing and training support. For private label and proprietary products, the availability of financial support for sales, marketing and promotional endeavors needs to be weighed carefully.

The People
It takes a team effort by talented individuals to build a successful program. The hiring of outside employees or internal identification'and subsequent placement of these individuals'takes time and planning.

In an ideal world, every institution would implement an annuity platform program with licensed, experienced representatives in place. Unfortunately, the reality is quite different. Though financial institutions are becoming increasingly more sales oriented and branch staff is gradually becoming more receptive to the culture, it remains a work in progress. When a bank decides to pursue a platform program, serious consideration must be given to the fact that it will be the people who will drive the success of the program.

The willingness and ability of these individuals to participate in the program are paramount. Nonetheless, amid the excitement of the new venture, banks often dictate that branch employees obtain licensing and buy into a new program, rather than soliciting their involvement. They forget that although these individuals are becoming increasingly accustomed to the new sales culture of quotas and goals, they are still inherently service-oriented individuals. Most bankers are very protective and proprietary about their customers. Until they share an understanding of how this new process is going to benefit their customers, they will not dedicate themselves to the success of the program.

Institutions implementing new platform programs may be fortunate enough to have licensed individuals on staff, but the likelihood is that they will have to encourage existing personal bankers, service representatives, and branch managers to make this difficult transition. Again, the most important caution relates to participation. After sharing the implementation plan and showing how the program is going to benefit the customer, the institution and the branch employee, program participation should be solicited.

Motivation for participation is critical. If participation is presented as a directive, reception is not likely to be positive. Without the staff's full commitment to participation, programs become riddled with non-producers. The individuals who demonstrate the willingness and ability to embrace the challenge of the program and the common goals of the bank will inevitably be much more successful. Tellers tend to serve as more effective referral sources, while personal bankers and/or customer service representatives tend to be more effective agents. Often branch managers will have the willingness, but time constraints and managerial responsibilities hinder the ability to produce.

In selecting and motivating the people to participate in a successful program, sensitivity to a banker's relationship with his or her customer deposit base cannot be reiterated enough. As mentioned previously, a bank employee's relationship with his or her customers is very protective, very proprietary and has most likely been built over a period of years. Tellers, personal bankers and managers are more concerned with protecting the integrity and credibility of that relationship than with the promotion of programs. Their primary concern is how their customers will be treated and taken care of'once out of their hands.

Without a thorough understanding of the products and the program, passing off loyal customers to a licensed representative can feel like blindly sending them into an abyss.
For this reason, it is crucial that both the licensed and unlicensed individuals of a bank's platform program understand how the program works and how it is benefiting everyone involved'the customer, the institution and the licensed representative. Therefore, all branch personnel'irrespective of responsibilities'should be afforded the appropriate amount of education to facilitate the referral process and'more important'increase comfort levels. There has always been a compliance concern surrounding the education of unlicensed employees. The prevailing mentality has been to 'tell them only what they need to know.' In actuality, they need to have a complete grasp of both product and program knowledge, coupled with a clear understanding of what they can and cannot talk about as unlicensed bankers.

Education accomplishes several things. First, it creates a comfort level that is difficult for unlicensed branch personnel to otherwise achieve. Second, it is a way for the institution to start building its 'reserve forces.' With the amount of turnover in the industry today, proactive planning for program personnel is important. It is this participation and accountability that drive the need to staff and maintain the people necessary for an effective platform program. Depending on the size of the program, there should be a designated person or persons to coordinate the licensing process. The responsibilities of the coordinator require interaction with bank employees for pre-licensing preparation, exam scheduling and monitoring of continuing education requirements. They also require the ability to effectively interface with relevant outside entities, such as the state department of insurance. Establishing productive working relationships from the beginning is very beneficial. States differ regarding the time required to accomplish both agency and agent licensing approval, and corners should not be cut in this part of the planning process. Always allow 30 to 60 days more than originally planned to finalize the paperwork. That way, both administrative and personnel-related delays have been budgeted for. As each state has different policies on exams and waiting periods, the coordinator should consult with the state and evaluate the process carefully before timelines are established.

Additionally, there needs to be operational and administrative support personnel identified within the institution or agency to direct the paper workflow and serve as a back office of sorts. They serve as the necessary bridge between the carrier and the institution for all administrative issues, including ongoing license maintenance issues, appointments, paper flow and commission payout.

A bank has the option of utilizing the services of a third-party marketing firm, but depending on the services needed, use of a third-party marketer (TPM) comes with a price. For some large institutions, the reduction to profit can be offset by the large amount of volume a TPM would be capable of managing. Other institutions, however, find it is more lucrative to work directly with the vendor, especially if they already have the resources to perform the necessary administrative duties. When a platform program decides to participate directly with its vendors rather than utilize a third-party marketer, individuals specifically dedicated to the tracking and processing of platform production need to be in place prior to program implementation.

The Management
Effective management has a profound impact on the success of a platform program. Three unique tiers of management are critical to the success of a platform program.

1. Program management: Responsible for position, structure, implementation and integration.
2. Branch management:   Responsible for program involvement and modeling.
3. Senior bank management: Responsible for program commitment and support.

Every institution is organized differently and uses different titling to identify job responsibilities. Often'when a program is first built'there is an inclination to settle for an 'easy fix' regarding program management. Managers in other areas of the bank are shuffled and repositioned in the new program. For example, rather than seeking and hiring an individual with the qualifications specifically geared to annuity program management, institutions will take the least favorable path of assigning the 'additional responsibilities' to existing personnel. Though this may be intended for the short run only, it does not prove beneficial to the long-run success of the program.

The quest for an effective program manager is the first step in building effective program management. Identifying a suitable candidate can be arduous and time consuming. It can, however, be one of the best investments of time that the institution will make. This individual will be the crucial link between the program and senior bank management. The person selected for this job needs to be versatile and must have a genuine understanding of the retail-banking environment. He or she should be proficient in the marketing of investment and other nontraditional bank products. And more important, he or she should possess the managerial and communication skills necessary to assemble and lead the middle-management staff that an effective program requires. This balance'though seemingly elusive'is critical to the long-term success of the program.

Typically, the program manager will identify and hire regional sales managers to be directly responsible for platform personnel. These individuals should possess the same balance of qualifications and experience found in the program manager. Too often, banks make the mistake of promoting dedicated personnel to this position. Unfortunately, dedicated producers do not generally make the most effective managers. It takes an entirely different skill set to be a top producer than it does to be an effective manager. Though there are some exceptions to the rule, often these individuals lack the managerial and communication skills that are necessary for long-term management, training and coaching responsibilities. Dedicated personnel can be best utilized as team leaders, who provide mentoring and support in the branches.

Once again, as the regional management team is assembled and developed, the same balance of qualifications attributable to the program manager should be sought. On average, regional managers should never be responsible for more than 100 or so agents, depending on the size and experience level of the region. Their responsibilities should include licensing coordination for identified platform agents, monthly sales meetings, ongoing branch education and team building.

Just as the program manager must serve as a vital link to senior bank management, the regional managers must provide the same link to branch management. There is a critical communication issue at stake here. These regional managers must be able to integrate the program policy and goals with each branch manager's individual management style. In most institutions, though, there is one prevailing culture'each branch has its own personality, style and methodology that are driven by its customer base. Therefore,  cultivating a sound relationship with branch management is the key to effectively managing platform personnel within the branch environment.

The second crucial management position in this equation is that of the retail branch manager. There is disagreement in the industry as to whether licensing branch management is productive. Even though branch managers are unlikely to have the time necessary to make presentations and sales, training and licensing should be required for several reasons. One is the manager's relationship with branch customers. Often he or she has access to customer information that is not available to any other branch employee because of more professional interactions. This places him or her in an excellent position to make qualified referrals.

Another'and perhaps most important'reason is that branch managers serve as active role models and mentors for branch employees. Licensing branch management underscores their participation and commitment to the program. It sets a positive example and beneficial precedence. Because of the time-constraint issue, many programs do not pursue branch management licensing. Still, it is an extremely effective reinforcement tool for both employees and customers. In addition to the referrals that licensed branch managers can make, they often 'make the sale' for other licensed employees because of their position and relationship with the branch customers. It is said that involvement is the surest path to accountability in the process.

Historically, there has been an us-versus-them mentality between the investment side of banking and the retail side. Developing a solid relationship between the regional platform manager and the retail branch manager will be a positive first step in bridging that perceived gap. It will also provide a shining example of team building. The regional managers and dedicated investment specialists should work diligently with their respective branch managers on issues such as staffing and timing to facilitate a smooth integration of the platform program within the context of the branch's culture.

The third'and certainly most significant'management area affecting the success of a platform program is the institution's senior management, all the way up to the top. Without buy-in at the highest levels, a program will not succeed in the long run. The attractiveness of the product and the novelty of the program may fan the flames of a new process. Nevertheless, it takes an unsurpassed level of top-down commitment to allow a program to survive the peaks and valleys of market conditions, turnover and even customer whim. There must be unequivocal support that remains consistent throughout the life of the program.

Even though institution management may be well aware of the bottom-line profitability that the program contributes, there are often misplaced sentiments regarding concerns such as disintermediation. All of these issues and concerns must be addressed and resolved prior to the implementation of a platform program. Otherwise, these concerns will translate into a lack of commitment that will trickle down through every tier of the organization. There also needs to be strong and consistent communication of the program's ongoing contribution and recognition of its participants by senior management.

The Training
The next facet of effective annuity platform program development involves the training and educating of all program participants' both licensed and unlicensed. While in the early stages of design, generous budgeting and planning considerations should be afforded to the training facet of your platform.

Institutions invest time and money to send their branch personnel through the classes required to adequately prepare personnel to take and pass the state-required life insurance exam. For agent licensing, classroom preparation for the examination is generally more effective than self-study. The period following examination is generally when many new programs tend to drop the ball. When their platform personnel return to their respective branches, they are somehow expected to be experts on selling annuities. The reality is that the state exam and required preparation do not adequately prepare the representative to sell tax-deferred annuities. The state-required exam and preparation for it minimally address the product, if at all. Even more significant is the fact that the exam does not address their greatest area of inexperience'how to market a nontraditional bank product that is far beyond their frame of reference.

Introducing a new product to an experienced salesperson is analogous to presenting off-the-menu choices to a frequent diner. However, expecting a newly licensed agent to be immediately able to intelligently present a product that is far outside his or her realm of comfort and familiarity is quite another thing. Whether the institution possesses the time and monetary resources to provide product and sales training internally, enlists the services of a third-party marketing firm, or entrusts the training responsibility to the insurance company that it has chosen to partner with, every licensed platform representative deserves comprehensive training to ensure program success. Much of the sales technique will be obtained and refined during the learning process. If, however, a bank fails to make a thorough educational base available to the representative from the onset, the agent will never catch up.

As discussed, the credibility issue with branch customers will inevitably cause individuals without a strong product knowledge base and product comfort level to steer away from the subject matter. Although bank customers are becoming more educated about nontraditional bank products, tax-deferred annuities are still not readily requested in most markets. Tax-deferred annuities are generally purchased as a result of a knowledgeable representative effectively matching customer need to product features and benefits.

A newly licensed agent's education base should be broad, not limited to the product(s) that the program offers. Often customer questions and concerns will necessitate making effective comparisons and contrasts to other products. Additionally, agents must have a broad enough reference framework to discern whether the products or services they offer are in the best interest of the bank customer. Suitability is more important in this environment than any other. Representatives must develop an understanding of the differences and similarities of competing products and alternatives so that they can help their customers make educated choices.

Prior to launching the program's lead product, it is important that all licensed and non-licensed participants share an understanding of the product's features and how they will benefit the customer. Each newly licensed representative should work with the regional sales manager to establish product presentation goals. In reality, most platform reps are not afforded the opportunity to provide a prepared or rehearsed presentation. However (if time allows), customer appointments allow for increased preparation and heightened professionalism. Since platform agents have the responsibility for introducing and selling numerous bank products and promotions, it is very easy for nontraditional products to become relegated to the back burner.

Because agents have multiple priorities, a commitment to setting daily communication goals is imperative for success. Remember, bank customers generally do not come into the branch specifically seeking out an annuity. It is more likely that an opportunity will present itself as a customer sits with a banker, opening, closing, changing or inquiring about deposit accounts. During the course of the conversation, something is said or asked that will cue an educated representative to the fact that the customer may be a potential tax-deferred annuity candidate. Thus, the term presentation refers to the process that allows the representative to introduce the product in the course of normal transactions. It is at this point that effective customer profiling becomes the segue to an annuity presentation. Helping your platform staff acquire a strong knowledge base and assisting them with communication skill development creates the foundation for success.

The training responsibility does not end here. Ongoing education should not be limited to state license renewal requirements. It should be a continual process to help licensed representatives maintain professionalism in this expanded area of responsibility. Encourage your platform representatives to become as proficient as possible in this new field of expertise'for the institution's sake, for the customer's sake, and, most importantly, for the licensed representative's own sense of professionalism. Many institutions ultimately want their agents to be dual-licensed and obtain NASD Series 6/63 securities licensing, the licensing required to sell mutual funds and obtain a variable endorsement to accompany their life insurance license. Dual-focused licensing is very effective in branches that are large enough to support it. Financially, it opens the door to a wealth of other fee-based income. A caution is warranted here, however. The annuity training and licensing, in and of itself, can be overwhelming to bankers. Mandatory dual licensing from the onset of a program can be fatal. A solid foundation is seldom created in either area and the agent becomes a jack-of-all-trades, master of none. If a platform representative demonstrates expertise and proficiency with the annuity program and is hungry to take on more responsibility, the additional industry education should be encouraged and rewarded.

The Incentive
Every institution must design an incentive structure that best serves the needs of both the bank and the participating personnel. Creative structuring is necessary because the individuals who are offered incentives at each level of the program are motivated differently and have different goal parameters. When designing a plan for agent compensation, management override and referral incentive, an industry fundamental is often overlooked. Though the culture of the banking industry has changed dramatically over the past two decades, banks shouldn't lose sight of the characteristics of the individuals who occupy that industry.

Bankers tend to be very service-oriented individuals who gain a tremendous amount of personal satisfaction from being able to help their customers. Banks are a rare environment in which a pat on the back, days off or service recognition closely rivals monetary incentive. It is easy to forget that if financial reward were the primary motivation, there are literally hundreds of industries that would prove more lucrative.

That statement is not meant to devalue the importance of monetary reward and incentive in the branch environment. Rather it is meant to emphasize that creativity must be used when designing an incentive program. The program needs to be planned carefully to most effectively provide positive reinforcement at different levels. The program must be simple and readily understood. Regardless of whether it combines or segregates sales productivity (bank and non-bank), differentiates internal funds from new money, or is based on cumulative goals, the incentive must be clearly communicated to the agent. Remember that the preparation for licensing was in itself an increased responsibility and certainly warrants consideration when evaluating compensation. Was the employee's education and licensing completely company sponsored or was the employee required to invest individual time and/or resources' What were the employee's motivations for the licensing 'a matter of conforming or a genuine desire to be a full-service banker'. All of these factors need to be examined when designing incentive plans.

Often, the actual percentages paid or rewards given are determined by the platform representative's ability to meet branch-wide goals. Benchmarks are set for transaction accounts, time deposits, loans and other products. In many institutions, compensation is not received until benchmarks are met in all of the required areas and the amount of compensation is driven by how far those benchmarks are exceeded. This policy proves effective for many institutions; however, it is critical to ensure that the benchmark goals that have been set are indeed attainable.

Equally as important as structuring the agent compensation schedule is the structuring of the support incentives. A referral incentive program for tellers and other non-licensed bankers should be in place before the program is implemented. Incentive for those facilitating the business'as well as those taking an active role in managing the people and the processes'is the certain recipe for success. It should, however, be noted that managerial override should not be a function of mere position'it should be a direct reflection of ongoing support and participation in the program. Additionally, if dedicated personnel are providing ongoing coaching and mentoring, it is advisable to compensate them as well, in the form of an override. This helps eliminate competition between dedicated and platform personnel and fosters teamwork.

Conclusion
In a successful platform program, the agents, the platforms, the managers and the program administrators all participate in a cohesive mission: to deliver to customers the most competitive and diversified products and services in the bank market and doing it as knowledgeably and confidently as possible. There has traditionally been discord between the investment and retail areas of the bank. Developing a new platform program provides an excellent opportunity to create an unparalleled unity between these two areas at the branch level. It will be critical to the program's success and will eventually serve to strengthen public perception of the branch. Developing an effective platform annuity program takes careful planning. As a rule, program policies are much easier to implement than they are to disassemble once they are in place. Retail banking is an environment where a trial-and-error method of policy making can be fatal. Though programs differ from state to state and region to region, the five critical areas of consideration are universal to the development of all effective programs. Platform program success depends on the careful attention afforded these five facets.

When platform programs were in their infancy, there often was inadequate research conducted on the products that would be carried. Furthermore, little consideration was given to the people ultimately selected to present the products, and even less consideration was given to those responsible for managing the people and the production. There was a blatant lack of education and training for newly licensed representatives and other branch personnel. And, there were few effective incentive policies implemented to retain the representatives.

Sharing the thoughts, perceptions and insights of institutions that are able to boast truly successful platform programs can be invaluable. Although different processes may work better in different environments, there is one consistent element. Irrespective of the culture, the environment, or the people, retail banking is unequivocally a service industry. Banks are constantly required to reevaluate the best ways to compete in that industry. Building an effective platform program will prepare and empower an institution to compete successfully in its given marketplace.

Giving these areas generous consideration prior to initiating program implementation will give your program'and the people in it'the opportunity to grow and succeed. Although there is always a learning curve to platform implementation, learning is far less costly and far more effective if all available resources are utilized. Investing the necessary time and resources to plan effectively will help ensure the development of a successful annuity platform program.