Alan Shields says private bands, slow to recognise the power of advocacy, are now starting to catch on.
Many of the largest financial institutions in Australia currently use advocacy (in some form) to measure their performance. To date, private banks have lagged this trend but are beginning to realise the power of advocacy and are catching up.
If one analyses the private banking relationship, it becomes clear that advocacy – that is, being recommended to others by your clients – is important from the very beginning. Even “unbanked” high-net-worth individuals (HNWs) – those with no private banking relationship – place a lot of value on advice from family and friends. This can be seen in the large number of private banking relationships that started with a referral from a friend or colleague; and APBC research from March 2010 shows that word-of-mouth is a strong tool for acquisition.
In fact, 16 per cent of private bank clients cite “recommendation from a friend or colleague” as the primary reason for becoming a client of a private bank. A further 12 per cent said they were given a “recommendation from another service provider”. It is therefore important for private banks to analyse what motivates their clients to recommend them, and the reasons for lack of recommendation or – importantly – negative word-of-mouth.
When examining what drives private banking clients to “promote” their bank, we need to look at the correlation of advocacy scores (likelihood of recommending their private bank) to satisfaction with a private bank and with a relationship manager (RM). When analysing correlation coefficients, the closer the value is to +1.0, the stronger the positive correlation is between the two variables.
Both overall satisfaction and satisfaction with RM are highly correlated to advocacy, although satisfaction with the institution is slightly more highly correlated than that for RM satisfaction. The results clearly show that providing a quality service that satisfies the client is the first step in effectively driving advocacy.
BARRIERS TO ADVOCACY
It is clear that satisfaction is important when you look at the reasons private banking clients are unwilling to recommend their private bank. There are essentially two main reasons for this unwillingness: either they think it would be inappropriate or they are unhappy with the service.
While it may not be possible to overcome clients’ feelings of the inappropriateness of recommending a bank, it is certainly possible to improve satisfaction; and this is what private banks need to focus on.
The question is: “If satisfaction leads to advocacy, what attributes can private banks focus on to drive advocacy among their clientele?” Analysis of the correlation between satisfaction with various attributes of the private banking relationship and advocacy provides a better understanding of what drives private banking advocacy.
The strongest drivers of advocacy revolve around personalised service – “the level of service received” and “understanding your financial needs” were the top two drivers of advocacy. Providing the right service is crucial in driving client satisfaction and advocacy, and key to that is asking questions in order to understand clients’ needs.
The investment returns and pricing of products and services were the next most important aspects of a private bank’s offering, reflecting HNW concern about the value of a private banking offering. Strong service backed up by good investment returns is likely to lead to advocacy.
While “invitations to events” are the least correlated to advocacy, these events can add a “wow” factor that may attract unbanked HNWs to a private bank. Private banking clients in focus groups show interest in invitations to events and other “rewards”. While they might not drive clients to recommend, they are likely to be attractive to prospective clients.
When the influence on advocacy of different service attributes is plotted against satisfaction with these attributes, it is clear that private banks are underperforming in key areas. For attributes that are very influential in driving advocacy, the ideal satisfaction score is between four and five out of five. If clients are satisfied with these attributes, they are likely to recommend the bank.
The only attribute which had a mean satisfactions core greater than four was “confidentiality”, which was unfortunately not strongly correlated to advocacy. Further, the four attributes that are likely to greatly affect advocacy all received a score lower than four out of five. Of these,“the level of service received” had the highest satisfaction, while “the pricing of products and services” had the lowest.
Focusing attention on delivering these four attributes is likely to increase client advocacy and have a positive effect on acquisition. A simple first step in increasing satisfaction in these areas is to have a conversation with clients around their needs and expectations. This will enable a bank to deliver tailored service that meets client expectations, as well as to better understand the financial needs of clients. Understanding clients’ financial needs can flow on to improved delivery of investment returns and pricing, and a conversation with clients will enable the bank to ensure expected risks and returns, as well as pricing structures, are transparent.
Alan Shields is research director for Retail Finance Intelligence (RFI) – www.rfintelligence.com.au