BankBosun Podcast | Banking Risk Management | Banking Executive Podcast

BankBosun is a biweekly syndicated audio program that provides the multi-tasking bank C-suite officers ideas and solutions from key executives from all types of businesses operating in the banking ecosystem. BankBosun provides relevant ideas and solutions clearly, concisely and credibly to better enable them to navigate risk and discover reward. Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. Kelly earned his undergraduate degree (BA) from Gonzaga University and a master’s degree in business administration (MBA) from Olin Graduate School of Business at Babson College in Wellesley, MA. Kelly lives in Edina, MN.
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Sep 22, 2017

Matt Foley: I am 35 years old. I am divorced and I live in a van down by the river.

Intro: Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CPA and CEO of BankBosun, helping bank C suite execs navigate risk and discover reward a sea of risk, regulation and revenue opportunities.

One of the benefits, perhaps the only benefit, of getting older, is having a huge portfolio of …mistakes. Some wise person said, “Many times what we perceive as an error or failure is actually a gift. And eventually we find that lessons learned from that experience prove to be of great worth.” I say baloney to that. The mistakes I have made cost me and my company money. So, I reject that idea.

And another wise man, Alexander Pope, an 18th century British poet, said “A man should never be ashamed to admit he has been wrong, because he is wiser today than he was yesterday” I say, forget that idea too. Wrong is wrong. And yes, I might be wiser, but I certainly am irritated and embarrassed at a few of my own mistakes.

And one of the BIGGEST mistakes I have made over my 25 illustrious years in the business world is with presentations. And my weapon of choice was Powerpoint presentations. And for all you prospects, clients, and conference attendees who have had to endure one or more of my busy, complex, unclear, and lengthy PowerPoint presentations, I now herewith formally apologize for the harm that was done to you through boredom, confusion, and frankly lousy theater.

As many of you know, I am a huge fan of using audio…the human voice as a great tool to communicate your mission, message, and mechanics (that’s my term for product features and benefits) of your company and your products and services. Your spoken word is so much more powerful than the written word. With your voice you can communicate with energy, emotion, empathy, excitement… coincidentally they all begin with the letter E. I don’t know about your writing skills, but if I try to communicate my value proposition using words that communicate energy, emotion, excitement…they just don’t work in business writing.

This is why live presentations are great. They allow you to communicate your mission, message and mechancs of your company and value proposition with emotion and energy…those E words…That said, if that message is not clear, concise and credible then you should just keep your mouth shut…take the advice of Matt Foley, Motivational Speaker, “I wish you could just shut your big yapper.” God, I love Matt Foley.

Many of the mistakes we make with presentations are easily controllable…and I certainly have made my fair share of these, even before we talk about non-verbal mistakes we make…by the way, I encourage you to listen to my two-part interview with Robin Kermode, where he talked about a couple non-verbal tips like squeezing your butt together to lower your center of gravity, and what to do with your hands and how to stand.

In my mind, after having made dozens of miserable presentations, there are five things that can dramatically improve our Powerpoint presentations.

  • Number One: Direct the audience to yourself…not the screen or the handout. My actor friend Chris Carlson, CEO of NarrativePros in an interview said only we stupid business people, communicate this way: Hey audience, listen to what I am going to say, because I am so brilliant, but, by the way, don’t look at me, look at the screen over there. Cause I am not worth looking at. Don’t do that. And it starts with don’t give them content on the slide that encourages them to study and read it and not watch and listen to you. You want them focusing on YOU!
  • Number two…Get comfortable with white space on the slide. We tend to have too much content on our slides and too many ideas or concepts on each slide. Get comfortable with clean and open white space. You fill that white space with your brilliant words that you speak and not the words that you write. And be aware of the Rule of Thirds on your slides. Your slide can be divided up into nine boxes…resembling a tic tac toe grid. Generally speaking, you want your key messages on a slide where two lines intersect, that is just outside the four corners of the center box.
  • Number three: Get Your presentation down to less than 18 minutes. Frequently, presentations are too long and Q&A is too short. By capping it at 18 minutes, it forces you to distill your message into its critical and core elements. Audience cognitive learning…that is thinking and listening, is draining. There is this concept of cognitive backlog where your audience can handle up to a max of about 15 - 18 minutes of cognitive learning. If you exceed that they go into a backlog mode, where learning and listening starts to shut down. Research shows that you have about two minutes to get your audiences’ attention; five more minutes to keep it; and if they like it you get another seven to ten more minutes. So that is a total of no more than 18 minutes. The rest should be about them…no more about you. So to accomplish the mission to hold their attention, we need to carefully prepare and rehears our presentation. It takes more time to prepare a 15-minute presentation than a 50-minute presentation. Why? With both of them, you can only hold their attention for 18 minutes. With the longer presentation you are simply throwing more words at the wall and hoping something will stick. With the shorter one, you are carefully crafting your words to ensure that each message on each slide sticks with the audience.
  • Number Four: We use text too much and images not enough images. Use images either alone or to guide the viewer to the important message…again no more than two, ideally one, message per slide. I want to expand on this a bit. I had a client of mine say, but if I don’t put more detail and content on the slide, it won’t mean anything when I leave it behind. Very, very true. But that is resolved in my fifth and final point.And I really can’t emphasize this enough. Because if you do this, many of the flaws and weaknesses in the previous four points will magically be uncovered and discovered.
  • Number Five Write your complete and total speech out verbatim. Read it out loud. And record it. Write, Read, Record…the three Rs…oh wait, write is a W word…you get the idea.

To Write it, you can use an outline or a mind map or whatever works for you. I personally like the mind map approach, whatever works for you…write it out literally. Tell your story in an interesting way. If you haven’t listened to Paul Smith’s audio interview Sell with a Story or Joanne Black’s interview Pick Up the Damn Phone, you should. I interviewed both of them over the past six months. Their ideas can help you in writing your speech. So you write and rewrite your speech and then you need to connect it to your Powerpoint images. Copy and paste your script into your Powerpoint slide notes at the bottom of the slide page….What I like to do is copy the entire speech into the first slide…and then start cutting and pasting into the subsequent slides from this first one. If you haven’t created the slides, then this text will help you with the theme and message and image you want in that particular slide. Keep editing and reading aloud and rewriting and reading aloud again. This process is terrific for creating your talk and also, by the way, recalling the talk. And then once you have it and the slides are pretty good, record your voice making the presentation. You can either record this in Powerpoint or in another audio recording application. If you have someone else helping you with the Powerpoint slides, having this audio content will be incredibly helpful for them in creating the slideshow. So, back to the client that complained about lack of detail and content, when you provide your slide deck to interested clients or prospects, you also provide them the slide deck with the transcript AND you provide them the recorded presentation with the slides advancing with your audio overlay. It’s a great repurposing of the presentation and it offers you a way to repeat it and deliver it again and again with other prospects or clients throughout the company for those who couldn’t attend, liked it so much they wanted to hear it again or perhaps they had a martini at lunch and fell asleep…


So to summarize, it goes like this:

  • Direct the audience to you, the speaker, not the screen or the handout.
  • Get comfortable with white space on your slide. Divide the slide into a tic tac toe grid and place your key message…remember only one or two…in close proximity to the corners of the center box.
  • Get your presentation down to less than 18 minutes. There are some tips and tricks on getting Q&A going, because frequently nobody wants to be the first one to ask a question.
  • Use more images and pictures and less text. And no more than two points per slide.
  • And finally, the most important one, write, read, record, and rehearse…darn that pesky W in write…About six years ago, a couple of my sales people were making a big presentation…they came to me with a 50 slide Powerpoint deck they intended to present…I just about puked. I told them to get it down to 15 slides including opening slide. I also told them I wanted to see their script in the notes on each slide so I knew what they intended to say. They pushed back saying, they didn’t want to memorize a script rather would just use notes…I said fine. But I want a script for each slide as if you WERE going to read it verbatim…this process forced them to fine tune their presentation. Cut out the noise. And forced them to create a very good, well rehearsed, repeatable presentation that they could use again, fine tune again and allow others to make a similar presentation. So record it while you are still in production mode, and then re-record a finished version. The recording process will really help you get it right….that’s right with an R…

To get some help and guidance the non-verbal stuff listen to my interviews with Robin Kermode and Chris Carlson, both actors. To get some help on how to write it listen to Joanne Black and Paul Smith…you can find all of them on our website or just google and their name: Robin Kermode, Chris Carlson, Joanne Black and Paul Smith.

Most bank executives have to make presentation all the their board, shareholders, employees, regulators, cucstomers, prospects…I personally lover working on these presentations. To me it’s like writing poetry for business. You have a limited number of lines, words and time to communicate a powerful impactful and memorable message. So if you want help, give me a call.

Thanks for listening.

Outro: We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC;  and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Aug 28, 2017

Title: Pick Up the Damn Phone Means No Cold Calling! Listen to Joanne-of-the-Nice-Voice Explain.

Date: August 25, 2017

Attendee and Guest:  Kelly Coughlin, CEO, BankBosun; Joanne Black, Author and Consultant,

[Boatswain’s whistle] That’s the Bosun’s whistle calling you bankers to attention.  Listen, compete, win.

Intro: Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C- suite execs navigate risks and discover reward in a sea of threats and opportunities. It wasn’t so long ago, that there were really only three ways to communicate with people: the mail, in-person, and on the phone. That was it. That’s the way it was only 40 years ago. Imagine that…no texting, no social media, no cell phones, no internet, no email…just 40 years ago.

Today, we have all these new different ways to communicate…and frequently, when something “new” is introduced in the market, it gets overused and misused. Why? Because we lose sight of the purpose of the new concept and focus simply on using the new concept. In communications today, I will say the reliance upon binary digits…technology…is overused and misused today. As most of you know, we at BankBosun are huge fans of using the human voice as a way to more effectively communicate your message…whether it be your company mission and vision, your product features and benefits, or your assessment of the market landscape and environment, the power of the human voice to communicate empathy, energy and emotion is one of the strongest powers as human beings we have. And if we don’t use that power, we miss a huge opportunity to connect and communicate with our tribe. We like to say, while the pen is mightier than the sword, the voice is stronger than both. Use it. The new communication tactics today are terrific and I use them constantly and consistently. But in terms of effectiveness, nothing compares with the sound of the human voice…I fully recognize that it is not efficient, and that is why many companies founded in the digital era have adopted a business model that minimizes or sometimes completely eliminates the human voice…Facebook, Google, Uber…have you ever tried to get an Uber customer service agent on the phone…forget it…it just won’t happen.

This audio interview is an example of the power of the human voice. I posit that if you only read the transcript of this interview, you will miss a huge portion of the underlying message. See how I said huge there? You would miss that if you just read it…it would sound huge…If you only read, you will miss the guest’s energy, empathy and emotion. You just don’t get that with the written word. Oh, and did I mention people don’t read anymore…they don’t. If you send a written piece longer than three quarters of a page it most likely won’t ever get read. Over 65% of written documents over one page in length get put down for later reading…and over 50% of those docs never get read…period. But if you listen, you get to hear a whole new dimension of communication. And you technical people that think your products and services are way too complex and need to be communicated with a written doc or flow chart or a Powerpoint. Wrong. You especially need to tell your story with your voice. I am not suggesting you abandon your written material. But frankly the more complex your offering the more you need to be able to tell your story with your voice…if you can’t, you need to learn your story better.

My guest today is also a strong advocate of using the human voice. She is a thought leader, author, and consultant.  And frankly, she is the genuine article.  She has written a number of books, one is called No More Cold Calling: The Breakthrough System That Will Leave Your Competition in the Dust.  And then another one, Pick Up the Damn Phone!: How People, Not Technology, Seal the Deal.  She is America’s leading authority on referral selling.  She is not bragging though, her publisher gave her that moniker and she runs with it, and runs with it hard.  And now she is going to run with it at BankBosun to help our community and regional banks compete and win, not through cold calling or the traditional tactics like getting referrals from centers of influence, rather, she is quite the contrary and thinker who believes no sales person should ever have to cold call or send cold emails.  Let’s hear about that.  But what I like most about our guest, Joanne Black, she has a nice soothing voice, especially, compared to my rough and gruff voice.  And so, I am going to welcome Joanne and hope she is on the line so we can all hear her great wisdom and insight and hear her especially nice voice. 

Kelly: Joanne, are you on the line?

Joanne: Oh, I wouldn’t miss this for the world, Kelly. This is fabulous.

Kelly: Thank you Joanne for taking the time.  I know you are on the west coast of California, is that correct?

Joanne: I am in the San Francisco Bay area so it’s a beautiful sunny day here and we haven’t had any earthquakes in a while and I hope that continues.

Kelly: Excellent!  Well, Joanne, are you ready to get right into it?

Joanne: I am always ready. 

Kelly: Alright. Well, Joanne, I am going to start out with a challenging question here.  I am going to start out by asking you to reconcile two seemingly contrary and opposing messages that are the titles of two of your books.  One book says, Pick Up the Damn Phone and the other says, No More Cold Calling.  Well, what do you want us to do, call or not call?

Joanne: Oh, I want you to call but only if you have gotten a referral. The reason I wrote that second book is, I truly was alarmed by how so many people depend on technology and not only depend on it, I think they hide behind it.  And instead of actually having conversations they are depending on emails, on e-books, on social media to get people’s attention.  But the titles may seem like they are not aligned but they actually are. To only wants you to pick up the damn phone, when you have done your research online, when you have talked to people and then when you have been introduced to the person you want to meet or you are going to pick up the damn phone to talk to some of your colleagues, to talk to your clients and ask them for other people you should be meeting.  That’s what the phone is for, not to cold call. 

Kelly: Well, are people afraid of the phone these days or are people afraid to contact people?

Joanne: It depends on who your clients are.   So, we need to communicate as our clients communicate, and if they communicate by text then text them and set up a time to talk to them.  But you have to have the conversation when you are asking for a referral.  You know, you can’t ask for a referral in any digital format.  That’s my point of view and I am sticking to it.  And the reason is that a referral is very personal and before I can introduce you or I can introduce any banker I need to have a conversation.  I need to know the business reason why I am going to make the introduction. Because when I refer someone my reputation is on the line.  I need to depend on you to take care of my client just as I would.  So, therefore, I need to have that conversation.  I also need to equip you with a language to introduce me.   And it’s not just because I am a nice person.  It’s not just because I have written two books.  It’s not just because I have had my company for 21 years.  It’s not just because you say I have a nice voice.  I mean, that’s not business reasons for the introduction.  There has to be something I do that’s going to resonate with the person you are introducing me to that’s going to help them solve a problem. 

Kelly: Now, you are kind of picky about using the term referral, why don’t you define what you think a referral is and then what a referral is not.

Joanne: Well, it is what I know, not what I think.  But a referral means that you receive an introduction.  Let me contrast that to my definition of a cold call, any cold outreach, whether you are sending an email, whether you are on social media, whether you are just popping in to a client.  I mean, I don’t know if anybody does that anymore, but some do.   A cold call versus a referral, a cold outreach means that you are contacting someone who doesn’t know you and doesn’t expect to hear from you.  That is ice cold, you are definitely interrupting them. They don’t know you. And in many times there are actually circumspect whether that person really said that you should talk or not, a lot that goes on there.  So when a referral gets you the introduction you always get the meetings, because you have been introduced by someone your prospect knows and respects.  Make sense?

Kelly: Yes it does.  I’m interested in the term outreach.  I’ve been in the sales business one way or another many many years and it’s only been in the last eight years maximum that the term outreach has become popular.  It is just selling, correct?    Is it just making a contact, whether it be outreach on the phone, outreach on email, outreach in person, it’s selling, correct?

Joanne: I don’t agree.  So here is the thing, I’m want to go back a whole bunch of years when I did work in the banking industry.  I worked for a makeup performance and my clients were all banks, mainly community banks, and at that time if you wanted to get information on a bank you would call their corporate communications department and they mailed you an annual report.  That’s how we learnt about a company.  We did not have the internet and when the internet first became frequently used, I’m going to say mid 90s, maybe, when people were contacted all over the world and then it went from there. We now have many different ways of reaching people so it’s not just calling someone to get information.  It’s not just making a phone call.   And, by the way, I think those times were probably a lot simpler, but there are so many ways of contacting people now.  And that’s what I mean by outreach, because it could be by phone, in person, social media, email, I can’t think of anything else, but there probably is, but there are just so many avenues we have now to reach people. So that’s why I call it outreach, and I don’t think it’s selling.

Kelly:  I think probably selling implies doing more talking than listening. But if an outreach is listening and talking then that probably makes more sense to use the term outreach.

Joanne: I think it is very much about building relationships and expanding connections, and those lead to sales.  Here is what happens. I have been exposed to several people recently who have said to me, I don’t know if I should go to that event because I have been to things like this in the past and I don’t get any leads.  Don’t say that to me, I say that’s always a wrong approach.  We need to be out there meeting people all the time, whether it’s for breakfast, for lunch, for a beer, whether it’s part of a golf tournament, a tennis tournament, whether we are going to our kid’ their baseball or soccer games, we need to be out there all the time meeting people, getting to know people, sharing ideas.  That to me is what selling is about, because the number one reason that people do business with us, because they trust us.  That doesn’t happen overnight.  It does happen when you get a referral introduction.  For me, sales is about having a conversation and being clear about what their issues are before ever talking about what we do.  

Kelly: Let’s talk about account based sales. You seem to spend a lot of time, a lot of energy on account based sales activity. What’s your definition? Why is that important and what’s the alternative to that?

Joanne: It’s the old saying that there is nothing really new again.  So account based sales is a newer term used for those of us who have named accounts.  We have a certain book of business, a certain book of accounts that we are responsible for meeting with and ultimately selling to.  It’s a book of business, period, named accounts.  And as bankers then we know we need to meet these companies and talk to them and build relationships with them. That’s what it’s about. That’s account based selling.  It’s just a new term but there is nothing new about it.  The opposite is, so many companies now have people on the phone all the time, inside sales reps, people calling and wanting to open up a conversation.  They don’t build relationships.  They are the ones making a hundred dollars a week, a day or whatever it is, and maybe talking to a few people.  That is not what I’m talking about and that’s not where bankers are playing either.  It’s not where I play.  Account based sellers build relationships.  That’s the differentiation in the term. 

Kelly:  Do you distinguish between retention of business or for cross selling, up-selling purposes?

Joanne: One of the downfalls that I see is that in so many organizations, that we do business with a client, we close that business and then we move on.  To me, when you talk about cross selling and up-selling, it’s always listening.  So, we get in there with one product or service because most of these companies have more than one bank they are doing business with and through developing the relationship and getting to know them better, yes, our goal is to find other opportunities within that client.   We may or may not, or it could be that a bank that they were doing business with, maybe they changed bankers and their client doesn’t like this new banker and suddenly reaches out to you because they like you. It’s critical to stay in touch with people.  And yes, if the door opens and you see an opportunity to talk about another product or service, you do that, but more importantly, we need to be asking those clients for referrals to other people they know. And that is not happening.  It’s happening yes, ad hoc, but it’s not a discipline.  It’s not systematic.  And it happens but we can’t depend on that.  

Kelly: Okay, you make a pretty bold statement in some of your work.  One of these statements says this, Why closing is never a problem in account based selling. Why is that?

Joanne: First thing, it’s never the problem, it doesn’t matter what you do.  So, when people say to me, I’ve had a sales leader say to me, Joanne, my team can’t close, can you help me?  Well, that’s my time to step back because it is never about closing.  It’s always about something earlier in the sales process that was forgotten. That was over looked.  If we have done our true discovery and we built relationships with all the people who are going to be involved in the decision, that we found out their timeline, we found out what they need, we’ve made a lot of check ins. I don’t even like to call it that, but we are in touch, then closing should be like one foot in front of the other.  Closing is never the problem.  I am going to give you an example.  I realized that I missed a step, very recently, and I knew the deadline was short so I wasn’t even sure about that. But a client was having a meeting and they were bringing in their account executive and suddenly they wanted to expand it to a bigger group so now we are looking at like 25 people instead of 10.  The mistake I made was, I did not have the conversation with the right person about what that would cost them when they expanded that number and I would have made a recommendation to start with a smaller group.  The group that really would get the most benefit from referrals, start with them first.  Let’s get proof, let’s get results and then we can expand it.  So, I missed that step. Now, as a result, first of all, the date didn’t work and second, it was too big. And it will happen because they do these quarterly business reviews and bring the whole team together then.  And now I have to do a lot more work on my end which I am willing to do and we have already outlined some next steps to bring a referral program into a quarterly business review with a smaller team. So, I made that mistake.  It’s called, sometimes...I have an author friend who calls it "happy ears”.  You know, when a prospect or a client just says, oh, this is fabulous, yes we need to do it.  This absolutely meets what our challenges are.  I never thought about it that way, you have given me so many insights   and good advice, on and on and on.  We have “happy ears”, and they go sure, they are going to do business with us.    That’s not business, that’s “happy ears”, and that was my downfall.

Kelly. Yeah.  You make another statement here, How digital dependence derails account based selling teams.  I want to give some background in this question.  At BankBosun, we believe that audiocasting is a very effective way to communicate your message, whether it be a company message, a product message, service message, a human voice communicates with energy, empathy and emotion and you just can’t get that out of the written word unless you are writing like Yeats or Shakespeare, most people really don’t read anymore anyway.  So, we like to use digital audio to capture this, like we are doing today.  In my interview with you, we get the emotion, we hear your wonderful voice, we hear your energy and then we envision banks would share that message with their referrals or current customers or prospective customers.  I am not at all suggesting that banks rely upon this and be dependent upon it, but do you think that tactic challenges your statement, digital dependence derails account based selling teams?

Joanne: No, if digital is the only outreach then I would say yes.  The point in that post and really the message in my second book, Pick up the Damn Phone, is that if we sit behind technology and we rely only on technology, whether it’s audios, videos, emails, e-books, whatever it is, webinars, podcasts that we are not developing the relationships we need to develop when we have a conversation, and that’s what I mean by digital dependence.  Now, audio is one tool, video is another.  I just wrote a post, in fact, about why video doesn’t work for me.  You see, everybody has a different way of accessing and understanding information.  For me, I can read way faster than I can listen, of course then, I have to put in my blue tooth or my earbuds.  You know, whatever I’m doing, it’s one other block for me.  Now, I agree that there is nothing that replaces hearing a human voice, that’s why we need to talk to people and have conversations but we need to communicate in different modalities.  Some people love videos, some love audio, and many people love audio because they put it on their phones and can listen in the car.  If it’s the written word, there is Infographics.  Some people love those.  Infographics gives me hives. I just don’t know where to look first.  I get, you know, where is this?  It’s like charts and graphs. I want someone to explain it to me.  That’s my learning style.  We need to use various modalities in digital but then we need to have an actual conversation.  And when I talked about digital dependence is there are so many people who are not having conversation. They are relying on digital for everything.

Kelly: Got it. I would like to reserve part two, if we could, to talking about strategy and tactics on getting referrals, could we to that in part two, do you think?

Joanne: Well, of course we can and I look forward to it.

Kelly: Okay, I want to end part one with, I find it interesting, the contrary, and you are, that you use the term, circles of influence and many of us use the term centers of influence, is there a difference between how we use the terms?  I actually kind of like your term better. It implies, large, diameter, circumference, wider in scope whereas a center implies something that’s closed.  It’s got a door and only few people are allowed in it, closed, narrow. What are your thoughts on that?

Joanne: I think they are interchangeable.  I mean, truthfully, with everything I say is maybe I meant center and I said circle. You know, it’s really the same thing. We understand these are the people who would most likely to give us referrals over time.  And that’s centers of influence, circles of influence, it’s exactly the same.

Kelly: Okay.  Well, with your permission, unless you have some kind of trade name, ownership and you are going to charge me every quarter every time I use it, I am going to start using it.

Joanne: Oh, fantastic Kelly, please do.  

Kelly: Joanne, I would like to know how bankers can get in touch with you.  You could put a plug in for your books again and any other thing.  I think we are doing a giveaway on the book, No More Cold Calling: The Break Through System That Will Leave Your Competition in the Dust.  Is that correct?

Joanne: That’s correct.  The way to reach me is, Joanne, J o a n n e, and the first 10 people who send me an email and put in the subject line “listened to your podcast with Kelly” will receive a book.  If you would like to chat and hear a human voice, it is area code 415-461-8763, 4154618763, and that’s Pacific Time. I invite you to visit my website,  And yes, both of my books are available on Amazon, on Kindle as well as in hardcover for No More Cold Calling and paperback for Pick Up the Damn Phone

Kelly: Very nice, sweet.  Joanne, thank you so much and we will be in touch about scheduling part two which is “the circles of influence and how to get them to work for you.”                                                  

Joanne: Terrific, thanks Kelly.

Kelly: Okay Joanne, thank you, good bye.

Outro: We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC;  and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Aug 24, 2017

Date: August 16, 2017

Attendee and Guest:  Kelly Coughlin, CEO, BankBosun; Mike Lindell, CEO,

That’s the bosun’s whistle calling you bankers to attention. Listen. Compete. Win!

Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C- suite execs navigate risks and discover reward in a sea of threats and opportunities.  I used to sing an Irish song to my four girls when they were young called John O’Dreams.  It’s one of my favorites…and the song song went like this, “The prince and the ploughman, the slave and the freeman, all find their comfort in old John O’Dreams.”  So, John O’Dreams is like the sand man representing sleep. What’s that have to do with BankBosun and bankers?  Well all of us need our sleep, even brilliant successful bankers, and who better to help you sleep than, For the best night’s sleep in the whole wide world visit, Mike Lindell, CEO of

Kelly: Mike, are you there?

Mike: Yes, I am.  It’s great to be here.

Kelly: Great!  Mike, many thanks for taking the time to do this interview.  I am not sure if you know this but you have become somewhat of a cult celebrity figure from your MyPillow ads on TV, I suppose.   Very impressive, so congratulations on being a rock star.

Mike: Okay, thank you.

Kelly: I want to focus kind of on the business part of things, but I do have one question for you on your recent ad change.  There you are, you are waking up in this couple’s bathroom/bedroom with your pillow.  I mean, Mike, don’t some of the iron rangers in Minnesota raise their eyebrows a bit at that? 

Mike: I don’t know what clip you’re seeing, but I am actually in their mirror they open up their cabinet in the morning when they get up and say, hear that guy, the MyPillow guy, and then we go from there and then I go to their bedroom and see what they are sleeping on with their pillows and correct them in that, and we go through all the problems they have with their current pillows.  But it has been amazing, that ad and the other ads that we have made right now.

Kelly: Yeah, well I am really intrigued about your ad spend and your budget and your ROI on that, but before we get into that, as much as I would like to give you the opportunity to promote the pillows, I think we’ll focus on the business part of company, some of the background on you personally and then, in business, how did you get started, the history of MyPillow, especially the early foundation years. 

Mike: Well, I have always been an entrepreneur and my last job was in 1980s where I worked for someone, but I had a carpet cleaning business and then I had a lunch wagon business, and I had some bar and restaurants that I bought, but everything I did I sold to a bank.  I had a lot of problems with the banks, so when I started MyPillow I actually spent two years inventing it and I had sold the bar that I had at the time and I ran the money completely down to nothing.   So, when I finally had the MyPillow invented I mortgaged our house to the hilt.  I had four little kids and we were all in and that’s all we had left in the world, just a few pillows and a dream.

Kelly:                              You’ve started this up in northern Minnesota, is that where you are from?

Mike:                              I am from far west of Minneapolis, it’s my home town.  I grew up in Chaska, Minnesota, and when I invented the pillow it took a couple years.  I actually had, like I said, I didn’t have any money left and I walked into box stores and they said, how many would you like, and they laughed at me, and I had people laughed that you are never going to get a partner on a pillow and all these different things.  And then a friend of mine finally said,  and he said, why don’t you do a kiosk?   And I said, how do you spell that?  I didn’t know what a kiosk was.  And I ended up doing the kiosk and we only sell like 80 pillows.   And one of the guys that had bought one there actually called me in January of that year and said, are you the guy that have been in this pillow from Minnesota?  And he said, this pillow changed my life.   And he said, I run a Minneapolis home and garden show, would you like a spot in there?  And that started where I did shows for seven years, home shows and fairs and any place there was people.

Kelly:                              Did you man the booth yourself in the early years?

Mike:                              Yeah, I did everything, made the pillows, faced a lot of it, virtually, people tried to take the company.  I had my own demons,  I was a crack cocaine addict, so I had a lot of problems, but yeah, I did the booth, I did all my own manufacturing, learnt how to sew, I worked out of a little garage, I took any phone calls.  Myself and my family, we did everything ourselves, everything, even the design on the packaging. We still do to this day.  We do everything ourselves

Kelly: How did you get your funding…your start-up funding?

Mike: Yeah, that’s when I mortgaged my house and I had money from a business I had sold a couple of years earlier but with four kids and not working at the time and just advancing the store I ended up at nothing.  So, basically I took every money I made in the show and I would roll it back in to buy product the next time or to buy raw materials and so I didn’t have any funding.  I never had.

Kelly: Ownership, has that always stayed the same, since inception?

Mike: Yeah, I’m the majority owner of the company.  I have had stock with my friends and employees and stock that I have given away and a couple of people that buy into it back in the day and so it is all like a big family. 

Kelly: Why pillows?  How did you find, or how did you select that industry of all the things to get into?  What was it about the pillow industry?

Mike: Well, I have always had problems with pillows, even when you go back from when I was 16 years old and I worked in a grocery store in Chaska, Minnesota, and one of my first pay checks I went and bought a pillow.  It was 1977, and I said if I go and buy a nice pillow maybe it will work, and it didn’t.  It was a down pillow I got at home and it didn’t work.  I couldn’t return it and, I don’t know, maybe it was my calling, but I just had problems.  All my life my pillows would go flat.  I would use my arms, headaches, neck-aches, I had all these things that I knew the pillows were the problem and I tried every pillow through all my life and nothing ever worked.  Basically, out of my own necessity, at first I am going, I want something you can move and adjust and would make it fit me rather than me trying to fit the pillow, and kept thinking to myself, well they make all different size clothes for people, how can they give us a pillow and say it’s going to work for all of us and none of them ever do. 

Kelly: Which pillows or which type of pillows were you really trying to compete with?

Mike: No, there was nothing out there like MyPillow.  I had a dream of the logo and I wrote the logo all over the house, MyPillow, and my daughter came upstairs, one of my daughters, in the middle of the night, she was like nine or ten years old, she said, what are you doing dad, and I said, I am going to invent  this amazing pillow. And she grabbed her water and she said, that’s truly random, and she went back downstairs. And then I just had an idea, I wanted something that you could just adjust and move.  And it wasn’t necessarily what was going to be inside it, I wanted it to be soft like down, but I wanted it to be support.  I wanted it to have everything you would ever want in a pillow.   If you ask every single person, what would you like in a pillow?  Whatever came out of their mouth, my pillow would have.  You know, I was so particular, once, you know, I tried over 94 different kinds of foams and stuff to go inside a pillow and poured stuff on a deck.  One of my sons and I, every day we get home and he would try different things like, you know, some mad scientist.  And so, it was a lot of trial and error and I would get close and then once I had it invented, I wanted it so you could wash and dry it.  In pillows traditionally, you couldn’t do that before, and I wanted it to last so I put a 10 year warranty, and then the washing and drying, adding that to the mix,  that took another two months. I would first engineer what the product should be and all the problems I had and why they didn’t work and then you just solve each problem.  So, it was kind of reverse engineering of what I wanted and say, okay, this pillow goes flat, well, let’s make it so it won’t go flat at night.  Well, this one here I want to build it wash and dry, let’s make it so you can wash and dry it.  Well, this pillow it feels soft but you can adjust it, everybody‘s shoulders are different.  So there was a lot of that went into the inventing of it.

Kelly: Oh, kind of traditional things that many people do, kind of the business school activities, you look at your market; look at your competitors; look at the price points; look at demand; how are you going to fill that, you kind of said, to hell with all that, I’m not going to do that.  Did you do any analytics, before you got neck deep into this on pricing and market demand or anything like that?

Mike: I did absolutely no analytics.  I just drop my life, I thought, wow, am I the only one out there that has problems with pillows and sleep?  I started asking around and it wasn’t just me.  Every single person had the same problem.  So many people at that time thought, oh that’s your bed, or I’ll just go and cotch some place and just sit, oh, I just sleep, I guess when we get older we just, you know, our sleep is worse.  And we have insomnia and all these problems associated with sleep.  I didn’t buy that from many and I didn’t believe this.  So, my philosophy was, you solve these problems, and if I can do that for myself and then these other casting out I gave some to other people to try and it solved everybody’s sleep problems.   So, I’m going, if you do that and then the price points and stuff came later.   And I actually got myself in a lot of trouble, selling at a lower price at one time and then with my marketing, if you want to talk about that in a minute, I just wanted to help people get great sleep and then I didn’t know anything about indirect cost, direct costs and all these other things at the time.

Kelly: Interesting.  So, you claim that they are made in Minnesota, where do you get all your materials? 

Mike: My patent form is made in Wisconsin.  I have never changed off of that, that is the formula that they tried to duplicate in other places but they can’t.  So, like for my neighboring state of Wisconsin, the foam gets poured there, I get the stuff, I run it through my machine then I patent the runs, makes the different sizes.  There are three different sizes that all go into the pillow.  One is the size of a quarter, one is the size of a dime and one is the size of down and then they are all mixed together proportionally.   And these other machines, the fabric got cotton grown here and California and the Carolinas.  We do all our own cutting, sewing. We have machines that fill.  I have over 1500 employees now.  So, we do everything in Minnesota.   I have two factories in Chaska, my neighboring town.  I guess we have about 350,000 square feet now of factory and then I have, right outside as I am sitting here, my own call center because I...when I did shows for seven years I knew at those shows what kept me going is people kept coming up and telling other people that already had the pillow then, this is the most amazing product I have ever used, not pillow, product.  And I am getting all this amazing feedback and it just kept me going that was so powerful.  I like helping people.   Then I said, you know what, if nobody will take my pillow I am going to bring it to the people.  So, I did my own infomercial in the summer of 2011 and it was a real audience, just me and a friend of mine.  I had never been on TV before, and it launched October 7, 2011 and I had five employees and 40 days later I had 500 employees. 

Kelly: Alright, how much did that infomercial cost you, do you recall?

Mike: To produce it was $150,000 or $200,000, something like that, but I was told I needed movie stars and all this and I said, why, I think people are tired, they just want honesty and they are tired of seeing infomercials that claim this and do this, and like I said, it was a real audience and then I just told my friends and family.  I didn’t have any money.   I said, guys if we all put in money on this we are going to be the biggest infomercial ever and they all believed me and I didn’t know that most infomercials fail in this country.   And by December 26 of 2011 we are the number one infomercial in the world. 

Kelly: How many people did you get in on that?

Mike: It was just, I don’t know, maybe 20 of us, just friends and family.  We all just threw in      everything we could into just get it going.  And over the next six months we took in tens of millions of dollars, because every ad that went out, you know, we are making the pillows, it was a miracle we all got out in time.  But the bigger companies didn’t believe me that I was going to get that big that quick.  So, we didn’t get good pricing on raw materials.  We were taken advantage of. I learned so much from the spring of 2012 because my advertising dollars were spent on audiences that weren’t my audience and I didn’t know they were bad at the time.  It’s like batting a 100 hitter instead of batting all your 300 hitters.  We took in all those tens of millions and we were in the hole by June.  And I’m going, what happened here?  And when you look at nowadays the stuff I learn, and every ad you now you ever see for My Pillow I view that as my only business, that particular ad at that moment in time.    So, if that doesn’t make its number in direct sales, I never re-up it again.   And I do that for every ad you ever see.  I don’t do branding, I get direct marketing or I am getting direct sales from that ad and then, obviously, you get the branding comes secondary.  I know where every ad dollar, I know my audience so well, I know my demographics, I know who is buying.   You think everybody needs a pillow but everybody doesn’t buy a pillow.  The millennials are one group that’s really hard to crack. I do the same thing for my customers.  I view every customer like it’s my only customer.  That has been the success of MyPillow because I could spend, at $1.5 million a week on advertising, easy.  And if I had an ad that went out and it didn’t make us money I will never do it again.  If every company in this country knew where to spend their advertising dollar and knew they were actually getting a good return and didn’t advertise the thing that didn’t work, product cost in this country would go way down because you wouldn’t have all that wasted advertising out there.

Kelly: So, in 2016, the election year, you spent quite a bit of money on advertising at Fox and CNN and I’m sure many, many others during that period, how much did you spend in 2016?

Mike: By the way, it’s not just CNN and Fox, we do 18,000 radio reads a week. Radio is one of our biggest venues too.  In TV, we do hundreds of stations across the country, but we probably spend 1.5 million a week times 52. 

Kelly: In TV and radio or just TV?

Mike: That’s probably just TV.

Kelly: So that’s the biggest...well, that’s one of the biggest part of your budget, because you go direct, you are not doing anything wholesale, right?

Mike: No.  While we do...You know, we have some box stores, we do a little bit of wholesaling but we are in some stores across the country too but that’s not our...Our biggest thing is direct to the consumer.  That’s our biggest part of our business and I love that part.  I love being on TV, and we do our own advertisement.   It’s really easy in radio because the radio hosts, you get them and their family believing in the product and nothing better to sell if you are a radio host, if you believe in the product you are selling, that it’s helping you, most likely it’s going to help someone else.

Kelly: I heard that Dana Perino on Fox news one time singing your jingle and I thought, man, that’s got to be terrific for you. 

Mike: [Laughs] I was just at the White House for the Made in America, I got to meet, last summer, Mr. Trump, the President he called me to meet him before he was elected and it was all about meeting and talking about, wow, Mike, your company is everything I want in this country, and he goes, you have all these employees, and we talked about the inner cities and stuff.  And here again and I get invited, a year later, to the White House for...and all these other manufacturers were there and what an amazing time.  We talked about how it’s so important that this stuff be made here, and it’s quite an honor to be there for that.

Kelly: I know you attended the Trump rally and certainly you are a big supporter of Trump, that of course can be politically toxic these days. Has it helped or hurt your business?

Mike: Right, well, like I said, for me, it has been an easy decision because of that meeting I had with him last summer.  I wasn’t political before that and then when I met him I was all in.  That he would be the best President ever, I still stand by that.  I know where his heart is.  I know what he is going to do.  It’s too bad he gets attacked all the time.  I actually went to the third debate. I was in the spin room. I went all in.  I spoke at the Minnesota rally about two days before the election when he flew in here to talk.  So, I just know this was what I was supposed to do and we let the chips fall where they fell and it hasn’t hurt us.  If someone doesn’t want to buy a pillow, because I met a guy that I know is going to help this country and I’m aligned with, I am going to do it with the stuff.  I am doing with the inner cities and my foundation, we align perfectly and I have access now to be able to do that, to help all these things.  I have been very blessed with this platform to help people, and that aligns with the President, so would I change anything, absolutely not.  Will I ever change what I do?  No!

Kelly: Well, that’s just great, Mike.  It’s quite a success story and I think that is terrific.  Do you have any of your favorite quotes or sayings or any beliefs you want to share with us that kind of helped you get through your challenging years?

Mike: I am going to say a couple things but one thing about manufacturing here in the U.S.  I want to tell people, this is when I was just at the White House, this got brought up, anyone that thinks they are saving a bunch of money by going over and getting it made overseas if you are a small entrepreneur, and you have got to realize, your money is tied up for three months. Those products are going to take two months, six to eight weeks to get here.  Now, if your market changes, let’s say you get too big, they are not here in time, you end up air shipping them in, or let’s say, by the time it gets here your markets changed and now you are sitting on all that inventory or if it’s not the quality you expected, you have that, it becomes quite costly.  So, there are so many things that I don’t think people realize.  And then if you get in trouble what happens then is big companies will come in and try and gobble you up and give you pennies on a dollar because they have the money to do it where you didn’t have that money to do that.  So that was one of the things with made in the U.S.A.  And I firmly believe that people nowadays, where we are at, that I would say by telling people, you are made here, I think that’s at least a 20 percent lift in sales, that’s just my opinion.  When you talk about perseverance, and as an entrepreneur, a business owner, I’ll say I faced a lot of adversity I am quite a story of hope, from a crack cocaine addict to where I am at now.  I quit everything by the grace of God, January 16, 2009, everything overnight, and I’m doing so much nationally with all these different places, like your Teen Challenges, Union Gospel, Salvation Army, all these places to help people in that area.  But as far as entrepreneurship, if you don’t believe in your own product, it has to start there and it has to start, you know, not giving up.  Still if something happens, like I see it happens all the time, because I get approached by entrepreneurs and inventors and everything, all the time, they’ll get one little obstacle, number one, out of fear they won’t get it out there, they are afraid to jump in, out of fear. What if I fail? What if I fail?  And that’s one thing that will block them from even starting.   But then when they do come across something that happens to them, that’s a little adversity they are facing, but might seem devastating at the time, you look back on that and you’re going, wow, that had to happen.  I mean, I can look back at My Pillow and so many different things happened and I look back and I go, wow, that had to happen at the time.  And you come through it and you learn from it and you look back later on and you go, wow, that had to happen. That wasn’t so bad.  That was meant to be.

Kelly: Well, Mike, I hope I get a chance to meet you some time. It sounds like you are just one heck of a business executive, but more importantly a terrific human being.  I appreciate your time on this podcast and I encourage all our listeners to go out and order one or two pillows from And tell them BankBosun sent you…and they won’t know what the heck you are talking about. Mike, I wish you the best of luck and success going forward.  Thank you.

Mike: Thanks a lot.

Mike: Bye

Outro: We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC; and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Aug 14, 2017

"Stand your ground. Do not fire unless you are fired upon, but if they mean war, let it begin here." 1775, Battle of Lexington and Concord, Captain Parker


Kelly Coughlin is CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C-Suite officers risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly Coughlin:

This is part-two of my interview with Kirk Chisholm, a wealth manager with and the Innovative Advisory Group in Lexington, Massachusetts. Kirk, are you still on the line?

Kirk Chisholm:

I'm still here, Kelly.

Kelly Coughlin:

Great. Kirk, let's talk about Lexington. That's a famous town in American early Republic history.

Kirk Chisholm:

Yes, it is. We are surrounded by our country’s heritage. I'm actually surprised at how few people, where I say where I'm from, who actually point that out. I appreciate you pointing that out.

Kelly Coughlin:

I love early Republic history and Revolutionary War stuff. I have since I was in fifth grade, I think.

Kirk Chisholm:

We have a lot of that in Boston, too. It's all over the place. It's really interesting. I think living here, we don’t appreciate the heritage that surrounds us everywhere. I walk around the city and I see it, but I don’t always appreciate it, because we're surrounded by it every day. It's nice, especially times like the 4th of July, when they have the parades in Lexington. It's nice. Nice thing to bring you back to the way things used to be hundreds of years ago.

Kelly Coughlin:

Well, Kirk, just to get caught up here. In our first interview, we talked about more of the mechanics of IRA custodians and trustees in the alternative space. While it's a topic that I think tends to be a bit of a boring topic, the work that you've done in this space is very impressive. Since our first interview, I've dug into more of what you've put out, and I would highly recommend that people that are interested in this space go in and get your publication, Ultimate Insider’s Guide to Self-Directed IRA Custodians and Administrators. If you're really bored with your life, go get that book, and you'll be an expert on it. It's quite impressive what you've done.

In part one, we talked about the “sausage” of these custodians and administrators, and the features and benefits that are required and customer service and a little bit on fees. Today, I thought we'd talk about some alternative investment choices and options that individuals can have in their IRA, and I want to start out with a discussion about holding real estate in an IRA. How does that work, and doesn't that present some problems? Unlike traditional securities, once you buy it, then there's really no ongoing cost to maintain the asset. Real estate is just the opposite of that.

You've got physical maintenance costs, insurance. You've got taxes. You've got all these costs related to just holding the asset. If it's a rental property, you've got to collect the rents. If you own this asset in your IRA, do all of the costs to hold the asset and to maintain the asset and the receipts on the asset, do all of those revenues and expenses have to go through the IRA? Or can you carve expenses out and deduct those? That kind of thing.

Kirk Chisholm:

It's a really interesting topic. Real estate, while it is the most common alternative asset held in IRAs, it is also one of the more complicated ones. I always find this interesting that people want to invest in this complicated structure. This is just without an LLC. This is just straight real estate. The way it works is this. You cannot transact with your IRA. You cannot sell a piece of real estate to your IRA. Your IRA cannot sell a piece of real estate to you. You're a disqualified person as are some other people. There's a list of disqualified people. You cannot transact with yourself. Effectively—

Kelly Coughlin:

With any asset, not just real estate. Is that correct?

Kirk Chisholm:

Any asset, yes. Any asset. That's a clear rule in the Internal Revenue code. What's interesting is, you have to consider your IRA like one of the neighbors on your street that you really don’t like. You're not going to loan this guy money. You're not going to work for free on his house, help him out for free. You're not going to let him borrow your lawnmower. There's things that you don’t like the person, you're not going to do these things for them. You have to treat your IRA the same way. You can't loan your IRA money. You can't work on the real estate, because that would be called sweat equity. You're not going to give away your labor for free to some other person. There's many things you cannot do.

You have to look at your IRA as completely separate entity, in that if you own a piece of real estate, you're going to have a broken toilet. You're going to have to fix the roof. All of these different things are part of owning rental property. In the case of real estate, you have to hire somebody to do these things. You cannot fix your own toilets, and I know the landlords out there listening to this are going to cringe at the idea of hiring somebody to do something they can do themselves. It's hard, but you cannot do it yourself. If you think you're trying to get around the rules, I can assure you, you won't. The IRS is much smarter than you.

Kelly Coughlin:

You can't set up an LLC management company to do that on your behalf?

Kirk Chisholm:

Who’s the owner of the LLC? You? Then, no. Owned by some other third person at arm’s length? Then, maybe. You have to hire somebody else. You can do the hiring. You just can't do the work. You could do administrative functions. You can pay the bills. You can hire people, but you can't do the work yourself. You basically have to find a property manager to do it for you. It's the easier way to do it. Through this process, your IRA has to pay for these fixes.

If they have a new roof, you have to make sure you have enough money in your IRA to pay for that roof. Effectively, that's one of the problems with real estate is that you might buy it for $100,000, but you need to have an extra $20,000 or $50,000 sitting around for expenses, for other things, just to make sure that you don’t run out of cash. Or, you have a good line of credit somewhere. Then, when you borrow money, that brings up another level of this, which makes it more complicated. Your IRA, like yourself, potentially can file a tax return.

You might think, you own real estate in an IRA. I don’t have to pay taxes. Maybe. If you're buying it just straight out for all cash, then probably not, but if you have a mortgage on it, you may have to pay taxes. Look at it this way. If you buy a property for $200,000 and you put $100,000 into it, because that's all you have in your IRA, and you borrow the other $100,000, your equity is still $100,000. You don’t pay taxes on your equity. You pay taxes on the asset amount that you don’t have. You have $100,000 of assets that is backed by debt, you have to pay taxes on the levered amount. Effectively, 50% of your income is taxable, potentially. Now, that being said, you would have to file a tax return on your IRA, which of course, you also get the deductions of real estate, so you may not have to pay taxes. The levered amount would be treated as if it was an individual.

You get the amortization. You get depreciation, the deductions, all of that. You do get all the benefits. You don’t lose those, but potentially, you would have to pay taxes on that. It does bring in a level of complication that many people are not aware of. Real estate is, on many levels, can be complex and in some ways, harder to deal with. If you own an LLC, that can make it easier for the custodian and for you, but it still has to go through the LLC. The process is the same. In some ways, it can be simpler, but in other ways, it can also raise more issue. Real estate is not simple. Other assets are generally simpler. You buy it and then it does what it does, but real estate tends to be a little bit more complicated because of all the moving parts.

Kelly Coughlin:

In addition to real estate, talk about other investments. What are you seeing out there? What are some of the most interesting choices that you see investors have made over the years that you've put into this business?

Kirk Chisholm:

We've got a lot of stories. I don’t where to begin, but I'll tell you a few of them. One of my all-time favorite assets to invest in, which actually is one of the earliest assets that I was looking at when I started this journey into self-directed IRAs was tax liens. The reason I love tax liens is because you're effectively getting essentially really high rate of interest. In the state of Florida, you can get 18% interest. You have a superior position to any mortgage or lien on the property. You're almost guaranteed to get paid off the money owed, or you would own the property. I look at it as a great asset that so few people know about, and it's such a great asset.

I believe a few years ago, there were six banks that had $200 to $300 million portfolios of tax liens. It was just a phenomenal money maker for some of these firms. Certainly, the institutional demand has driven the rates down a lot, but you can still find good rates in some of these states.

That's one of my favorites. Some of the other interesting ones was, I had a client who invested in a payday lending business in the state of Missouri. The state of Mass, I believe, the most you can charge interest without it being usury, I believe, is 20 percent. I think it's 20%, 25%, or something like that. Anything over that is usury. In the state of Missouri, you can charge 30% a month on some of these loans. I don’t think this individual is doing God’s work. He's really, I don’t want to say preying on the people, the underprivileged. Charging 30% a month, getting 360% a year on somebody who, it's basically on payday loans. They need money today, but they don’t get paid until Friday. They're borrowing at that rate. I don’t see that as a great business, but if you take out the moral implications and just look at it from the financial perspective, that's a pretty darn good business. Even if you have losses, you're still getting 100 to 200% returns, which is pretty fantastic.

Kelly Coughlin:

The only problem is, you've got to pay Tony Soprano, put him on the payroll, to collect for you.

Kirk Chisholm:

Oh, no. No, no, no. Not in the state of Missouri. On title loans, yes. You have to find a repo guy to repo the car. In payday loans, this is something that blows my mind. If I get a payday loan from you and I don’t pay you, the constable throws me in jail until I can pay. Now, how that is even remotely logical is beyond my comprehension. You're saying if I don’t pay, you're going to put me in jail until I can pay? How’s that going to work? How am I ever going to get out of jail? The process of some of these things is completely absurd, but the reality is, the laws in place support this activity.

If you remove the moral implications, effectively it's a pretty strong way to collect. Like you said, Tony Soprano to collect for you, you don’t have to. The state is doing your job for you by putting these people in jail. The point I'm making is, it's an interesting asset class that I'm sure some people will find interesting, but it's one of many. We have another client who invested in a horse, a dressage horse. This I found extremely interesting. I knew nothing about dressage horses before this. My business partner did the due diligence. He became an expert on dressage horses. There are a lot of rules that you have to abide by with IRAs and 401ks, and there are a lot of exceptions to those rules, and there are some exceptions to those exceptions.

Kelly Coughlin:

Generally speaking, you cannot do the work on the asset. Once it gets funded, you've got to keep an arm’s length or relationship with that asset. Correct?

Kirk Chisholm:

Yes. I'll close up this little topic with this. Let's say you want to buy a business and you want to run that business and get paid for running that business. You cannot do that in your IRA, but you potentially can do it inside of a 401k. There are ways to do things. You just have to understand what the rules are and follow them. If there's exceptions, you can take advantage of those exceptions. There are ways to do things. Part of what we do in this process is working with our clients to help them facilitate the transaction so that it's not become a prohibited transaction, because we as a registered investment advisor are fiduciary.

We're liable if we mess something up. We make sure that things are done absolutely correctly and there's no room for error. There are gray areas, because certain standards haven’t been defined by court cases or what have you, but we're not putting ourselves on the line. We're making sure that whatever we do is okay. When we do these things, we're definitely not playing in the charcoal part of the gray, if you know what I mean.

Kelly Coughlin:

Is that your sweet spot at Innovative Advisory Group? Helping clients that have these nuanced alternative investments they want to do? Whether it be they want to do something unique in their IRAs or their 401k? Is that your sweet spot? Or is your sweet spot investing in portfolio management, overall wealth management generally speaking?

Kirk Chisholm:

The way I would characterize it is this. We have a lot of clients who don’t work with alternatives, and that's fine. We're actually agnostic when it comes to asset classes or investments. We have our theories, as most people do. Everybody’s got a theory as to what works best, but in general, I don’t look at it and say, stocks are better than bonds or horses are better than cows or real estate is better than stocks. I don’t really care. I look at each investment individually, and I look at it and say, given the broad scope of what we have to work with, what is the best way to invest? And is this investment itself a good investment?

We do a lot of traditional portfolio management, but when it comes to alternatives, there are really two types of clients that come to us. One type comes to us and says, I want to buy a horse in my IRA. Can you help me do this? Which we will. We have a lot of people come to us with very specific investments that they need help with, and that's a big part of what we do.

We have another part of business where clients come to us and say, I just want to invest in alternative assets. I don’t like the stock market. It scares me. I don’t want any part of it. Can you please find me something that's alternative that makes sense? For those people, we have built up a network of investment sponsors that we do work with to help fulfill that need in the portfolio. We do have clients that have really interesting stuff. We don’t generally offer that to most of our clients, because it's very niche, and it's not what we do. We have found ways to be able to find, in our opinion, good alternative investments that are really lower risk and do provide consistent returns and things like that. We do have areas that we look at, and we're constantly expanding that. I know one area that we do actually a lot of work with is private mortgages. One of the reasons we like private mortgages is, both my partner and I love real estate.

We think it's a great asset class for so many reasons. However, right now, I think real estate is expensive. I know that real estate is very closely tied with inflation. If we ever had deflation, real estate would be negatively impacted in ways that most people haven’t even thought of. I've written about this a few times. It's happening in Japan right now. In general, buying real estate long-term is great if you can find a great deal. When you have private mortgages, you more or less are investing in real estate. You get a yield that is reasonable to you. You know what that yield is. You don’t have to deal with tenants. You don’t have to deal with expenses. You don’t have to deal with all of the headaches that go along with real estate, but you still have a rate of return that's tied to real estate. You're getting your yield, whatever it is, 5, 10, 15%, whatever it might be, although I don’t advise finding a private mortgage for 5%, but some people do.

You find, let's say call it 10% for the sake of argument. You get that yield. If they ever don’t pay you, you foreclose on the property. You own the property. If you're okay owning the property, then it's basically for the price that you lend the money. Then, you really have a pretty good investment there. We look at it and say, it's light work for the investors. It's not light work for us. We do a lot of work on it, but we don’t have a lot of the headaches that go along with owning real estate, and you don’t have to own it for 10, 20 years.

Most of these private mortgages are one to two years. You have a very short maturity. You have a high rate of return, and if you do it right, you can do it relatively low-risk so that if the market turns sour and things get really bad out there, then these notes mature and you can use your cash to buy real estate or stocks at a discount. In our opinion, one of the better asset classes, given the current rate environment that we find ourselves in, we really like that asset class. There are some others, too, that we like, but that tends to be our most popular one at the moment.

Kelly Coughlin:

You've done a significant amount of work in this space of the self-directed IRA market. You've seen a lot of the providers out there, and you've seen a lot of different deals, a lot of different alternative assets that have come through your desk. I guess my question to you is, since our audience for this series of podcasts with you is really community and regional banks who I think it's safe to say, are not specialists in alternative asset business. It might be that many of them simply say, no. We're not doing that. Would it be an accurate statement for me to say that your position would be that any financial institution that doesn't specialize in this or that hasn’t adequately and thoroughly resourced this business line should stay out it? Should not get into it at all? Is that an accurate statement?

Kirk Chisholm:

Yeah. I would definitely agree with that. For the last 40 years with the IRAs have been in existence, some firms have come and gone from this part of the industry. I think that there are some banks on our list. They do this to a moderate degree, and there are some banks that provide custody for administrators and all they're doing is providing custody. They're not really doing anything else. The problem with the custodians, if you're doing that model is, you still have to provide oversight. You still have liability. Even though the administrators are doing all the legwork and the administration, as a bank you still have oversight. The administrators do something wrong, then you're ultimately liable.

The bank still has to provide compliance on these accounts, which means, obviously you have to hire a compliance person to deal with this. If you're doing it at scale, then it perspective makes sense. If you're not doing it at scale, then it doesn't, because why are you going to hire $100,000, $125,000 compliance person to do a handful of transactions? Probably not high on your list of things to do. It can make sense in some ways. I think a lot of the administrators have collectively focused on only a handful of custodians that do most of their work. They provide their oversight, but in general I would say, most firms should not do this kind of work unless they're actually going to specialize and decide that they want to do this as a business model. You can't do this with a kind of sort of thing. You really have to put your efforts in.

Kelly Coughlin:

Okay. Then, the follow up to that would be this. We have a banker that listens to this. Let's say he's a CEO and he says, you know what? We're thinking about getting into this business. We're going to get out of it. Let's see if we can set up a relationship with Kirk and his group. Would you be willing to have a relationship with a community bank, whether it be in your footprint there or the state of Kansas or anywhere else where you would agree to help their customer that has an alternative asset, that needs some help, but you're not going to poach the relationship for the other part of the business? Are you open to that kind of relationship?


Kirk Chisholm:

Yeah. It's a great question. We have relationships with many different financial institutions. We as a firm, we will work with other financial institutions, because they don’t know what they're doing with self-directed IRAs. They don’t have the experience. They don’t have the background or the infrastructure. What they'll do is, they'll say, we have a client who wants to invest in this horse. Can you help us? We will work directly with them on that, and manage that asset. We don’t poach the relationship with the client. We just work directly with the advisor. It's the same way we're working with a bank or another financial institution. If they want to come to us for a very specific transaction, we will work with them directly and make sure it's done properly. If a bank wanted to offer these services and do that, we certainly offer consulting services.

Kelly Coughlin:

Right. Your primary footprint is in Lexington. What county is Lexington in?

Kirk Chisholm:

Lexington is in Middlesex County, but we actually have clients all over the world. We are not location specific in our firm. We have clients across the country. We have some international clients as well. We're not really location specific. As I'm sure your audience knows, in this environment, it's becoming more and more virtual. We actually have fewer and fewer people who want to come back, stop by the office anyway. Everything is virtual now.

Kelly Coughlin:

Well, Kirk, I think you're doing some really terrific things. I keep picking on IRA custody as being kind of a boring sausage business, no sizzle, but you're doing some pretty interesting things with it. So, congratulations on that, and I know that you've got a business partner there who does a lot of the due diligence on deals. I looked at his resume. He seems like a pretty capable guy, too. So, congratulations on building a unique and high-value financial advisory wealth management practice. I think it's pretty cool. Kirk, why don’t you give us another plug for how listeners should get ahold of you if they wish?

Kirk Chisholm:

The easiest way to reach us is at our website. It's On our website, there are a lot of free resources that you can learn more about us, about me, about self-directed IRAs and alternatives. Also, we have a free gift for listeners of this show. If you go to\bankbosun-podcast, you can get a free gift for that.

Kelly Coughlin:

Thank you for that. I want to put a plug in for this riveting publication. So exciting. A Quick Start Guide to Self-Directed IRAs.

Kirk Chisholm:

Yeah, thanks, Kelly. I appreciate that. I almost forgot to mention that. We put together a few resources for self-directed IRA investors, or CPAs and attorneys or people who specialize in the self-directed IRA space. Really, anybody who’s interested in this space. We have resources for pretty much all comers. There is a quick start guide to self-directed IRAs for people who are just learning about them and want to know more. It provides a lot of great resources to get you started on your journey. We have the Ultimate Insider’s Guide to Self-Directed IRAs, which effectively includes the Quick Start Guide. It's really comprehensive. If you're looking for a custodian or administrator for your retirement account, you have to pick between one of 47 companies. This resource will help you make that decision in the best way possible.

We put together some really in-depth due diligence on each of these companies with over 100 data points in each one. We also have fee calculators for each of these companies, because even though there's a fee schedule, sometimes it's hard to figure out what you're actually going to pay. This fee calculator allows you to estimate what it would cost you to use this custodian based on your investment strategy. This is probably one of our more well sought-after resources. I can't tell you how many times people come to me and say, I'm just really unhappy with the fees I'm paying. I didn't know I was going to pay this much, but if you do all this research up front, you won't have that experience. The last one is really a comprehensive resource for people in the industry. It's really access to all of our research. You can get access through the website.

Kelly Coughlin:

I appreciate your time, and I wish you luck going forward.

Kirk Chisholm:

Thanks a lot, Kelly. Appreciate the opportunity to speak here. It was a lot of fun.

Kelly Coughlin:

Thanks. Cheers.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle. Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant. The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Aug 14, 2017

“My other piece of advice, Copperfield,” said Mr. Micawber, “Annual income twenty pounds, annual expenditure nineteen to nineteen six. Result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six. Result misery.”

David Copperfield (1850)


Kelly Coughlin is CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C-Suite officers risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CEO of Bank Bosun, helping bank C-Suite execs navigate risk and discover reward in a sea of threats and opportunities. I've been in the financial services industry since I was 23 years old. That was a long time ago. Merrill Lynch, PWC, Lloyds Bank, Global Bridge. I've seen a lot of different products, services, strategies, and tactics, and other than during the periods where the industry blows it through errors, omissions, and to a certain extent, unrestrained greed, it truly is a terrific industry. One of the most interesting segments of the industry is the alternative investments area. The opportunities to invest in alternative investments has never been greater. Alternative investments can range from professionally managed venture capital investments and hedge funds to private LLC investments in a local real estate deal. Along with this huge increase in investment choices comes the ability for individual retirement accounts to make these investments.

It used to be that IRAs could only invest in fairly plain, vanilla securities like registered investment companies, mutual funds, ETFs, and individual stocks and bonds. Now, IRAs can invest in just about any asset, but unlike an individual’s traditional, say a cash account where an investor can buy the asset and hold the evidence of the purchase of that asset whether it be an LLC agreement or a stock certificate in any place he or she wishes, in IRAs, you can only invest through an improved IRA trustee custodian.

You can't just buy it yourself and hold it in your safe deposit box or file cabinet. You can only buy it through one of these approved IRA trustee custodians. In this world, you have two categories of approved trustee custodians. Bank custodians and non-bank custodians. I think the assumption is that all banks with banking powers are approved to hold IRA assets so they don’t need any special authorities.

The other IRA trustee custodians are the non-bank custodian. The IRS maintains a list of a financial institution’s need to demonstrate some level of financial internal controls in order for them to get approved. Currently, there are about 75 financial institutions on that list. As I look at the list, it seems most of them are broker-dealer type organizations. The subject of this podcast is on the IRA trustee custodian business. Why? Recall, I said alternative investments are one of the most interesting segments of the financial services industry. IRA trustee custody is probably one of the most dull and uninteresting segments of the business.

A famous marketing guy, I think it was Elmer Wheeler from upstate New York, a sales guru in the mid-1900s said, sell the sizzle, not the sausage. I'm here to tell you that there ain't much sizzle in the IRA custody business. While I think Napoleon said, man should not know how laws and sausage are made, today we're going to learn a little bit about how the sausage is made and why it's important, and what we need to know to evaluate the sausage maker that is the IRA custodian.

With that in mind, I'm going to interview a very, very sharp financial advisor from Lexington, Massachusetts. He's a wealth manager and principal at Innovative Advisory Group. In addition to traditional investing, portfolio management, and wealth management, he is especially strong in the self-directed IRA business and the alternative investment area.

His name is Kirk Chisholm. He's produced an online course titled The Ultimate Insider’s Guide to Self-Directed IRA Custodians and Administrators, and the publication A Quick Start Guide to Self-Directed IRAs. Kirk has turned what some people, including financial institutions like bank IRA custodians and non-bank IRA custodians into a sizzling business line at Innovative Advisory Group. With that in mind, I'm hoping I have Kirk on the line, all the way from Lexington, Massachusetts. Kirk, are you there?

Kirk Chisholm:

I am. How’s it going, Kelly?

Kelly Coughlin:

Great, Kirk. Thanks for attending. I hope you're doing well. Did you hear my intro there, Kirk?

Kirk Chisholm:

I did, yes.

Kelly Coughlin:

Anything you disagree with on that?

Kirk Chisholm:

No. I thought it a very descriptive intro, yeah.

Kelly Coughlin:

Okay. Great. I'm really looking forward to talking to you. You're obviously a sharp and capable guy in this space, and you're a recognized expert. You were recognized as one of the top financial advisors in the country. Tell us about this. Was that at USA Today? Or where was that?

Kirk Chisholm:

Yeah. Thanks. That was a recent accolade I received. It was very unexpected, and it was very nice to be acknowledged. Investopedia had a list of the top 100 most influential financial advisors, and I was ranked number seven. I have to say, I was surprised to be up there. There were a lot of great people who are in the top 10, and I know many of them and they've all done a great job. I'm humbled to be among such a great group.

Kelly Coughlin:

Excellent. That's great. Let's get right into it. You know what we're going to talk about here. You focused a bit of your career on IRA custody and trustee business. Why has that been such a point of interest and focus for you?

Kirk Chisholm:

I'll tell you a little story. It's interesting. A number of years back, I was working for the wire house channel at Smith Barney. One of my longtime clients came to me and said, I want to invest in this private mortgage. I said, great. That's awesome. He said, I'd love to do it with my IRA. You can do that? He went on to tell me, apparently, somebody had educated him about it. I started reading up on it and realized, wow, this is fantastic. I don’t have to limit my clients’ IRA funds to stocks, bonds, and mutual funds. There is a virtually unlimited amount of investments out there, and to limit yourself doesn't seem like the best option. I went and talked to my manager and said, my client wants to do this. Can we do it? He said, no. You can't do that. I said, no, actually you can do it, and I went on to explain to him how you can do it and how it works. He said, well, you're right. You can, but we can't.

Then, the lightbulb went off. My client was a longtime client. He's a good friend of mine. I wasn't getting paid for it, but I helped him through the process. I went and took the next three months to research the process, and this was back before the Internet was a big deal. There was information out there, but it wasn't a lot. It took me a while to do this research. I was trying to do it right. I wanted to make sure he didn't get himself into trouble. Came to the conclusion that this was such a great opportunity for investors, and nobody knows about it. Spent the next six months researching custodians and administrators and trying to learn the inside and out of each of these companies, and it took me a long time to do this research. Really spent the next few years trying to figure out how I can work with my clients on this, because I saw so many interesting opportunities outside of the stock market that I really wanted to try to take advantage of that.

My partner and I started our current firm, and really the point of it was to focus on providing advice to alternative investments inside of self-directed IRAs. So, while we do traditional wealth management services like tens of thousands of other financial advisors out there, we also offer this specialty, which very few people understand. I think there are currently, there's about 4 or 5% of IRA holders are holding alternative assets. There's very few of them that are actually doing that. Out of the IRA holders, let's say maybe no more than 10% are even aware that this can be done.

Most people don’t even know. It's too bad, because some people have some really interesting investment strategies just for their personal taxable money, and if they were to use their retirement funds, they would have a lot more opportunities available to them, especially when many of them don’t contribute to their retirement funds because they don’t want that money to go into things they don’t understand. They want it to go into investments that they do understand.


An interesting story. When I was, I think, about a year in, I had started at Paine Webber back when they were Paine Webber. About a year in, I had spoke to this individual who owns real estate. I was talking to him about how he ought to diversify into other investments. He said, look, all money goes into real estate. Every nickel I have goes into real estate. Why would I ever invest into stocks, bonds, and mutual funds? I know real estate. I don’t know stocks. Why would I ever do that? I said, I can't argue with you. If you're doing well with real estate and that's your expertise, you should definitely not invest in things you don’t know. At the time, I wasn't aware of this, but real estate happens to be the most common asset held in self-directed IRAs. There are a number of people who are actively using this asset, but in general, most people are not aware of this type of investment strategy.

Kelly Coughlin:

They can't buy the actual asset itself. They can buy an LLC, C-Corp, that sort of thing, that holds real estate. Probably not a sub-S. They can't buy the asset directly, correct?

Kirk Chisholm:

Well, they can, actually. People always ask, what can you invest in? It's probably easier to say what you cannot invest in, because what you can invest in is virtually unlimited. What you cannot invest in is what is described in the Internal Revenue code pretty explicitly is, you cannot invest in collectables. You cannot invest in life insurance on yourself, and you cannot invest in S-Corps. There are some other nuances there, but more or less, those are some things you cannot invest in. There are exceptions to those, but more or less, the S-Corps, you're correct. But you can own real estate inside of an IRA. That is the most common asset held in IRAs that are alternative, is real estate or real estate-related investments. Many people own it directly. You can own it inside of an LLC or a C-Corp, which some people choose to do, but there's no limitations. It's up the individual to make that decision. The rules for the IRA, the IRA was established in 1974.

Kelly Coughlin:

Oh, ’74? That early?

Kirk Chisholm:

Yeah, with ERISA. Since then, the rules haven’t changed. They've changed a little bit, but this was always allowed. Even back then, you were allowed to invest in all of these different things. It's become an industry. The financial service industry has done a great job bit of marketing to people and convincing people that you have to index, you have to invest in mutual funds, you have to invest in stocks, because that's how they make their money. You can't blame them for that kind of marketing, but that's all people see. There's no contrary marketing that you should be doing something else. People don’t see that, so they have the message that this is what you should be doing. For some people, maybe that's the best choice, but it's not the best choice for everybody.

I think the more people that are aware of this option, the more they'll be able to take advantage of their own expertise in certain areas. Side anecdote, which is kind of interesting. The collectables part. People ask, why collectables? They're an investment for some people, which is certainly true, and there are some collectables which are allowed. I wouldn't say collectables. There are exceptions, but certain coins are allowed within IRAs. Interestingly enough, the reason they put collectables in there was because, at the time they're writing the law, some stolen Nazi art has surfaced. They were afraid that if somebody ever put this stolen Nazi art in an IRA, nobody would ever be able to get it. They had that exception there. They said, you can't put collectables in there, because they were afraid they would never be able to get it again.

Kelly Coughlin:

That's really fascinating. You're saying, back in the ‘70s and ‘80s, you could buy these alternative assets in your IRA?

Kirk Chisholm:

Yes, yes. Some of these companies were started back then.

Kelly Coughlin:

I'm really surprised by that. I thought that this was more of a recent thing. Let me ask you this. It seems as if many of the custodians, especially the brokers who are interested in straight-through-processing on transactions, low-touch, high-volume transactions, they didn't want to have anything to do with these alternative deals. Is that a fair statement?

Kirk Chisholm:

The best way I would describe is this. If you're running a company, you want scale. You want to lower your expenses as much as possible and try to get as much scale as possible. These financial service companies have done a great job at that. The ETF world has taken what Vanguard started as indexing mutual funds and have lowered the expenses even more. The ETF world is erased to zero with expense ratios, but the industry itself has done a great job at scaling. When you're investing in securities, it's easy to scale. When you're investing in rental property and tax liens and horses, you can't scale that. If you wanted to invest in a horse in your IRA at one of these big discount firms, if your account is large enough, it's possible they might let you, but you probably wouldn't want to use them, because if they're specializing in stocks, bonds, and mutual funds, that's the place you want to go.

If they have no idea what they're doing about investing in horses with an IRA, then that's not the firm you want to use to custody your IRA. Ultimately, there's a lot of back office paperwork that has to be done on their part. If they're not familiar with that process, then you don’t want them to mess it up. This is your retirement. The last you want is your retirement to get disqualified and you have to pay taxes on it. You don’t want to focus on companies just because you have your other accounts there. You want to focus on companies that have the best combinations for the investment strategy you're trying to pursue.

Kelly Coughlin:

Do the traditional bank and broker custodians accommodate this type of security willingly or begrudgingly? If they accommodate it.

Kirk Chisholm:

In general, they don’t accommodate it because they don’t understand it, and most likely you're talking to a customer service rep who has no idea. Your most common answer when you ask them to invest in a horse in your IRA is, you can't do that, because they just don’t know. They're not taught that this is an option. Now, if you have a big enough account, maybe you find somebody who is knowledgeable enough. They might say, yes. It can be done. I'm not sure if we can do it. I had a friend of mine who worked at one of the major broker-dealer firms. He had a big client. The client wanted to invest in an alternative asset. He went back, and big enough client, he's trying to make him happy. He went back and said, yeah, we can do that. The back office said, yeah, we'll take care of it.

It literally took the next six months for them to come back and say, sorry, we can't do it. They tried. They tried to figure out. They couldn't figure it out. They finally said, no, we can't do it. They just don’t want that business. It's not scalable. They don’t make big money off of it. it's not just worth the time. They have to hire other people. It's completely understandable why they don’t want it. Recently, some of the custodians that have specialized in this area have been reaching out to these firms and have been working with them and providing sub-custody services. Some of these bigger discount broker-dealers can offer a sub-custody agreement, but are not advertising it, because it's not their main core business.

Kelly Coughlin:

In that sub-custody arrangement, is it fairly typical for the end investor to get one statement from the primary custodian and that sub-custodian asset rolls up into that? Or will they get two separate statements?

Kirk Chisholm:

It depends. Different firms have different arrangements. Some firms will just refer the business to the other firm. Some firms will keep it in-house. One of the more well-known names, after the financial crisis, they pretty much said, we don’t want any alternative assets, which of course gets rid of all the hedge funds that were being held at their firm. Typically, what they would do is charge them a flat fee per year, per asset, and then they would put it as a book entry on their statement. Then, after the financial crisis, they said, we don’t want this business and just told everybody to take a hike.

Eventually, they said, all right. We'll take it back. I think with those firms, they don’t really understand that business, and they don’t want to deal with it. It's kind of a headache for them. I completely understand. I can't blame them. If I was them, I wouldn't want to do it, either. It's not a scalable business. It's a very different business model. I think in general, they don’t want that kind of a business, but now they do accept it more, because it is money. I still don’t think they're going to advertise a lot, because they don’t want to take away from their core money making business.

Kelly Coughlin:

Do you think it's a profitable business line for them? Or is it more or less a breakeven? If they can collect even fees to pay for the additional staff and, I don't know if there's any systems that are required? You think it's more or less a breakeven?

Kirk Chisholm:

I can't speak to whether it's breakeven or not. I think each firm has their own P&L. I wouldn't know specifically, but I would guess that it's probably a break-even or maybe even a loss leader just to keep the business, because they make so much money off the other part of the business. For them to just break even or even lose a little money to keep a client, in general, is probably worth it for them, because they're not doing that much of this business. They're not seeing a ton of it, but if you have an ultra high net worth client who has hedge funds, he's got $20 million at your discount brokerage firm, and he has $2 million in hedge funds, even if they're charging $75, $150 a year, even if you're losing money, it's worth it to you to keep that extra $20 million.

I think in the large part, they see the bigger picture and just say, yeah, we'll do this for cost or close to it. That would be my guess, just based on what I see some of these other specialized firms charge, that most likely that's the case. The other thing, too is, most of these discount brokerage firms that do offer that, I'm not sure that they're offering that inside of IRAs. They're holding hedge funds for book entry on a statement. More times than not, that's actually taxable money. The IRAs, some of them do it. It's become a more recent thing, but they're not really specializing in it.

Kelly Coughlin:

Okay. You mentioned fees, and some of these companies that specialize in it. What kind of fees are you seeing for trustee and custody of alternatives? I assume it's got to be higher than holding $100,000 in mutual funds and ETFs. What kind of fees do you typically see? What's a low end? What's a high end?

Kirk Chisholm:

Fees are an interesting concept. If you're accustomed to a discount broker, you're probably with the recent reduction in many of the firms, you're probably looking at $5 a trade, which is pretty inexpensive to do a trade. These brokerage firms certainly make some money on that, but they also make money on the spreads. They make it different ways. They make it on cash, margin. There's many ways that they can make money. If you're considering a custodian that holds non-traditional assets, they're called a self-directed IRA custodian for short, you'll notice that these are a lot higher. Right now, there's 47 custodian administrators that specialize in this area. There might be a few other stragglers that are out there that don’t advertise, but more or less, that's how many are out there. Out of those firms, every single one of them has more or less a different fee structure.

Kelly Coughlin:

Are you including banks and non-banks? And are you then saying, yeah, there might be more than this, but there's really 47 that are active in this space?

Kirk Chisholm:

There are two different categories. There are custodians, which are typically non-depository bank custodians. Then, there are administrators, which are companies that just do administrative services. You might see them as a TPA and a 401k plan, or administrating insurance, or some other things. There's many uses for administrators, but these have decided to focus on alternative assets inside of IRAs.

It's different from a custodian, but they're required to use a custodian. They might choose to find a local bank and custody of the assets there, and they would do the administrative services of it. Each of these firms, whether internally or some of it's outsourced, they would provide both administration and custody services. Administrators do not provide custody. They outsource it. The custodians provide custody and administrative services, but the administrative services are in-house. It's just a different business model. There are some other differences, but that's the basis of the difference.

Kelly Coughlin:

You say there are 47. How did they get to specialize in this?

Kirk Chisholm:

I actually created—this is such a huge list, and there are so many incorrect lists out there that we actually created a list on our website, because I've seen many lists, and some of them are inaccurate. They have companies on it that aren't even in the space. It's hard. We put together a really comprehensive list. Some of these companies are banks. They are local or regional banks that happen to have a branch or an arm of the bank that does wealth management services and does self-directed IRAs.

Some of these are banks that do offer that. Other firms are exclusively set up to deal with this kind of business. That's all the do, or primarily that's what they do. There are enough people out there that want this service, even though it's only 4% of all IRA holders. It's still a decent amount of people. You're talking about tens of billions of dollars that are in this area within these firms, but each of these firms, they're all different. This is probably the most frequently asked question when people call us up.

They say, what's the best custodian to use? We went through over a year worth of due diligence on all of these firms. We put together extensive resources on them. In the beginning, we thought, well, there will be a handful of best firms, and there are some firms which we prefer over others, but generally speaking, if you look at all these firms, you can't say there's a best firm. Each one of these firms is a little bit different. Their fees are different. Their assets that they allow are different. They're very hard to find a large number of firms that are the same in one area.

Some of the larger firms are more common household names in this area, but generally speaking, real estate, for instance, is the most commonly held alternative in IRAs. Some of these firms don’t offer that. They will not custody real estate for one reason or another. While the Internal Revenue code restricts certain assets, everything else is allowed, but the custodians don’t have to allow it. The custodians can certainly impose more restrictions on what is allowed and not allowed in their own judgement.

For instance, one firm that didn't offer real estate, I asked them a question, obviously. I said, why don’t you offer real estate? You're giving up a big chunk of business. They said, you know what? It's too much of an administrative nightmare for us. We don’t want to deal with it. We'd rather deal with simpler alternatives, and that's what they focused on. They have a decent client base. It's not as if they're hurting for business. They just decided to focus on other areas. There are plenty of alternatives out there that people focus on.

There's one surprising one I'll mention, because I thought it was interesting. I've never come across this with a client, but I've done a little research, and it's interesting. The asset is church bond. One of these companies specializes in church bonds. Many of the companies don’t allow it at all. It's not a big asset class. There actually was a publicly traded closed end fund which converted to a mutual fund later, which was specifically focused on church bonds. There's a market for everything. It's just a matter of finding that market and trying to fill the need.

Kelly Coughlin:

I look at this IRA custody world in three primary categories to evaluate a custodian, and I'm not listing these in order of importance, but fees, features and benefits, and customer service. Is that a reasonable attribution of the categories that you would go through when you look at these 47 players in this industry? How much do you have to pay for it? What do you get for it? And what kind of service do you get from the provider?

Kirk Chisholm:

Yeah. I think that's a good starting point. I categorize them a little bit differently.

Kelly Coughlin:

You're the expert. Tell us how you like to categorize them.

Kirk Chisholm:

We do look at fees. Fees is a very important of the concept, and most investors put that at the top. I don’t, but they do just generally speaking, and I understand it. The fees is definitely an important part of that puzzle. Specialization is another part. As I was mentioning, many of these companies don’t offer all assets. Some of them specialize in certain area. Their most popular asset might be real estate, or it might be Reg-Ds, cryptocurrencies, or whatever it might be, but they have a most common asset or a most popular asset. If you figure it, they're doing a lot of business.

If this is their most common asset, most likely they're going to be good at that asset or good enough. That's another thing we look at is, what are it specializations? We look at customer service. Always a very important part of the puzzle. As you stated, it's much of this is not scalable, so you're dealing with customer service. You're dealing with people that, if you have a rental property, somebody’s getting evicted or you're paying your electric bill.

You need a roof fixed. You may have to converse with these people on a very frequent basis, or you may not. It depends on your investment, but it is important that customer service is knowledgeable. They understand the rules, they understand what you can and cannot do. They will never give you advice. Explicitly tell you they don’t give advice, but they will give you information on what some of the things that you can do or their parameters are.

However, if you have a company that has 100,000 clients and they only have five customer service reps, I'd be pretty confident that you're not going to get great customer service. That's just a shot in the dark, but we look at those metrics and see. Every firm has a ratio of X amount of clients per customer service reps. This firm has only a handful and they've got a lot of clients, I look at that and just say, okay, that's probably not a good sign.

We look at some other things, but that's the customer service piece. We also look at the transaction frequency in reviewing firms. This is not a firm-specific thing, but it's important, and this goes more to the fees in that some custodians have a transactional model, and some have an asset based model. Those are really the two main categories. There are some other different ones. There are some hybrids, but if you have one investment and it's not going to require any effort, you buy it and leave it for 20 years, then you don’t really want an asset based model. You probably want a transaction model, because it’ll end up being cheaper every year.

Kelly Coughlin:

As an account owner, you as a provider would like the asset based fee, right?

Kirk Chisholm:

Well, as a provider, it depends, and this goes to the “…every company’s different.” If you're offering a transactional model, the people that are going to gravitate towards you are people most likely that are in the buy and hold mentality, but if you're in asset based model, then most likely the people that are going to gravitate are the people who are flipping 10 houses in a year, because they don’t have to pay for each transaction. Or if they do, they pay a nominal amount. Investors are going to gravitate to where they're going to get their best bang for the buck.

The custodians and administrators are going to obviously get what the investors gravitate towards. Some of them have multiple fee structures, too. Some offer multiples. We've developed all these resources because the industry is so complicated and convoluted. The discount broker model, everybody’s more or less the same. I think Fidelity recently reduced their $9.99 trade to $5.00, and then their competitors naturally did the same thing, because they're natural competition. With these firms, you don’t tend to get that, because they're not all the same and you have very many different investors. They each have their own piece of the puzzle, but those are the big four that I look at when we're looking at firms. There are many questions we ask, but those are the probably the bigger categories that I would consider.

Kelly Coughlin:

Okay. What sort of feeling of fees would be for that provider? Can you give us any guidance on where that would come in? Certainly, it's more than $100 a year, which is the $100 to $125 typical IRA fee.

Kirk Chisholm:

It depends. I wouldn't make a broad statement with the fees, because the $100 is, I think, probably—I don't know anybody would charge $100 for this service. That's really low. Many of them charge $50, $25 to $100 to even set up the account. In the traditional side, that's what they would charge to bookkeep it, but in this side, it would probably be more expensive. By and large, if you're getting a Cadillac type of service, you're going to have to pay for it. I'll tell you a funny story.

I was talking to a guy recently. He was an attorney. He was telling me about one of his clients. I'll give you some interesting anecdotal story here. There's a side story. The GAO published a report a few years back, I think it was 2014, about IRAs above a certain amount. I believe they went into different categories. This is something you could probably easily find, but I believe there were 300 or 400 individuals who have over $25 million in their IRA, which to me is fascinating, but I've been in this business a while, and it's a rarity to see somebody with $1 million IRA.

I've seen a lot of $700,000-$800,000, but when you get into the millions, you have to be doing a lot of things right, because even if you're maxing out your 401k every year and doing what you should, it's still hard to find people who have that kind of depth in their IRA. To find somebody who has $25-plus is just, it's a really small number. I think there are 314 taxpayers who have an IRA over $25 million. Now, one of them you might know, is our former president candidate Mitt Romney, who had an IRA of, I believe, was $102 million. It was disclosed when he was running, but if you look at the numbers in the GAO study, out of that 314 people, the average of those 314 people is $250 million. If the average is $250 million, it makes you wonder with the biggest one looks like. Now, I've heard a rumor that it's above $1 billion, but certainly, nobody’s going to talk about that in detail. Somebody like that wants some very specific things.

They have a lot of money at stake. They want the Cadillac. They want all that. If they're not getting it from the companies that exist, some of them might just create their own. There comes a point in time where, if it's not there, if you have enough money, why not just create it yourself? Create the solution, because even with all these companies, they do provide some great services, but like I said, there's no one singular best of breed.

There's some great companies, but there's not one solution for everybody is what I mean. If you have that kind of a setup, then there's definitely some room for additional competitors in the market. We've gotten calls from people that wanted to start their own. They've seen our research and they said, hey, we want to see what we can find out about this market. We'd love to start a new company. Technology, as we've seen with gen tech in a traditional space, is a big part of this.

The more that you can scale this part of this business, the more profitable it will be and the better services they'll be able to provide. I think that's the next natural step in this industry, is better technology to provide better services in a cheaper way. From a fees perspective, I think if I was to start one, I would offer multiple fee structures to provide something for everybody so that you can have the transactional as well as assets under management kind of fee structure. I think would be the most flexible. You would appeal to the most investors. Whether that works with your infrastructure is a different question, but that would certainly appeal to everybody.

Kelly Coughlin:

Then, in terms of the features and benefits, certainly specialization is an advantage, but it seems to me that if you were starting one, you would want to be able to specialize in either all of the assets that you could foresee, or those assets representing the top 50, 60, 75%, or some breakdown of where are people putting their money? You need to be able to specialize in those asset classes. Is that a fair statement, do you think?

Kirk Chisholm:

Yeah. It comes to two different parts. You want to offer as much as you can to appeal to the most people, but you don’t want to dilute yourself, either, because obviously, you have people with different expertise and you just have to hire more of them. It doesn't always make sense. When you talk about features and benefits, I call this specialization. I mentioned one firm specializes in church bonds. I think that's great. There is a market out there. Nobody really wants to address it. They did. They specialized in it. I think that's great. Another asset class that people don’t really want to touch is international real estate. There's no reason not to, but people just, the firms just don’t want to deal with the international standards and liabilities and all that. One interesting asset, it's really interesting talking to different firms about this, because nobody really has a firm opinion on it.

Even we've had to research it, because it's not something we'd seen before, but domain names. Investing in domain names inside of an IRA. Many firms look at it as intellectual property. Some firms say, where is the domain being registered? They want to see, what's our recourse? There's so many different levels to these assets. You can't just say, it's an asset. We'll invest. You have to look many levels deep into what are the repercussions if this happens or this happens? I'll give these firms credit. They've put a lot of thought into it. I'd agree with their decision, but they've put a lot of thought into why they will or will not hold these assets.

It makes sense, and if I was them, I would probably have a similar conversation. We have a different view of some assets than they do, but they certainly have full rights to say no for whatever reason that they decide. I think there are a lot of assets on the edge. I think cryptocurrency is another one that people are unsure about for many reasons.

I think a lot of people look at it as a good investment/speculation, I would say. A lot of people are interested, but it's an unknown, so many of these firms won't hold it, because they're not comfortable with it. In another way, they might think it's too risky. Maybe many of it's clients lose money or they get blown up because they don’t know what they're doing. For them, they're just saying it's not worth it for us to custody this asset and have clients lose all their money. It's just for liability reasons or whatever, they just don’t want to do this. There are many reasons that they make these decisions. There are some firms that’ll custody almost anything. There are other firms which actually specialize in only a handful of areas. I think you can look at it from different ways. Our economy has come a long way to the nature of specialization, where many companies used to be generalists, and now, people want specialists. They want somebody who’s an expert in this or an expert in that. There's a market for that, and I think if one firm offers great service to all of these assets, that's fantastic, but I think it's harder to do and you'd have to have the scale to be able to do it well.

Kelly Coughlin:

Kirk, that's all I have right now. That's a very interesting and fascinating topic on the sausage related to IRAs and custody. I think you added some nice sizzle to it, and I appreciate that. I hope our listeners do, too. That's it for part one, but I want to give you an opportunity to tell the listeners how they can get in touch with you if they're so inclined to look for some help from an expert in this industry.

Kirk Chisholm:

Yeah. Thanks a lot, Kelly. We're pretty easy to find. You can go to our website, which is, and we have a lot of free resources there that we write up just to educate people about self-directed IRAs and alternative assets. Certainly, you can contact us through that as well.

Kelly Coughlin:

Okay, Kirk thank you very much for your time. I hope you're well.

Kirk Chisholm:

Thanks a lot, Kelly.

We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle. Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant. The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Aug 10, 2017

Title: Out of the Box Banker; Inside the Box Regulators, Chuck Leyh, Enterprise Bank – Part 2

Subtitle: A two-part discussion with a successful banker fulfilling a COMMON BANKING need with an UNCOMMON BUSINESS solution.

Date: July 25, 2017

Attendee and Guest:  Kelly Coughlin, CEO, BankBosun; Enterprise Bank Chuck Leyh

This is part two of my interview with Chuck Leyh, CEO of Enterprise Financial Services in northwestern Pennsylvania.

Kelly Coughlin is CEO of BankBosun, a management consulting firm, helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking ecosystem, provide bank C-Suite officers risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C- suite execs navigate risks and discover reward in a sea of threats and opportunities.  Today is part two of my interview with Chuck Leyh, the CEO of Enterprise Financial Services in Allegheny County, Pennsylvania.  For those of you who do not know your geography, Allegheny County is in western Pennsylvania. 

By the way, the history of Allegheny County is fascinating, especially the period during the 1750s and 1760s, before the revolutionary war.  During this time, the French and British were jockeying for position, power and control of the inter area of the U.S. and primarily the Ohio River Valley. In the U.S. we call this the French and Indian war but the Europeans call it the Seven Years War, and it was really the world’s first World War.  And at the center of the Ohio River Valley was a small fort first established by the French at the spot where three rivers came together, the Allegheny, the Monongahela and the Ohio rivers.  This spot was titled Fort Duquesne by the French but after they lost it to the Brits, it was renamed after the British prime minister at the time, William Pitt, of course, we all know it as Pittsburgh. 

And at the center of Pittsburgh and Allegheny today is Enterprise Financial Services led by Chuck Leyh and his team. And they are doing some really really interesting and fascinating debt funding deals with companies who most likely would receive a big “no” from traditional bankers.  But because Chuck’s team has included a number of due diligence, risk mitigation and value-added consulting services to their business model, he has created a very good business and a company with excellent financial results.  In part one we talked about his unique business model and how it evolved and some of the critical value-add components.  In part two we are going to talk about how this uniqueness presents challenges in dealing with regulators and his auditors. 

Kelly:                    Okay, just briefly, you are dealing with regulators and auditors, I imagine those guys give you a bit of a hard time over your business model.  Is that a fair statement?

Chuck:             I would say that is an extremely fair statement.  I would say that if I had known the way the regulatory environment was going to be migrate after the recession I would have never started the bank in the first place. I am a CPA by trade and whether you are a regulator or you are a banker, the generally accepted accounting principles govern the way we operate and the financial information that we put out and I have a very very strong belief that regulators do not follow generally accepted accounting principles and as a result makes it very challenging for banks to deal with startup businesses or businesses in distress.

Kelly:               Is it mainly the revenue recognition challenge?

Chuck:             Yeah, I think that’s a big big part of it.  I’ll give you an example, if you look at GAAP There is terminology when it comes to revenue recognition and it’s basically, more likely than not probable.  If it’s probable you are going to recognize the revenue you should and if it’s not, you shouldn’t.  When you look at the way the regulators interpret things of that nature it goes beyond what the intent of generally accepted accounting principles, say, for instance, when we accrue revenue and a loan that may have a challenge associated with it, the regulations for the regulators that are interpreting that probability threshold, say that if you haven’t gotten a payment in 90 days you stop accruing revenue unless you are well secured and in the process of collection. 

And that interpretation makes a lot of sense to me.  If you haven’t got a payment in three months, clearly this loan’s cash flow is challenged and it’s affecting your probability of collection, unless you have a lot of collateral and you should start recognizing income.  But the key comes into the way regulators interpret and their own regulation because when they say, stop recognizing income if you have a delinquency greater than 90 days, unless its well secured and in the process of collection, they interpret the term, “process of collection”,  meaning that I have to show I’ll have my money in 30 days. 

Well, you tell me in the legal world how you can go through a foreclosure and get your money in 30 days.  Even if you are at 25, 30, 50 percent loan to value. It’s not possible and yet it is extremely probable that you are going to get all your money back.  This is why you have small business people that they build up a lot of equity and say, okay, it’s time for me to try to start my business.  I have spent years saving for it.  I have got all this equity saved up, now I need a loan for cash to buy some things and have working capital and the banks will say no.  And people look at us and say, what are you talking about?  I am asking for $100,000 loan and I have got $250,000 equity in my house, how can you not do this?  And the common sense approach is, I should be doing this I don’t have a risk of loss. 

Except when a regulator tells you, well you can’t recognize any of the income and you know it might take two or three years to work out this loan. You have now put this capital out there and you can’t recognize income for two or three years until you have finished your collection.  Well, you can’t wait for two or three years to show income. Now, that drives banks away from helping small businesses.  It drives them away from helping businesses in distress and it does not follow generally accepting accounting principles.  And you will not get a regulator that will back off of that issue.  It’s just very bad for the economy, it’s very bad for the country and it’s a challenging environment to be in.

Kelly:               I then asked Chuck about an interesting disclosure in his management discussion and analysis for the fiscal year ending September 30, 2016.  The difference between management’s application of GAAP and the regulator’s application of the regs is evidenced most clearly in a year when the regulators require that all prior payments received as a result of collections from nonaccrual loans that had been recorded as interest income should now be reversed and recorded as principal even though the banks position was well secured.  

The result was a big material difference in the financial statements reported in the bank’s call report versus the financial statements reported to the shareholders.  Enterprise presented a very transparent description of the differences and the methods that triggered this, but I think you will hear Chuck talk about his ongoing frustration in having to deal with this. Let’s listen.

Chuck:             No question about it, I’ll give you an example, we made a loan to a group who started up in business. They didn’t have enough to make the full down-payment of the GAAP required to put something down on full accrual but they did make a significant down-payment so that we were sure to get our principal back based on the property that served as collateral and other assets, and at least that was our opinion.  The regulator’s opinion was, no, you are not assured so you should be on cost recovery. 

So, for three and a half to four years this loan never missed a payment, ever, for four years never missed a payment.  We never recognized one penny of income.  Then in year four when the minor payment were sufficient GAAP tells you, you can retroactively switch back to accrual and all the deferred income comes in, in one fell swoop.  So here you have, in our case, this was a large credit, this is a $2M credit.  We waited for three to four years.  This client never missed a payment, always had profit, always looked good.  We couldn’t recognize income until year four and then all the income comes in, in one fell swoop from three to four years for this loan.  When you talk about distorting income and creating a problem for shareholders and interpreters of a financial statements to try to understand what was going on.  You can’t create a better example than that.  

There just seems to be no recognition from a regulatory body that that’s a bad thing.  You know, they all sit there and say, oh we are glad to see how it worked out for you.   And nobody looks back and says, maybe you should be concerned that you misrepresented the financial information for the last three or four years.  That doesn’t seem to be an issue for them. They are just very conservative, and that’s just the way it is.  You know, a lot of people sit out there and say, why are bankers so tough on small business and why won’t they make the small business loans, and you hear all your clients say, when I need the money they won’t give it to me and when I don’t need it they will.  Well, this is in fact the driving reason why. 

Bankers aren’t bad people, but they have regulators that they have to deal with and what people don’t understand is, there is no way for me to get to court to get an independent evaluation of this. When the regulator makes this important decision, your only appeal rights are to the same regulator that made the decision and the only way we can get to court is to refuse to do what the regulator says. Then when they assess the fines against you it can be up to $10,000 a day for each director and senior officer and then we have the option to go to the court. 

Well, think about this issue I had with that one credit and how it misrepresented things, do you think my directors wanted to take the risk of a five to ten thousand dollars a day penalty and it takes two years or so to go to court on an issue like that. And that’s their personal assets that they have to worry about.  So, it’s a practical matter.  A bank can’t even get to court to get a judge to rule on the thing and to override what you are doing so it’s a very challenging environment to be in right now.

Kelly:               Yes, what’s in store for you and Enterprise?  Your secretary says you are 60 years old, you have got another 15, 20 years left in you.   Organic growth, acquisition, what’s the future there?

Chuck:             We pretty much have decided on organic growth.  Actually, two and a half years ago, three years ago, stock growth for a few years because we made a decision to let capital grow to prepare for the adjustments for Basel III and now we are going to have to look at it again, watching what is going to go on with the new CECIL changes and how it is going to affect capital.  And about the time that we were contemplating what was going to happen with Basel III, and at one point we thought it wouldn’t be effective to the banks, at that stage we decided to double our overhead and prepare to double the size of the bank. 

So, we doubled building size, infrastructure and everything else.  And as soon as we were done doing that and ready to start kicking in for growth and now that we have the infrastructure to grow safely and soundly then Basel III kicked in and we had to table the growth for a few years until we accumulated capital. And we kind of finish that up about a year ago and started to grow again and so now our key is to keep growing and balancing profits and growth because we elevated our overhead intentionally, our fixed over-head, and now we need to grow into it so that’s the bottom line, built to where we wanted to be. 

Kelly:               What opportunities do you see?                                              

Chuck:             As much as I can sit there and seem negative with regard to regulators, it’s a great business environment out there and people are always coming up with new ideas and it’s just a lot of fun to be out there helping people work with their dreams and build their businesses.  I think the opportunities are endless and we are in an area around Pittsburgh, Pennsylvania, where it’s a very large market and I think our opportunities are whatever we want them to be.

Kelly:               Great.  And financial services or any service business, your key asset, go home every day, take the elevator home every day.  How do you tie them up?  How do you secure them and where are the biggest challenges you have in fulfilling?

Chuck:             Well, as I said to you before, the relationship managers and that concept of running your own business inside the bank is certainly those risk parameters, risk reward parameters are very unique to the banking environment, most bankers are not entrepreneurs.  It’ challenging to find people that fit in that consulting relationship manager role but we don’t really lose them if we don’t want to in this scenario because typically they get there and they have that entrepreneurial drive and it’s hard for them to find that in banking. So when they get here it’s like they’ve found a great place and they are happy based on the concept. 

So, it’s pretty easy to satisfy that group. And the senior management group where we have our chief operating officer and operations people and accounting people…the assets here are the people, they are not the machines, they are not the equipment. So, you have got to take care of them, reward them, keep them competitive with the rest of the market place and that makes it a fun place to work.  We have a campus type setting here, we have an auditorium here where we put on programs and I speak to small businesses and they are involved.  We have a gymnasium here, day care center. We have soft-serve ice-cream and pop and popcorn and so we try to make it a fun environment for everybody that it is something where they look forward to coming to work.  

And it work out well because to be quite honest, the senior management group that we have recruited and we have really worked at, especially the last two or three years, developing a transition group, as I have gotten older and some others and so, you know, we try to create an environment that’s fun for them and it seems to be working because we haven’t had any turnover in those areas for the last 10 years.   We are pretty happy with the way things are working out that way and it’s basically just taking care of people and creating an environment that’s fun to work in.  

Kelly:               Terrific!  Well Chuck, I bet you are an excellent executive.    That’s all I have, is there anything else that you want to add? 

Chuck:             Life has always get you challenges and you always seem to take a step back but as long as you are routinely taking two forward that’s just the way life is and you have to enjoy it for what it is and it’s a lot of fun.

Kelly:               Great.   Alright Chuck, thank you very much for your time.  I really enjoyed it.  Best of success going forward.

Chuck:             Very good. Take care Kelly.

Kelly:               Thank you.  Bye.

Chuck:             Bye

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program is hosted by Kelly Coughlin.  If you like    this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Aug 10, 2017

Title: Enterprise Bank's Leader, Chuck Leyh: Accountant, Banker and Deal Maker, Part 1

Subtitle: A two-part discussion with a successful banker fulfilling a COMMON BANKING need with an UNCOMMON BUSINESS solution.

“Being a banker is like being the pilot of an aircraft.  It is years of boredom and seconds of terror.”

Kelly Coughlin is CEO of BankBosun, a management consulting firm, helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking ecosystem, provide bank C-Suite officers, risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C- suite execs navigate risks and discover reward in a sea of threats and opportunities.  Being a banker today is an enormous challenge.  I like to say the three “Rs” that are constantly threatening and challenging then are risks, regulation, and revenue creation.  And within each of the three “Rs” you have varying layers of threats. 

In the risk bucket you have cyber risk, operational risks, compliant risk, market risk, interest rate risk and, of course, credit risk. That is the risk that in your core business, lending, you make a bad loan and it doesn’t get paid back. There are some great quotes on banking in the lending business.  Warren Buffet says, “Banking is very good business if you don’t do anything dumb.”  Carl Webb, Co-Manager of Ford Financial Fund said, “Banks get in trouble for one reason, they make bad loans.”  And now you have an ironic quote from another now infamous banker, “Irrational lenders come and go, but mostly they go.” That’s from John Stumpf, former chairman and former CEO of Wells Fargo.  And, of course, Stumpf was the banker who appeared in front of Congress a while back and got completely hammered, rightly or wrongly, and now he, just like other irrational lenders, is of course gone.

And then you have one of my favorite quotes from Fred Schwed, author of Where are the Customers Yachts. He writes, the conservative banker is an impressive specimen.  He spends his day saying, no.  He says yes only a few times a year. His rule is that he reserves his yeses for organizations so wealthy that if he says no some other banker would quickly said yes.  His business might be defined as the lending of money exclusively to people who have no pressing need of it. 

In summary, he affirms what Bob Hope, one of my favorite comedians of all time, said, A bank is a place that will lend you money if you can prove that you don’t need it.  Consequently, because of these dynamics banks typically are not the place one goes to get early stage or startup or venture or distressed or risk capital for a number of practical reasons.  Regulators don’t like it.  The revenue could be tricky to accrue, especially when collectability is either not assured or perhaps uncertain. 

Bank auditors are frequently stuck in an audit review model that challenges their ability to think outside the box on revenue recognition collectability.  The end result is only a few banks step into this world of lending to companies who truly need it.  I came across a bank, a while back, that breaks the mold on this. I was frankly looking at some historical financial data on banks. 

As most of you know, I spend a significant amount of my time helping community and regional banks improve their revenue growth rate by improving their ability to compete with big banks, brokers and advisors. So, in doing that research I came across a very unique bank located in Allegheny County in a suburb near Pittsburgh PA. The bank is fairly traditional in a few areas. They accept deposits.  They make personal loans.  They make business loans and they sell some insurance products.  I don’t believe they provide wealth management or trust services but it’s where they are unique that really got my attention. 

Number one, they offer consulting services.  Number two, they offer book-keeping services.  Number three, they offer marketing services, and number four, they offer temporary services, primarily, temporary short-term CFO type services.  Number five, they lend to the small business, the startup and the small distressed business market. And most importantly, their uniqueness is most apparent in its five-year cumulative annual growth rate of approximately three times the industry average. They have a growth rate of 25 percent and the industry average is about 8 percent. And with that type of uniqueness, I decided I need to talk to this company. 

So, with that in mind, I hopefully have the CEO and chairman of the Board of Enterprise Financial Services group, Chuck Leyh, located in Allison Park, Pennsylvania.  Chuck is a CPA with more than 30 years of experience in public accounting with an emphasis on tax and business consulting and he has experience in business analysis and business valuations and he is a member of the AICPA and a member of the Pennsylvania Institute of Certified Public Accountants. 

Hopefully Chuck is on the line.  Chuck, are you there?

Chuck:             I am here.

Kelly:               Chuck, how are you doing today?

Chuck:             Very good.

Kelly:               Well, did I make any mistakes in my introduction there?

Chuck:             No, I think you kind of covered it.  I’m not sure the growth rates are quite what you have stated but certainly over a long haul they have been very significant.

Kelly:               I just took some summary financial data prior to today, you are substantially higher than the industry average?

Chuck:             Yes, yes, we do a lot of, as you stated, startup businesses, businesses in distress, means we do a lot of risk mitigation with SBA, real estate, and what traditionally happens is in more challenging economic times we have more loans than we know what to do with. And in the competitive times is when it becomes more challenging for us to grow, because the economy is strong and a lot of business are healthy and banks are out lending and there is a lot more competition and there are not as many people, believe it or not, starting businesses or going through distresses when times are strong, and when times are weak those trends go up and that’s when we typically grow a great deal.

Kelly:               Chuck, I have a lot of questions here but before we kind of get into the guts of this let me ask you this, are you fundamentally an accountant or are you fundamentally a banker?

Chuck:             I am fundamentally an accountant.  I still am a partner in a CPA firm and that’s what my chosen profession was.  Twenty years or so I got this bright idea with some friends to start a bank and after a few years it wasn’t doing what it was supposed to.  So, when you usually start something with your friends and clients they look at it and say, yeah, this isn’t working out here, well, you got us here, you better go fix it.   And so that’s kind of how I got into banking.

Kelly:               Alright, let’s talk about the history of enterprise Is this first-generation enterprise or does what we see now kind of the second generation after you have fixed this version?  

Chuck:             So, this is the same business concept.  Basically, this business concept grew out of me having a friendship with a banker and looking at modeling out a business plan.  The way I kind of created the business plan to model out was to go to my accounting firm clients and get a list of the things they did not like about banking and see if I could draft a business plan that address those issues, and that’s kind of how this whole system grew.  It wasn’t run quite the way it was intentioned and it struggled for a few years and, like I said, that’s been how I got into it on a day to day basis.  And I have continued for the last 18 years to oversee day to day operations and turn things around and put it on the right foot.

Kelly:               The version of enterprise that we see now, what was the market and was the opportunity?  What void did you fill?

Chuck:             I think, when you go back to when we started the bank, that list of things that my clients didn’t like about banking, there was basically a few premises and we kind of built a plan along that line.  The lack of continuity in relationships, probably a lack of business empathy, and almost, what I term, the phase banker’s arrogance, where bankers felt that they know how to run a business better than the business person.  So, that was kind of one issue and, obviously, the other was continuity where things get in our relationship, those people get promoted, move on and you start all over again trying to educate your bankers as to how your business run. And probably the unique focus of Enterprise Banking structure was to address those two issues.  

And one of the ways that we did that was to create a relationship manager concept where, that’s not unique, every bank has what they term relationship managers, but in this situation a relationship manager functions as a small business inside the bank. Basically, it’s treated as the branch gets its percentage of revenue based on the bank’s net interest income, monies to bad debt reserve, which we build and allocate on a per loan basis.  So basically, they get a percentage of that and out of that you hire their staff, have fringe benefits, expenses, whatever it is that all run through that little business unit.

By them running their own business inside the bank, it kind of address the empathy and the continuity because they don’t get promoted or anything else.  The stronger, the larger the branch gets, the more money they make so they get empathy and get rid of that banker arrogance by running the business themselves.  So, they experience the same problems their clients and borrowers are experiencing.  The continuity issue is addressed because they are in that position and that’s a lifetime relationship type position like a CPA would have with their clients. 

So, that’s a kind of a unique situation in the bank and a lot of it is quality assurances and checks and balances and everything that revolve around that structure and that structure was created to address those two basic issues.

Kelly:               At the parent bank level, is there a credit committee that approves any sort of investment that the bank would make then?

Chuck:             Yes, there is actually in this bank, one of the problems that we created to address was the timely decision on credit.  More than, if there was a “no”, setting goals for people so that they can address those goals and perhaps come back and then have a different answer if they have taken time to prepare themselves better for the lending relationship.  And so, because there is a senior loan committee that’s actually made up of board members that meets weekly and it addresses all the credit requests. 

So, the relationship managers have a financial stake in what happens with the loan.  And, obviously, that is something in their minds and it has to pass their comfort level before they will introduce it to senior loan committee. But the senior loan committee then is the ultimate approval source so, pretty much, every relationship and loan, so that there is a strong checks and balance in the system.

Kelly:               So, in terms of the types of deals that you guys do, let’s just talk about the nuances of the start-up business.  Are you looking for deals, whether it be a startup and that their cash flow is limited but there is some sort of a asset protection there that you have got some collateral protection?

Chuck:             Yes, as I am sure you are aware, most banks emphasize historical consist in cash flow as the basic foundation for assessing risk for making a loan. 

If you have a start-up business or a business that’s gone going through distress where it has lost money for a period of time, you don’t have that cash flow continuity and strength to support the lending relationship.  This is still a bank.  It still takes bank risks so it reverts back to looking for an underwriting that’s almost a worst-case scenario.  It almost assumes that the business will go under then it looks at it and says, can we assess the risks and protect ourselves?  And that typically then leans towards collateral of some sort or government guarantees that mitigate the risks if there is not enough collateral so that the elevated risk of failure is offset by this collateral that mitigates the amount of the losses potential.

Kelly:               Your success in the distressed business vertical, if you will, versus the startup.          

Chuck:             I don’t know that there is a whole lot of difference between the two.  Actually, the distressed area is a different type of thought process and underwriting.  You know, when you have a startup, business projections are never what reality ever is in either business.  So, you are kind of looking at the management background, the experience level, the concept and, is it a well thought out program?  That’s what you are sort of looking at for the startup program. 

But, it’s a little different with the distressed business because in there, typically you come in and they have been successful for a period of time, now they are going through a problem and you have to assess that problem.  Is that the real problem?  Do they have the fix identified? And you believe that fix is the only thing that’s necessary.  And so there is a little bit of an analytical difference between the two.  Both, you have to have a good sense that management has a hand to hand, either in the start-up situation or the distressed situation but the validation is a little different in the two different scenarios

Kelly:               I don’t need to tell you that management is first and foremost a factor to be evaluated, how are you doing in that area, and especially in the stress mode where you have management that kind of attribute their distressed situation to market factors as opposed to themselves and their own management decisions?

Chuck:             I have been in the marketplace for 40 years and you have kind of seen a lot of examples of good and bad management, you’ve seen a lot of examples of mistakes and people learning from their mistakes or basically saying it’s somebody else’s fault.  And so you kind of go through the situation and you see how people analyze the situation, how they take responsibility for it and what their game plan is, moving forward. 

And that is the intangible analysis you go through to try to assess your probabilities for success, but, ultimately, in this type of lending you are going to have a lot more failures than you will in a traditional bank environment.  And so you have got to stress the collateral practical liquidation analysis and assess the risks a little differently based on collateral.   Because until you experience somebody first hand going through distress and pressure and how they react to it,  you actually don’t know for sure how an individual’s character will hold up to pressure.

Kelly:               The team you have that help you in the due diligence and acceptance of a deal, I suppose you are looking at their market plan, certainly their internal control systems, their accounting systems, all those core things to run the business but, in my opinion, businesses typically fail on the revenue side, not so much on the back-office side. How do you guys go about really evaluating the  revenue projections and their ability to get their first customers, if they are a startup; or to substantially increase their ability to get customers, if it’s a turnaround?

Chuck:             There are obviously, based on the pedigree of management, the experiences they have, the type of idea, the amount of competition, all of those things, that are into a risk analysis and then you look at that perceived risks and then you mitigate it with either collateral or guarantees or something else.          

As a CPA and as a banker, the one thing I disliked with when bankers would tell my clients that that business plan doesn’t have a prior, it will never generate to revenue, and then five years later those people are multimillionaires because they really did know what they are doing. And, you know, that banker arrogance is again the thing that you watch because just because a revenue is planned doesn’t seem to make sense to you, it doesn’t mean it doesn’t have the chance of success.

The most successful people are the people who does something unique and outside the box.  Because you haven’t seen it succeed you feel there is a greater risk. You want to try to balance that mind set so that you don’t turn down a deal because the revenue is not apparent.  But you do look at the deals where you are more skeptical of the revenue and you say I want more protection with collateral or more of a government guarantee or more some risk mitigation when I don’t feel real comfortable or think this revenue stream is going to happen soon.  And every situation is done on a case by case basis, and that is the key. 

In a small bank like this where everything is customized to the specific circumstances you don’t have prepackaged products.  You try to design something just for that particular client.  For instance, somebody starts up a driving range and they come in and say, you know, I have a better idea and I can do a better job running the driving range, my people skills, my networking, my background.  Well, you look at those kind of things and you know it’s going to take time for reputation to grow, you know things are going to have to work out in a certain way and you know there is going to be curves and steps backwards, you know, the best of us, hopefully, take two steps forward and then one backward.  It’s inevitable to happen.  

So, you start to look at the design, for instance, you might go say, okay, clearly these people don’t have any revenue from say, November through April, well, then you may design a loan structure that it goes interest only in the off season and then it kicks up to a greater than normal principal and interest payment on the in season so you kind of help them budget themselves and help them structure things.  And you advise them in that relationship as to how you are going to mitigate your risk in the off season in the business plan. 

If you have a facility where you can conduct parties or do something in the off season or some other revenue that complements the off season to get rid of some of the cyclical nature of the business.  And then you start to look and see how does that perspective borrower react to your advice and your thought process.  And all those things come together to determine whether it’s a relationship you want to work with or not. 

Kelly:               Let’s say, a term of the compensation on these deals, are you taking any warrants, options, any sort of equity or is it straight interest rate?

Chuck:             We haven’t done that up to this point in time.  It has been a straight interest rate.  I will say that up through the recession, the spread for taking this kind of risk when you are using the SPA, for instance, they will have a maximum rate that you can charge and have a guarantee. 

The spread that you got from your cost of funds to the rate that you would get for doing this type of lending was significant, the money was very good. I will say that since the recession, flattening of the interest rate curve here, recently, but really since the recession that margin shrunk a lot and so we are looking at different ways to perhaps supplement revenue to get the margin back to where it was say 10 years ago versus where it is today.

Kelly:               Right.  Like any bank, your core source of funds are going to be customer deposits and you always have some assets to liability risk management you have to do there, are you able to get sufficient deposits from your customer base, knowing that this is your business model, so are they fearful of that?

Chuck:             Actually, when we work with a client obviously we are showing a loyalty towards them that the other banks aren’t showing because we are doing a loan that others won’t do.  We kind of expect that loyalty to come back so we’re kind of writing things upfront that says if we are going to take this risk loaning you this money.  You have got to have your operating accounts with the bank.  Everybody is pretty good about that and obviously when the businesses become successful and strong and get out of their start up period then deposits can become very significant.

  And that funds a big portion of the bank but we are not a retail consumer oriented group so that’s our sole client base and small business deposits is not sufficient to fully fund the operations.  So, we will go in and do borrowings from federal loan banks, we will do self CDs, you know, and then use even a broker CD market, as long as the funds are reasonably priced, and competitive with home loan bank borrowings.  We actually push our class of funds higher than most banks because while we are taking what most would deem to be more credit risk than most financial institutions, we take extremely low credit risks and interest rate risks. 

So, what we are giving away on the credit risk part we are taking back on the interest rate risk part so that we have pretty much a neutral situation for our funding and our asset to liability management so that drives our cost of funds up also by having a lot longer term borrowings than a lot of institutions.

Kelly:               Let’s talk about your consulting services that are packaged into your offerings.  I see that you have got marketing, bookkeeping and temporary services and I believe that there are primarily CFO services, what purpose do they fill and are they important to your overall offering?        

Chuck:             Well, they are very important, especially to the start-up businesses.  And the original premise of forming the bank was to make banking into a service value oriented proposition versus a purveyor of money.  The concept here with a relationship manager is to be a consultant, a financial consultant similar to a CPA.  But CPAs are typically more in a tax oriented consulting approach and then some general business consulting, and these people are a more general business consulting, finance consulting.  That’s the training they get, to be a relationship manager. 

Now, the subsidiaries that we have, given to more of a specific and stronger expertise in certain disciplines, whether it is real estate, marketing, bookkeeping services, IT services, and then general business consulting with different specialties niches so that when, you know, a startup business has the idea, if you build it they will come.  We all know it doesn’t work that way, people have to know about it and so our marketing people will take it to the next level. And what it does is, it improves the probability of success for the startup businesses, and obviously that has a strong synergy with the bank because it improves our success rate and reduces the bad debts. 

And at the same time, we price the services that we are not making a big profit on it, we are making some money on it and then that synergy of making our underlining businesses get stronger.  Those two things together create a strong value for the bank and for the client.  When we have a new relationship come on board from a borrowing perspective we do analyze and have our consultant go out and look at their accounting system and make sure that they have the capabilities to report to us the way the loan documents require.  And we have somebody from our IT subsidiary go out and review their computer systems to make sure that they have a security level that makes it safe to do business with us and them. 

And so those two things are looked at and if they identify a problem then we go to the client and say, you need to beef up these areas and if you want we can help but you don’t have to work with us or you can find anybody but there is an issue here.  So, those are the two areas we look at where we say there is a certain level we have to get to but we never go with our people and say you have to use them or something like that.  If the client wishes to that’s great, if they don’t then so be it.

Kelly:               Oh, that’s very smart, very smart.

Chuck:             Most of the clients have assembled a team of people and we are more than happy to work with that team of people.  Let’s say, if something doesn’t work and that team drops the ball somewhere that’s typically when our people starts to get involved.  So, it’s more of helping a client and being there to pick them up when they stumble rather than try to push services and grow the service aspect of the business.  This is a bank, we look at those services and seeing them being complementary to the bank, not so much as a huge profit center in and of themselves.

Kelly:               Do the cost and the revenues from those services, do they run through the bank or do they go through a consulting subsidiary?

Chuck:             They go through a subsidiary but they get consolidated but most of them are operated a little above break-even but not much. And that’s how the pricing is affected to keep it almost overly competitive so that people that are going through distress can actually afford to get the help.

Kelly:               I love that business model. I really do. In terms of your footprint, where do you operate geographically?

Chuck:             It’s pretty much Allegheny County and the bi-contiguous counties but what really drives it is not so much a geographic distance.  That is something that with remote banking and all the electronic world, the way it is today, geography isn’t really an issue.  What is important for us is the evaluation of collateral and the accretive evaluation, and if we get into a troubled loan, having it be within an area that we can dispose of assets to get our money back. 

And this bank does some things pretty unique in that area and like, for instance, many times when you reap with us a piece of property and it’s in a distressed situation we can actually have a little subsidiary that comes in, repairs the facility, gets it ready for market and then our real estate group goes and sells it. And so in this particular bank we are not sitting there selling a distressed property at thirty cents on the dollar.  We don’t do that.  We go in, we make sure we fix it up so it’s presentable and it’s safe and then we’ll market it in a conventional sense and market for its fair market value.  You have to be close enough to our Allegheny County location for us to efficiently carry out that aspect of the business plan. And so it pretty much runs in western Pennsylvania. 

Kelly:               That’s terrific.  That concludes part one of my interview with Chuck Leyh, CEO of Enterprise Financial Services, in Allegheny County, Pennsylvania.  In part two we are going to talk to Chuck about how   his unique business model presents challenges in dealing with both regulators and the auditors.  

Thanks for listening. 

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program is hosted by Kelly Coughlin.  If you like    this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Jul 27, 2017

This is the 3rd and final interview of Robin Kermode, actor and author of the print and audio book, Speak: So Your Audience Will Listen. A great book. Coupled with this three-part podcast series customized for BankBosun audience, will give your great confidence in public speaking. If you listen to this series and buy his book, it will save you from having to appear naked on the stage to gain public speaking confidence…like he did. Listen to part one, if you missed it.

Kelly Coughlin is CEO of BankBosun, a management consulting firm, helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking ecosystem, provide bank C-Suite officers, risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

Kelly:  I’m a big fan of Shakespeare and you mentioned that it’s effective to use the iambic pentameter which is Shakespeare’s preferred rhythm in the speech, I have never tried to write a speech using that let alone deliberate in this format.  Are you seriously recommending that we try to write our speeches like Shakespeare?

Robin: I’m certainly not, what I’m saying is that if you can find, it can be useful exercise, if you write your main points in iambic pentameter, interestingly enough, it will actually have a natural rhythm that will just flow because   iambic pentameter, which is ti-dum ti-dum ti-dum ti-dum, which is the five human heart beats.   The reason it’s worked so long is it has a natural rhythm.  So, one of the classic Henry the Fifth line is, “Now all the youths of England are on fire.”  In the rhythm of Shakespeare, which is ti-dum ti-dum ti-dum, in that rhythm, it sounds like, now all the youths of England are on fire. You can feel this, there is a momentum behind it.  It’s not always appropriate, of course.   In the book, I use a phrase that you could tell to your sales team, for example, which was in the line I came up with here to explain this was, “just care and they will want to buy from you.”  But if you say it in the rhythm of the iambic pentameter, which is tidum ti-dum ti-dum, you have, just care and they will want to buy from us.  So, if you are going to end a speech with your main point, if you just try and write it in those five human heartbeat, fondly enough, you will find it will have a natural rhythm and a natural gravitas and a natural authority, and a natural drama, just purely in the way it is constructed.

Kelly:  So you will give us a pass, we can use iambic pentameter at the beginning and the end but in-between we can get by without it.        

Robin: None of us are as good as Shakespeare, and to be honest, it wouldn’t land.

Kelly:  Okay.  I love the quote, “A speech is like a love affair. Any fool can start it but to end it requires considerable skill”  

Robin: [Laughs] that’s great, a great quote isn’t it.  If you can see a theatre play, you love the whole play, it’s been like two hours long or something, the curtain comes down at the end and the curtain gets stuck about one foot off the ground.  What you see now is the actors behind, you see their feet.  And there you can see them, you can see the body language because there is about a foot at the bottom, and you can see they begin, what do we do now? Do we go off or do we stay?  And you can see them starting to go one way or the other way.  And it leaves a very odd feeling about it and then they can’t do their bows properly so now they have to come through the side of the auditorium and, you know, in front of the curtain and all the rest of it.   So, when you go into the office the next day and you saw this theatre play last night, the curtain got stuck.  That’s what you are going to remember.  You are not going to remember two hours of great before that, you are just going to remember when it all went wrong at the end.  And similarly with the speech, you can do a really good speech and just slightly fall apart at the end and it’s just terrible.  And the reason I like the headline sandwich is that even if in your mind you think, oh, it’s all slightly going a bit pear shaped.  What you do is, you think, okay, I am just going to repeat the opening headline absolutely clearly, so, that’s why Peter is the kindest man I have ever met in my life.   No one is going to think, but you missed out a section, because they don’t even know what you plan to say. But at least you finish really really well, and I would say, finish strongly but interestingly enough, on a timeline.   Someone, a few years ago, did a wonderful survey on when the peak of great works of art, great speeches, great music, great films, great book even where they reach their emotional peak.  And most people would think that you reach your peak at 100 percent on the timeline. Interestingly enough it is about 95 percent on the timeline.  So it’s best what we are trying to sell in our product we want the audience to feel they have made the decision to buy it and we then pull back and let them feel they have make their choice.  We don’t want to end on the big sell, we want to get to about 90, 95 percent of the timeline and then just pull back a little bit so the audience go, yeah, I think we will buy this, and this is my choice to buy it.  And then, salesman, very much calmer, and they are not desperate to sell, because I think if he looks desperate to sell it will end up at 100 percent energy and 100 percent on the timeline.

Kelly:  Excellent.  I told the audience we will cover briefly some things on PowerPoint presentations.  I have a business policy now that requires more or less four things in a power point presentation.  Number one, few or no words on the slide.  Two, only images if possible.  Three, total deck less than 12 and then presentation less than 20 minutes, as we had discussed before, and then the script printed at the bottom of the PowerPoint notes.  Tell us about your PowerPoint policy generally and what you refer to as your five by five rule. 

Robin: Yeah, the five by five rule is quite common actually but basically it’s no more than five bullets per slide and then more than five words per bullet.  And I think that is the discipline, I think, is really good.  I think also, fonts are too small, quite often there are too many sections to a slide.  So, you can have graphs, series of words, you can have a chart, So, you can have a pie chart, a bar chart, a photograph.  It’s just too much on a slide.  If I was going to give one piece of advice on PowerPoint it would be each slide should have an emotion connected to it.   And the best example of this is the company I was working with in the north of England and it had a sales team of about 100 guys and they had to go out obviously and give this presentation to all their new potential customers.  One of the slides was the history of their company.  And then it went from about 1900 right through to 2017.  And it had, but each one, each one of the...well almost every single, not every single year but I mean, it felt like...certainly every five years it was something else.   It was like, you know, they moved their office to a different town or they opened an account somewhere else or they opened a branch here. And as a customer, of course, I was watching this, a potential customer, and I said look, I am going to stop you now. I said, this slide is going on for about a minute and a half and it’s really boring because it’s all about your company and I, frankly, I want to buy your products, I am not really interested in the company and where you have your offices and where you have your warehouses.  It’s not really relevant to me.  And he said, oh, we’ll cut the slide out.  And I said, no, no, no don’t cut the slide out because there is a point to the slide but you have to know the emotional results that you want every slide to have.  So every slide in your deck has to make the audience feel something, so what is this slide making the audience feel?  And he said, oh, but we are giving the history of our company.  I said, no, that’s boredom.  What do you want the audience to feel?  And one of them said trust.   I said, absolutely, spot on. The only reason you are telling us about the history of your company is so that you trust us, right?  So, I said, now you know that, I said do the slide again.  And the guy said, so, look, as you can see here, we have been going over 117 years.  We know what we are doing.  We are really established. Trust us. Click.  And he went on to the next slide.  So, it took under 10 seconds but it did the job, which is to make us feel we can trust this company.  We don’t have to go through everything necessarily, it wasn’t relevant but to see it all there was useful.  But the point of the slide was to make us feel trust.  So, I think that in every single slide I get my clients to write the emotion at the top of the slide that they want the audience to feel as a result of giving this slide. And if you do that, then the audience will care and if you don’t have the emotion connected to PowerPoint slides, that’s when they become boring and that’s when they become just information.  We don’t want information, we want to know why we are been given the information.  And if you tell them the emotion connected to each slide then your audiences will care.

Kelly:  Great stuff!  Robin that’s terrific.  I really appreciate your time.  How should people get in touch with you?  Give us your, I presume your website, email address, how would you like to do that?                                                                                                                              

Robin: Well it would be very lovely to hear from any of your listeners, of course, you can buy the book on Amazon which is, Speak: So Your Audience Will Listen.  You can contact me by the website which is zone2, that’s ZONE the number 2, and my email is  I look forward to hearing from you and hearing how you are getting on with your presentations and your speeches. 

Kelly:  Great Robin, thank you very much, cheers!

Robin: Thank you so much Kelly for having me.  I really appreciate it.

Well that concludes my three-part series with Robin Kermode. I hope you liked it. His book Speak: So Your Audience Will Listen has some further tips, tricks and practice techniques that will help you continue to upgrade your public speaking skills and confidence. Thanks for listening.

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program is hosted by Kelly Coughlin.  If you like    this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Jul 27, 2017

This is the second of my three-part interview with Robin Kermode, actor and author or the terrific book, Speak: So Your Audience Will Listen. I love this book and the audio book that you can also order. Public speaking is something all execs have to do. And honestly, his book has done more to help me in my public speaking self-confidence than any other book or class I have read or attended. And this podcast series, especially designed for BankBosun audiences will hopefully do the same for you. And if you like it, buy his book and consider his company to help you and your team.

Kelly Coughlin is CEO of BankBosun, a management consulting firm, helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking ecosystem, provide bank C-Suite officers, risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

In part one, we covered five of the seven steps, nerves, confidence, connection, voice and body language.  In part two, we will cover structure and delivery with some focus on PowerPoint type presentations.  If you listened to part one you will recall Robin overcame his fear of public speaking by once appearing totally naked on the stage.  Robin, are you on the line, and tell us where you are right now, and are you on the stage, and do you have all your clothes on now?

Robin: [Laughs] Hello Kelly.   Yes, I am in sunny London and I am fully clothed.   Although it’s audio only, I am fully clothed.

Kelly: Excellent.  So, for a minute, let’s talk about eye contact. Give us a couple tips on using eye contact to enhance the connection with an audience.   And are there different techniques for large groups or medium groups and small audiences?

Robin: Yeah, okay, eye contact is really instinct.  I maintain that if you can be authentic with a small group you can also be authentic in a large group.  Of course, it feels much more exposed, you know, when you are on a big stage, like the sort of TED talk type of thing.  I write quite a lot of articles for the newspapers and I wanted to write an article about TED talks, under the title of something like, How to Give Good TED talk without looking completely smug and overconfident and self-satisfied.  Because there is something about the style of those TED talk deliveries which have become a bit ubiquitous now.  And I think even CEOs feel they have to be a bit like that, you know, with the radio and mike around the head and everything and they have to have this very, very long pauses and very stylishly over-rehearsed deliveries, and I am not sure how authentic that is actually. I think it looks very, very rehearsed.  There are some people who can pull it off, you know, the Steve Jobs type of approach when he was launching a new Apple product.  There was a big buzz around that, you know, but I think for a CEO to come and do that it just looks a bit odd, I think, you know, in our internal conference environment.  But what we want to do is, we want to connect with everyone.  And the way we connect with them is to make sure that we look at them.  You can’t look at everyone but you can look individually at people.   Now, in a large hall, of course, you can’t see their eyes because you can maybe see the first five, ten rows but you can’t see beyond that very clearly. So, the trick is to look as if you are looking at one person, which means you choose a spot in an auditorium. You maybe look at somebody, maybe three rows back.   You look straight at them in the eye and then maybe you look about 40 rows back at a slightly different point as if you are looking at somebody.  And what it does is, by choosing different areas of the room it looks like you are talking specifically to an individual person.  So, if you look at about 20 people around the area you are looking at toward the back of the hall they will all think you are looking directly at them because of the angle of the width of the projection.  I worked at how to do eye contact when I went to see Hamlet a few years ago at the national theater in London.  And I was sitting on the front row, I was very lucky to be sitting bang on the front row, and the actor playing Hamlet was about to do the famous speech, To Be or Not to Be.  I’m sitting down in the front row and there is a long pause and Hamlet came right down to the front of the stage, I mean, I could almost touch him, I was that close, and it is 1700 people behind me, big auditorium, and Hamlet’s there looking up and I am so close to him thinking this is... what a wonderful chance to see this famous actor playing Hamlet so close up.  And then he suddenly looked straight down at me and said, “To Be or Not to Be.” It was sort of electric, that was amazing because he was doing it to me, and then he carried on, and he said, “That’s the question.”  And I met a friend of mine afterwards and I said, it’s amazing, he is doing the whole play to me.  And she said, he is not doing the whole play to you because I’m sitting in the dress circle and he is doing the whole play to me.  And of course, he didn’t do the whole play to me but that’s what it felt like.  He only did two lines to me and he did two lines to my friend in the dress circle but both of us said he did the whole play to us.  So, the secret of eye contact is to have one thought with one person and one thought with another.  And in a large hall you have one thought with one area of the auditorium and another thought with another area.  As long as you connect with everyone, at some point they will feel they have been with you, they have actually connected with you.  What a lot of people do is they sweep the room with their eyes.  They sweep from back side, left to right and up to down. They are almost defocusing, they are not really focusing on anyone in particular.  But much better, I think, to come out to an audience and look at a particular spot in the audience and say, good evening, and then look at another spot and say, really nice to see you, as opposed to, good evening, nice to see you, in a sort of scatter gun way, right across everybody.  In the audience, we want to feel special.  We want to feel the speaker is actually, at some point, talking to us, and that’s the way to do it.

Kelly: That’s excellent.  Since you mention TED talks, I am a fan of the TED talks 20 minute presenting and then 40 minutes listening versus the traditional business presentation of 40 minutes talking and then 15 minutes Q &A.  Do you like that idea?

Robin: I totally agree with that.

Kelly: Any tips or tricks, once you have opened it up for Q &A, how to get it going, how to get that first question asked?

Robin: I think one of the things is to have a prepared question.  I think one of the hardest things to do, actually, is to ask a question from the audience.  It’s much easier to be on a panel on stage than it is being in the audience asking a question.   Because often what happens is, you think of a question and then by the time the microphone is passed down the line to you and previous questions finished, partly, they possibly answered the question in some way anyway or you can’t quite remember what you had said so the nerves kick in, and so I think it’s quite difficult.  So, I always have a question up my sleeve. Maybe the moderator would say, you know, do we have any questions? And if there isn’t one straightaway, I’d say, excuse me, but I was talking to someone earlier, just before this, and they asked me, of course they didn’t, that didn’t happen but what I am doing is I am posing a question that they might well want to ask or the people have asked in the  past. I’ll frame it as if I was talking to somebody just before and that makes the feeling that it is much more collegiate and then that normally starts the ball rolling.

Kelly: So, you pose that question and then you answer it yourself.  Okay, I got it.

Robin: I actually answer myself, yeah, yeah.   The other thing I have done before is, any question is a great question.  “That’s a great question” sets it off in that way.

Kelly: Yeah, I think Socrates or one of these guys said, Confucius said, “He who asks a question is a fool for a minute.  He who never asks a question is a fool all his life.”

Robin: You know, you’ll regret it as well, you know.   You would also think, I wish I had asked that person.  I applaud people for asking questions because I think it takes a lot of bottle when you are in an audience.  You know, when you are on stage with the microphone you have much more power than you do when you are in the audience.  I really feel it for people asking questions and I am very very grateful when they do.  And I always thank them afterwards, I go up to them afterwards and thank them for asking the questions. 

Kelly: Okay, I want to get to a couple of the really kind of mechanical things that aren’t that exciting but I think they’ll be helpful.  Tell us your thoughts on standing and what to do with our hands.

Robin: Okay.   So, you have basically got about five choices with what to do with your hands.  You’ve got hands behind your back, which is a bit military.  You’ve got hands down by your side, which is an interesting one.  So, if you stand there open very much, open body language, you know, with your hands standing by your side, it’s what actors call actors neutral.  And the reason that actors do it, the next time you go to see a theater play watch out for it.  Actors do it because it’s very very easy for the audience to go between the two characters having a conversation on stage.  Because physically they are quite still but mentally and emotionally it’s quite cut off and quite fiery.  Physically they might be quite still and in life very very few people do it.  The people who carried off best normally are world leaders making big pronouncements on the world stage, and they quite often do it, and they look very very open but it’s quite hard to do.  And often it looks a bit grand, I think, in many situations.  Some people like it but I would say it’s quite hard.  And hands in pocket, obviously, is just a cultural thing but also on an animal level you don’t show your hands it’s the sign of hiding something, maybe nerves or a gun or whatever but I think the ones that most professional speakers use, most politicians, most TV presenters.   I have my hands held lightly together around the line of my belt, so just below the belly button.  And the reason that works is that’s your emotional center so you feel protected in that position but it looks open. Obviously, if you cross your arms you look closed but this looks open in that position.  I use my hands a lot so my hands are moving around all the time but when they finish, whatever the move is, then like a magnet they are drawn together level with the belt.

Kelly: Excellent, and feet are shoulder width apart. 

Robin: Yeah, hip width apart is the best way.   And the reason feet even weight is good because it tends to make your spine straight, and if your spine is straight your ribs will breathe better and so you have more air.   You look more centered but also actually physically you are more centered.  And if they’re too wide it looks inappropriately, you know, like a wild west cowboy, just got off your horse.

Kelly: You talk about five types of body language, four variations of closed which are aggressive, defensive, nervous and bored, I don’t want to spend any time on those, I want us to focus on the one version that you recommend is open and interested.  Talk about that and include smiling in that, because I think that’s part of the key part of body language that makes one open and interesting.

Robin: It is.  The closed ones, obviously, are, you know, crossing your hands and rubbing your face and shifting the weight and the yawning and all that sort of stuff.  But the open interesting body language, this is where we meet somebody who genuinely looks like they want to connect with us.  They will probably have a reasonably firm handshake, but not too firm.  They will have good eye contact; they won’t be embarrassed to hold our eye contact so they will actually look us in the eye.  They will have a confidence stance but they will have a low center of gravity if they get it right.   Their gestures will be quite relaxed but smiling is instinct because it changes the sound of our voice as much as anything else.  And the other thing about smiling is, it’s easier than frowning because actually it takes 42 muscles to frown and 17 to smile.  So, it’s far fewer muscles to smile.  I do voiceovers for TV commercials and stadium events and things and if you have a little twinkle in your eye it changes the sound of your voice, literally changes the sound of your voice.  If you have a cheesy grin, like sort of a cheesy toothpaste commercial salesman, that will tighten your voice, and you can feel it tightening your throat if you try it. But just a little twinkle in the eye, absolutely softens the voice and changes the voice a bit.  And of course, we can tell on a gut level, even if we are not experience in this, we can tell whether someone’s smile is genuine or not.   And the answer is, does the smile reach the eyes?  You can tell when someone’s eyes are really smiling.  And actually, if you want to spot an insincere smile, you want to spot a sincere smile, you look at someone’s eyelid.  You look at the outside corners of the top eyelid, and when you are genuinely smiling that comes down, and it’s almost impossible to fake that one.  So, if you want to see if somebody is really smiling look at the top outside corner of their top eyelid.

Kelly: Interesting.  Let’s get to the last question I have in this part one segment on presentations, is presenting while sitting down. What are your thoughts on that?

Robin: Well, presenting when sitting down requires energy.  It’s hard because you want to look relaxed and calm.  There are basically two ways to sitting, actually, in a meeting if you are presenting.  The best way actually is to sit forward on your chair.  It is to push your chair slightly further back than you would think away from the table and sit on the front edge of the chair and have both feet flat on the ground.  I was coaching a lady the other day who is the CEO of a big company and she was trying to raise 100 million or whatever for her company and we were rehearsing her pitch to the financial institutions.  And after about 15 minutes of this rehearsal pitch she started coughing and so she asked for some water and I just looked under the table and I just said to her, okay, could you just put both feet on the ground, because what she had been doing was having her feet crossed, so they weren’t flat on the ground they were crossed.   And I said, just try that, and interestingly enough, once you put both feet flat on the ground she didn’t cough for another forty minutes.  So, what that does, by having both feet flat on the ground and sit forward on your chair, both feet flat on the ground, it tends to make your spine a little bit more straighter and it brings your voice more forward, and you get more air out and therefore you don’t tend to hurt your throat.  The second way of sitting is what I call the high-status CEO position which is sitting further back in the chair, often with your legs crossed, maybe with weight on one arm.   So, it’s quite a sort of senior politician TV interview type position.  And I see a lot of CEOs do that at boards, they sit slightly away from the table, giving themselves quite high status. It can work, and it just depends on the situation, but those are basically the two ways of sitting when you are presenting ourselves.

Kelly: Exactly.   So, to summarize, I’ve got, number one, feet are hip with the part.  Number two, thighs or buttocks clenched.  Number three, hands held together close to the stomach. Number four, speak from the gut.  And then five, smile.                                                                                                                                                                                                                                            

Robin: Definitely.

Kelly:  You indicated in your book that there are three essential questions that needed to be asked and answered in your talk, what are they and why are they important?

Robin: Okay, well the first one is, why are you giving this talk?  And it seems a very obvious question, why are you giving this talk? The reason I have to ask people this often is, I sit, I would say maybe two or three times a week, in an audience listening to a talk and I think, I am not quite sure why that speaker who is giving the talk. They are giving me lots of information but I am not quite sure what they want out of it.  So, I think the speaker always needs to know what is their reason for giving the talk and what do they want successful talk look like to them at the end of it.  What are they trying to do?  And there are basically two types of talk.   Of course, there is a talk to sell or to motivate.  And those are basically the only two types of talks.  So, even family talks like at a wedding or even a eulogy at a   funeral, they are ultimately motivational talks, otherwise they are sales.  And sales talk will always require an ask at the end of it. You are giving this talk so that the audience thinks differently, behave differently, buys your product, does something differently.  So, those are selling and motivating talks.   We need to be very clear what we are trying to do.  I was coaching a guy recently and he has got a big company and he was going to give a speech to two and a half thousand employees and I said to him, okay, so before you rehearse your speech with me, what are the reason you are giving this talk? Why are you giving this talk?  And he said, well, I am sort of giving an update.  I said, do you know what, with greatest respect, nobody wants an update.  Why are you really giving this talk?  And he said, well, you know, I have got various things to say.  I said, no, no, we’re not really clear what the point is.  I said, but I tell you what, can I make a bet with you?  I am in the UK so I said, I took out a 10-pound note and I put it on the table and I said, I put 10 pounds down so I am going to make you a bet.  And I am not really a betting man but I’ll make you a bet.  About three minutes into our talk I bet you will say something like, so I suppose the real point is.   And he said, yes.  And I said, fantastic, thank you, I’ll take your money.  I said, can we start with the real point?  So, it is so much better for him to stand up there and go, I suppose the real point is this.  If that’s the question that the audience wants answering, then of course you are home and dry.  So, it’s about, why are you giving this talk?  And the second one is, why should the audience care?  And that’s the bit we just did up top there.  Why should the audience care?  You have got to get into the audience’s head, they have given up their time, they have given up 40 minutes of their time or whatever an hour of their time to come and hear you speak so what value are you going to add? Why are you giving them some information?  Why is that relevant to them? And if we construct the talk from that point of view, being aware also of why we are giving it but ultimately, why they should care.  And then the final question is, what are you really saying?  What are you really saying?  So, we are clear, why do we want to give it, we care with the audience, what’s the benefit they can get from it, and what are we really saying.  And I think if you can say it in one or two sentences then you are really clear.  If you can’t say it in one or two sentences, you don’t really know what your speech is about.  I wonder if I could share something incredibly personal.  It might be interesting.

Kelly: Yes.

Robin: My father died recently. We have five children in the family, and my sister said, could she speak at the funeral? I said of course you can.  I said, you know, how long are you going to speak for?  She said, well I thought about it, I am going to speak for about 14 minutes.  And I said, Okay.  I said, that’s quite long, and also there are five of us. So, I said, you know, do you think you can cut it down at all?  And she said, well, it’s quite hard, isn’t it, and I have got lots of things to say about my father. So, are you going to speak?  And I said, yes.  She said, well, how long are you going to speak for?  And I said, well, I thought about it very carefully and I am going to speak for exactly 60 seconds. And she said, well, you can’t say everything you want to say about your father in 60 seconds.  You can’t do that.  I said, you can but it’s harder than 14 minutes because you have to know what you are really saying.  And I ended up my 60 seconds, I spoke a little and then at the end I said, but what I really want to say ultimately is just six words, thank you for being my father, and I sat down.   That was the essence of my message.  So that’s what I was really saying.  I could have given lots of anecdotes and talked about lots of things and said how kind he was but ultimately, that’s what I wanted to say.  And it took me funny enough to write that 60 seconds it took me two days. And it sounds odd but it takes longer to write a 60 second speech that it does to write a 14 minute one.

Kelly:  That’s wonderful, wonderful, thank you very much for sharing that.  In these three questions, these three essential questions, why am I giving this?  Why should the audience care? And then what’s the third one?

Robin: The third one is, what are you really saying?  And that’s what we just covered there.   What are you really saying?

Kelly:  In a nutshell, what are you going to say?  Okay. Should that be introduced at the beginning?  Because it leads to one of your early points of, know how to start a presentation.

Robin: Well, I think so.  I think all audience’s attention, well, we all know, audience’s attention spans are shortened.  I love it when a speaker comes on and ask a provocative question or somehow nails it right at the beginning.  And I use something call the headline sandwich which you may well be familiar with under a different name but I call it the headline sandwich which means you start your talk with your headline and you give your talk and at the end you hit the headline again. So, for example, a friend of mine who was asked to speak at a wedding, he was the best-man and he said, could you give me some tips?  And I said, yes.  And I said, before you even start thinking about humor or anything, tell me about your friend who is getting married.  And he got a little bit emotional about this friend and he said, Oh, Peter.  And he said, Pete, he is probably the kindest man I have ever met in my life.  And I said, but you have written your speech there, really.  You have written your speech.  So, at the wedding he stood up and he said, Peter is probably the kindest man I have ever met in my life.  Let me tell you why.  And then he added a couple of anecdotes as to why that was the case and then he ended up by saying, so, can we now drink a toast to one of the kindest man you will ever meet.  And it works in almost every situation.  It works in eulogies, it works at weddings, it works in business speaking. 

Kelly: Tell us why ethos, logos and pathos have been so important all these years.  They are kind of never changing and why are they still so important.

Robin: Ethos, logos and pathos, in that order, so, it is trust, persuade, motivate.  And they have to come in that order, interestingly.  So, ethos is about building rapport and credibility. So, building trust, in a sense.  So, in other words, trust me I know what I am talking about.  Then there is the logos which is the logical argument.  So, the audience can follow your argument very clearly.  And then pathos is then engaging with them on an emotional level, on an empathetic level. So, we can inspire and motivate.  So, we want to say, you can trust me.  These are my credentials. My persuasion is this.  This is my argument and then now I am now going to emotionally motivate you.  It is a wonderful expression from the 60s advertising guru which is, sell the sizzle, not the sausage.  It’s about selling the excitement of the product not just the product itself.  But you don’t want to sell the emotional stuff before you have done the logic because then if it doesn’t work.  So, we need to go, okay, I’m a car salesman, I mean, I obviously know about cars.  This is a logical reason why this is a good car for you based on what you have told me.  And these are now the emotional reasons why I think you really love this car.  You go in that order and it tends to work. And the same way the speech as well.

Kelly: Excellent.  You have introduced the five classic starts of a speech, what are they?

Robin: Okay, the five classic starts, the most common one, actually, is the benefit, and that’s what sales people do, which is, I’m going to tell you how you can make more money. Here’s a great product for these reasons.    This is the benefit to you.  So, benefit is a classic one, and be very clear what benefit is.  The second one, people in talks do, it is, somewhat, radio stations do it.  It is what they call the tease.   So, you say, I am going to tell you how you can double your money in the next 10 minutes, but first of all, I am going to do something else.  So, you tease them with something that’s coming out, that’s the tease.  The question is the other one which is, it can be the same as benefit, it’s just in a question form. So, it can be, grabbing the audience’s attention, you know, who here wants to double their money in the next 10 minutes, just that.  Who here wants to look after their retirement planning better? I do a talk on charisma, one of my talks is the opening question which is, can you teach charisma?  Very simple question but what it does is, it absolutely frames the talk.  Can you teach it or is it something that you are born with?  Right up front and the audience know exactly what is there.  The shock is the other one.  And this is quite often used internally in business meetings where you say, if we don’t do this, we are toast.  If we don’t change our behavior we are going to lose all our customers.  There is a real call to action in the shock.  And then this is what politicians love, which is what’s called the three-way opening, you give three things, but actually you talk about things you say you are not going to but actually you do.  Tell you about the current state of the world’s economy.  I could tell you how ill-prepared we are about our retirement planning but instead what I am actually going to tell you about is how you could do this.  They get three points in one but actually they are only really talking about one but they get the others in at the same time.  

Kelly: So, I sell consulting services to a community and regional bank so would a classic start be something like this, if I pose it as a question, can a sleepy community bank compete effectively with big brokers and big banks and achieve double digit growth rate, or would it be how can?

Robin:  Good point.  The answer to that, it depends on your audience. Both of those questions are great because they are questions that the audience would actually be interested in hearing the answers to.   What’s tempting for people when they are selling their services or their products is, you say, we are the best. There was a wonderful advertising campaign in the 60s for lawn seed.   Their original campaign ran the best lawn seed in the world, and interestingly enough, they didn’t sell very much lawn seed because the audience doesn’t want lawn seed.  What the audience wants is a good lawn.  So, they changed the campaign to the best lawns in the world.  So, customers don’t want lawn seed, what they want is a lovely lawn.  What a customer doesn’t want is your services or my services, they don’t want the services, what they want is the outcome which is, we want to be a more effective team. We want to communicate better. We want to increase our margins, whatever services you are selling.  They are not actually interested in your services.  They are interested in what your services can do for them, which is why your question was in the right way, which is, how can a small bank do this or can a small bank do this?  It doesn’t really matter which way you do it but it’s’s the relevance to the audience that’s important.  And I think if you get the first question relevant to the audience that’s when you get them, but normally, when I see speakers they make the first sentence about themselves and that is where it goes wrong, right from the first sentence.


Kelly: That concludes part 2 of my interview with Robin Kermode, actor and author of Speak: So Your Audience Will Listen. In part 3 we will cover some guidelines on Powerpoint type presentations and why a speech is like a love affair. Any fool can start one. But to end it requires considerable skill.

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program is hosted by Kelly Coughlin.  If you like    this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Jul 27, 2017

There are always three speeches for everyone that you give.  The one you practiced, the one you actually gave and the one you wish you gave, Dale Carnegie.

Kelly Coughlin is CEO of BankBosun, a management consulting firm, helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking ecosystem, provide bank C-Suite officers, risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C- suite execs navigate risks and discover reward in a sea of threats and opportunities.  You know, I don’t think there is any bank executive that is exempt from giving some sort of public presentation on a recurring basis, whether it’s small groups, medium sized or large audiences, whether it’s motivating staff to be productive, informing your Board of your financial results, persuading the big commercial loan or wealth management prospect to trust you, your bank and your people.  As much as we all wish we could have competed in the NFL or NHL and use our athletic skill to compete, we executives use our brains, words and voice to compete. And if we are terrible at it and hate it, it’s a curse but if we like it and are good at it, it’s a huge benefit. My goal is to help you love it, or at least not hate it. And that leads me to two somewhat opposing quotes.  The first, from Dionysius of Halicarnassus who taught rhetoric, that speech in Greece during the reign of Caesar Augustus, and the second quote from Mark Twain, I think you all know him.  First, Dionysius, “Let thy speech be better than silence or be silent.” I’m going to repeat that, “Let thy speech be better than silence or be silent.”  And then Mark Twain said, “There are only two types of speakers in the world, one, the nervous, and, two, liars.”  I don’t think I need to restate that.  These two quotes plus my intro lay the foundation for the importance of good public speaking.  Everyone is nervous, every exec must do it and you best be good at it, if you want to compete and win. I recently read a great book awhile back titled, Speak: So, Your Audience Will Listen - 7 Steps to Confident and Authentic Public Speaking.  I also listen to the audio book.  I suggest you all get both the audio book and the written book.  The author is Robin Kermode.  I encourage all of you to sign up on his website at zone2, that’s the number two,,  Robin is also a professional actor.  Interestingly, he overcame his public speaking fear, one time, by appearing totally nude on a stage in England.  One word comes to my mind, shrinkage.  In his book Robin refers to the Greeks in Aristotle, the Romans in the Cicero, and the Irish with Joyce and Yeats. My four daughters will attest that the Greeks, Romans and Irish are my three favorite topics and Joyce and Yates are my two favorite writers.  In fact, Robin even referenced my favorite poems by Yeats, The Stolen Child.   And since this might be the only time I can use that poem in business I’m going to use it now.  

“To and fro we leap

and chase the frothy bubbles,

whilst the world is full of troubles,

is anxious in its sleep. 

Come away, O human child!

To the waters and the wild,

with a faery, hand in hand,

for the world’s more full of weeping

than you can understand.”


So there it is, after 25 years in business I finally was able to use Yeats.  So, when I read a book whose author used Yeats in The Stolen Child and appeared naked on the stage to overcome his fear in public speaking, I decided I need to speak with that man.  So, with that in mind, I hope I have Robin on the phone.  Robin, are you there?

Robin:  I am right here. As long as you can hear me Kelly, I can hear you great.

Kelly:  I can hear you terrific.  So, how are you doing today?

Robin: Very good indeed.  It’s a lovely sunny day here in London so all is good.

Kelly: Great.  So, Robin, really! Naked on the stage to overcome fear of public speaking?  Never use that as the opening to introduce yourself, give us a brief bio with a keen focus on your unique tactics to overcome fear of public speaking.

Robin: [Laughs] Well, this is a slight misconception there.  I wasn’t appearing nude on a western stage to overcome my fear of public speaking. I had to appear nude on a western stage because that was contractual as part of the show that I was staring in at the time, but it was interesting what it does when you stand there being that vulnerable.  And, obviously, all the men listening and probably the women listening as well could understand, you couldn’t feel more exposed if you tried.  And I felt that once I had done that that nothing, in terms of standing up in front of an audience doing anything, really, is going to be that difficult.  I talked to a lot of people who had done it before and they came up with various suggestions, put it that way, as to how to feel comfortable, some of which worked and some of it didn’t.  In the end I decided that the best thing to do was actually just to be there because ultimately, you are who you are and most of the people in the audience you are seeing there, you know, are saying, thank God it’s not me up there.  That got me through that one but I got into the public speaking arena about 15 years ago when a friend of mine who is a CEO said, would you help me on my big AGM speech?  I said, of course.  I said, run it by me.  So, I helped him and afterwards he said, this is really useful stuff.  And I said, but I am only teaching you things that actors know instinctively.  He said, yes but you seem to have an ability to be able to explain to somebody who is not a performer how to hold an audience and how to connect with an audience.  So, for the last 15 years I have been coaching, the last probably five years, I suppose, I have been working with senior CEOs and Boards across the world and with senior politicians and things.  I was on Virgin radio recently in London, I was talking about body language, and particularly in relation to Trump, actually just before the election, and they said, So, Robin, you work with these politicians, what is it you teach them? I said, well, of course, if I am allowed to say it on air, I teach them not to be a dick.  And by that what I mean is, I teach them to be authentic.  In other words, is the person that we are hearing or listening to or seeing on stage, if we met them afterwards would they be exactly the same or would they be slightly different?  And if they are being exactly the same then there is an authenticity and a congruence into what they are doing and what they are saying. 

Kelly: Great, that’s terrific.  The first question I have relates to nerves.  Robin in your book you talk about the body signals that appear before many people give a talk, dry mouth, shaking, fast heart beat, and you describe that many of these signals are related to the seven flight responses to threats and fears the body goes through.  Tell us about the top five internal fears and five external fears and then your top tip of the day related to dealing with those.

Robin: Okay, well nerves affect our body, as you say, on a fight or flight basis.  The body feels under attack and the subconscious brain is saying run, because you can’t run because you have to give the talk.  And so what the brain does is it prepares you to run, and obviously then, it sends adrenaline through the blood and oxygen to the legs and the arms so that you can run.  But that takes the blood away from your head. It tends to make your eyes a bit starey and a dry mouth, as you say and the normal shaking in all the list of things. Now, I will be very surprised if anyone says they don’t have any nerves at all.  And actually, a little nerve can be quite good actually because they can help to focus you.  But as you alluded to there, the common internal fears are, fear of forgetting our words.  So obviously, that is the fear of completely blanking out.  And partly, that’s because the blood is being sent to the legs and the arms so that you can run, which means you have less blood in your head. So, that’s partly why when we are at job interviews or in pressured situations it seems to go blank.  The fear of being judged is another.  There is a fear of large audiences for some people.  Some people say they are fine around the board room table if they can see everybody but once they get to a point where they can’t actually focus on people’s eyes it feels like one mass.  There is also a fear of panicking. If it happened last time there is a fear that well, maybe, it’s going to happen again.   So, I think that if people have had a bad experience, I think that sometimes stays with them.  Then there is also the fear of looking nervous, so if we feel that we are shaking or we are showing any nerves by blushing or our voice is slightly cracking, all the things that happen when we fight or flight responses, then I think people worry that people will be able to see the nerves.  So, we don’t look quite as in control, quite as much as a leader as we would like to look.  And then there are, obviously, external affairs that really are outside of our control, things like, the importance of the outcome of the speech, the size of the audience, even the venue.  Is it somewhere that you know or is it is a venue you don’t know at all? And that’s another fear.  There is also the fear of how the audience will react.  And if we see one person yawing off and we think everybody is bored and so we start speeding up.  If I see somebody is yawing in the audience I tend to think, well, they probably had a late night or maybe they had a new born baby or something.  If I see 30 people yawning I probably think it’s too hot and the room maybe all set out for lunch, and I would think if I see everybody yawning then I would change my plan.

Kelly: External affairs are really externally triggered but they are all internally real.

Robin: Yeah, absolutely.  Yeah.  And obviously, you know, we have fear of something going wrong and all these things.  And then  if you plan something meticulously and then the...for example, I was working with a friend of mine on his wedding speech last year and we wrote this wonderful speech, it was was really beautiful and it was exactly what he wanted in a wedding speech. It had all the right balance of humor and pathos and emotion and everything, and love, as you would expect.  On the day, unfortunately, on the evening, he hadn’t checked out the lights so that he wasn’t able to read the speech  because the light wasn’t there and so he slightly went to pieces because this perfect speech that he had practiced didn’t go quite as he expect.  And then, of course, the panic takes over on the night, you know.  And I always say to people, check out the space beforehand.  Check out how long it takes you from the side of the stage to the podium, the size of the auditorium, what it looks like when you are there, does the microphone work, do the lights work, all these sort of things.    

Kelly: Give us your top tip of the day to deal with these.

Robin: Okay, ultimately, the fight or flight response is basically saying run.  Now obviously, as we have established, we can’t run.  This is going to sound very off but I promise you, it works, and I have given this to so many politicians and I can see them doing this.  It is physically impossible to shake if you squeeze your buttocks or your thighs.  I don’t mean squeeze them with your hands, obviously, I mean clenching.  So, clench the muscles.  And there is a science behind this, the reason it works is the muscles have been told to move, the big muscle Group, the buttocks and the thighs.  If you contract the muscles, the brain says, hah, okay, you are doing what I want you to do, which is to run, so it stops producing adrenaline. Now, if it stops producing adrenaline, of course, the whole cycle tends to stop.  You don’t shake anymore.  The reason we shake is that the muscles are overloaded with oxygen and they are not doing what you want them to do but if you actually contract them all that tension is used up and you stop shaking.  So, it’s physically impossible to shake.  You also by squeezing the big muscle groups there, you squeeze blood back up to the brain so you have much less chance of going blank.  And one other thing it does as well, which I am very keen on, this is how we can look confident and how confident people look.  There is confidence in charisma and there is confidence in arrogance, and there is a fine line between confidence and arrogance.  People think that confidence is a possibly slightly old fashioned, you know, shoulders back, head up, walk into the room, you know, talk deep, talk strong, this type of thing.  And that is, of course, it’s a confident way of behaving.  It’s not necessarily the best way to connect with an audience or to make an audience feel special, and that’s where charisma comes in.  So, confidence, ultimately, is about you and charisma is about the audience, is about what they feel about you.  Charisma is about making the audience feel special.  And the definition of charisma is actually gift of grace.  So, it’s actually about making other people feel special.  And if you think of the people that we would call charismatic, like Obama or Clinton, all of the wealthy famous people who they are most, you know, charismatic people are, they would probably come up with those two actually. I have never met Bill Clinton but friends of mine you have said that he makes you feel incredibly special when you are with him.  And I am sure Mandela did the same, I am sure these wonderfully charismatic people, they have a way of making you feel very very special.  In a way that they don’t have to make it about them, they are so confident in who they are themselves they don’t have to make it about them.  I was working with the CEO of one of the big four supermarkets in the UK recently and the head of HR phone me up and said, Can we have a pre-meeting?  And I said, to what outcome?  And she said, well, we need to decide what you are going to do and then you will have time to do it.   You have only got this guy for two hours, he is very busy.   And I said, okay, then I will meet him and I will decide then what I am going to do with him.  And she said but by the time you have decided what to do there will be no time to do it.   And I said, how long do you think it’s going to take me to work out what I am going to do?  And she said, well, probably 40 minutes or 45 minutes maybe by the time you have a chat with him, which only leaves you to stay for an hour.  I said, it will only take me exactly eight seconds to work out what the problem is.  And that’s the amount of time it takes for somebody to walk into the door, cross the room, shake your hand and sit down. And the issues normally are how comfortable somebody is in their own skin.  If we want to look comfortable in our own skin, that’s how we look confident.  If we feel we are trying too hard, we are trying to make a point, we are trying to justify, these are people who want to look confident, at least the wannabes, the  really confident people are just confident in their own skin. One of the simplest ways to look confident in your own skin when you don’t feel it, weirdly, is to squeeze your buttocks or your thighs because it lowers your center of gravity.  And I worked out a few years ago that really confident people have a low center of gravity.  When I first meet someone I look at a couple of things, but one of the first things I look at is where is their center of gravity because that will tell me how comfortable they are.  And so the center of gravity should be in the lower gut, that’s below the belly button, in the lower gut.  And if people have a center of gravity there they look comfortable in their own skin and they will therefore look more confident.  What they then have to do is to structure their message in such a way that they make it about the audience and then make the audience feel incredibly special, and that’s where charisma comes in.

Kelly: That kind of connects to authenticity, an interesting concept, being your authentic true self in private is easy for all of us, I would say, but being ourselves in public or in a business environment where we are either informing or selling or motivating or persuading or creating controversy, and it goes through the main reasons to be speaking, that’s a whole different ball game. I would assume you are going to advise us all to be our authentic self all the time but how do we do that when our authentic self isn’t always to be informing, selling, motivating etc., to people we don’t know very well or who don’t know us very well?  Isn’t the absence of that relationship causing this inauthentic self to rear its ugly head?

Robin: It’s possible, it can be, Kelly, but sometimes it is simple as actually not quite knowing what your authentic self is. And that sounds like one third of the suggestions, which I don’t like in particular with clients, but there is something about finding your own voice and I think when people find their own voice suddenly they can connect to their own authenticity and they suddenly feel like they believe what they are saying. I mean, they might believe it but they actually...they can hear themselves saying something in a particular way.  And it has to do with where their voice is placed, interesting enough now.

Kelly:  You don’t mean literal voice, do you?  Find your own literal voice?

Robin:  And I do actually mean the literal voice, yeah.  I mean it’s where the voice is coming from.  It’s not about having a perfect accent.  It’s not about anything like that, it’s about the tamber of the voice and where the voice is placed.  We were taught, as young actors, if you want an audience to believe you, whatever you are saying, you have to speak from your emotional center.  And the emotional center is the same place as I referred to earlier, which is the center of gravity which is actually your core.  So, anything like yoga, martial arts, pilates, all that stuff, comes from a strong core, your lower gut, below the belly button, and if your thoughts come from there, if you can speak from your lower gut, so very relaxed, with an open throat and it sounds like you believe what you are saying. And interestingly enough, people’s nerve tend to disappear when they find they speak from their emotional center.  Most people speak from their throat, which is what I call the power point voice.  And if I could show you the difference now, so this voice here is fairly relaxed voice. I’m speaking..Obviously, the throat is making the sound because the air goes over the vocal chords like a reed on a clarinet but the power comes from lower down, from the gut.  And actually the emotions come from the gut there.  So, the throat itself is not actually manufacturing the sound, it’s just allowing the sound to come out. If I manufacture the sound on my throat like that, that’s the sound that is now emotionally disconnected because I am now speaking on my throat. And most people when they present speak in this tone here, which is a slightly teacher sound and most people will say, if they are looking at the power point screen, they would say, so if you could look at the screen, if you look at the bottom left hand side of the screen, and this now is rather a tight controlling sound.  It’s not anywhere like the sound that is authentic.  So, I would say to people, if you can speak to your children like this then you can speak to your customers like this, you can speak to your clients like this. This sound is much less controlling.  Audiences don’t want to be controlled, they might want to be led but they don’t want to be controlled.  And I think it starts, for me, with where people’s voices are placed. I do quite a lot of exercises in the book around this and obviously when I am working with clients one-to-one I would work very much on, first of all, on where their voice is.  And I think if you get the voice right actually people start to feel much less nervous because they can hear that their voice sounds authentic and it sounds real, and that’s what we are after.

Kelly: Yeah, I will put a plug in for your book.  I think you have some really good tips and exercises to go through that we obviously can’t go over here.  One of the thoughts that you have is on this concept of the connection, you talked about the three zones of communication and you maintained that all of us, speaker and audiences, each have their own zone one and two and then there is this zone three, tell us about these three zones and why is it important for a speaker to be aware of their zone one and two, and I suppose, when they enter into this zone three that I think we don’t want people to go in, correct?

Robin: I think that’s correct, yeah.  I mean, it’s a very simple concept I came up with a few years ago.   My wife said to me, she is a CEO, and I used to come back to her after getting to initial meetings to get new clients when I was starting up as a coach, and as an actor you imagine you have an agent do these things for you and I suddenly had to learn a new skill. And I would come back to her at the end of these meetings and I would say, you know, it’s really interesting because some meetings go well and some meetings don’t go well.  And I can’t quite seem to shift some of them.  And I couldn’t work it out and eventually I came up with this concept of the three zones of communication, very very simple but it has absolutely changed my life.  And since coming up with this, which was about 15 years ago, I promise you I have not had one bad meeting in that time, simply by using this very very simple technique.  So, if you can imagine that you have three circles around your body, the closest circle around your body is your zone one,  This is your personal space where you choose not to connect with someone else.  Zone is a slightly wider zone.  This is where you choose to connect with somebody. Now, these zones of course are metaphorical, they don’t exist but it’s like an image in your head.  Am I actually trying consciously not to connect with somebody or am I trying to connect with them?  So, in a shop scenario, the easiest example is, you know, you go into a clothes shop and the salesman then goes into zone two to connect with the customer and says, you know, can I help you?  And the customer probably says, Actually, I just want to browse.  I want to look around, leave me alone.  What they are saying is, they want to stay in zone one.  In other words, I don’t want to connect with you at this moment.  So, a good salesman, of course, physically backs away at that point and then say, oh no, no problem, I’ll be over here, give me a shout if you want me, and that type of thing, but they pull away.  In other words, they are not pressurizing the zone one person.  And I think that this is one of the fundamental mistakes that speakers make.  They try to push too hard with an audience that’s not ready to connect with them.  So, there are stages to how you win an audience around.  When I was a young actor doing stage plays in London, if on a wet Friday night when the audience weren’t particularly responsive on a comedy, and it’s very obvious on a comedy, if you don’t get your laughs you can see it’s not working, the intention is to go louder and faster because you’ll think, I’m going to wake this audience up.  But actually it’s the worst thing you can do. And what you have to do with those zone one audience who are choosing, for whatever reason, not connecting with you, and they are allowed to, you have to take your pace down and your energy level down and basically make it more real and allow them to come to you. So, that’s the zone one.  So, in the shop scenario, the salesman says, can I help you?   And the customer says, no, leave me alone.  That’s what they do.  If the customer says, yeah, I’m looking for a blue jacket in size whatever then the salesman knows that they are in zone two because they chose to connect with them.  So, when the customer zone two and the salesman zone two is overlapped then, of course, that’s where we want to be.  So, ideally, when we are talking to people we want to get them to choose to connect with us.  But there is a zone three, and the zone three is a wider zone.  And the zone three is basically where you invade their space.  So, the customer’s zone one is actually the same as the salesman zone three.  So, the salesman that says, Can I help you, and the customer says, No, leave me alone, and the salesman then invades the space and says, no, no, come on, try this jacket on now.  It’s quite annoying when that happens because you said very clearly, I want just to be left alone, and they don’t; they invade your space.  So, that’s the zone three.  The reason this is useful in your public speaking or presenting it is that you have got an audience and there will be a mixture of zone one, twos and threes.  So, there are some people in the audience who for whatever reason are there but they are not particularly connected with you yet.  There are the zone two people who are up for it and they are sitting on the front of their seats and you know they are interested.  And then you have the zone three people who think they know it all.  They are the ones who are going, why?  I didn’t really know why I am here because I know the stuff anyway.  This is...who is this, who is this moppet?  So, there is a bit of that.    What we have to do is we have got to encourage all of them to come to zone two but we have to treat them differently.  The zone one people, we have to take our energy down a little bit. The zone two people are easy because we have a little bit of banter with them, it’s fine, and I would suggest, with the zone three people, a guy who was coaching, he phoned me up actually,  and I won’t do it too loud on the microphone, but he had a very very loud voice, and I answered the phone and I said, “Hello” and I happened to be in zone two, and zone two is a calm open space and, you know, I answer my telephone, of course it is my business friend and I said, “Hello” and he said, “Is that Robin?” And so I said yes, and he said, I promised you, these are the exact words he used, he said, “The thing is Robin, I am an entrepreneur, I just sold my business for 45 million pounds. I have 45 million pounds in the bank.  And he said, I want to go on the speaking circuit because the world needs to know how much money I have made.  So I said, okay, well we could look at the message around that maybe, but we booked him in the session and he came in and he was so loud, his handshake was over firm, he was sort of trying to dominate the whole situation.  This is classic zone three controlling behavior. Now, my job, of course, is to try to get him into zone two.  I had to try to encourage him into zone two, you can’t push anyone.  And I thought, why this man who has, apparently, 45 million pounds in the bank, why does he feel the need to tell me that he is selling his [inaudible – 21:21] and control the meeting in this room.  Why does he need to do that?  So I thought, well, he is probably doing this because he needs some sort of affirmation from me.  It’s rather like a seven year old child who said to their parents, you know, look at me mama, I’m diving up the diving board, you know, it’s the same thing. And he said look at me, look how successful I am.  So I thought, I better just basically go, wow!  But I thought, what’s the cleverest way to go after this particular man?  And I suddenly, without thinking about it, these words came out of my mouth, and actually it worked.  So he said, the thing is Robin, he said, you know, I’m putting all this money in the bank, I’m selling my [inaudible – 21:48], and I am I’m going to leave my phone on the whole time, and I am running this meeting.  And I said, oh my God!  I said, I’m sitting here with James Bond.  And he said, yeah, and then he said, the thing is Robin, I am a bit nervous about making a speech.  So you could see the psychology, it’s very clear.  He thinks I am a very important man, and he said,  but I don’t really like to ask for help but I have to ask for help with this man because I feel I need some help but I  am only going to ask for help when he knows that I am really important.  And I went, oh my God, you are really important!  So he went, okay, now you know that, now I’ll show you some vulnerability.  So the psychology is very simple but basically, if I meet zone three people I flatter them.  I was at dinner the other night and there was a man who was going on and on about himself, I mean real zone three behavior, and after a while, I thought, I wonder how I could flatter this man to try to encourage him into two.  This man was short, fat and bald.  He didn’t look like James Bond, he looked like a sort of Bond Villain, so he is talking and I stopped him mid sentence and I said, I said to him,  I’m sorry to interrupt, but has anyone ever said it, you have got a bit of a look of James Bond about you?  He said, you have seen the real me, haven’t you?   Now, the interesting thing is, zone three people have no level of self irony.  If you flatter a zone one person they will hate it.  If you flatter a zone two person you are going to get some banter back. If you flatter a zone three person in the right way they will always take it.  When we have a mixed audience we have to make sure we have a mixture of flattery, a mixture of taking the energy down a little bit so we don’t frighten the horses with the zone one people and a little bit of banter with the zone two people.   So we have that mixture of that.  And if I am at  a business meeting around say a board room table with maybe half a dozen people, I look around and I think, okay, the zone one man there, there is a zone two lady there, a couple of zone three is over there, and I make sure a little bit of flatter goes towards the threes, a little bit of gentleness goes towards the ones, I won’t sort of eyeball them too much but I will maybe finish an idea with them but I won’t hold their eye contact too long to frighten them.  And the zone two people I will probably have a little bit more banter a bit with.  And that way you can help encourage everyone in the meeting to come into their zone two.  And if you can get everyone into zone two, including the whole of your audience, you are home and dry. 

Kelly: Is empathy and trying to move people to equal status, is that what you are doing there?

Robin: It is part of that.  I said to my kids the other day, look, I said, they are in their, you know, late teens, so I said, if you go through life making other people feel special, life is so easy.  I said, but if you go through life saying, look at me, I am important, they just want you to fall on the banana skin.   That’s what it is about, a bit of empathy, a bit of kindness, a bit of noticing other people, will get you a long way. And I always think, with an audience for example, one of the flattering ways with the zone three audience is, if you are going to explain a concept, there are some people in the audience who may know that concept and there are some who possibly don’t. I would favor a phrase like, of course, as you know, and then you go on to tell them anyway.   So the ones who do know are flattered that you have told them that you know and the ones who don’t know are pleased that you have told them. So you somehow get all levels on that but if you stand there and you say, I have seen speakers stand in front of quite an important audience and, you know, say things like, you probably don’t know this but.   And I thought, you have just alienated half the audience who did know that.  It’s much better to say, of course, as you know, and flatter the audience into assuming that they might know, even if they don’t.  So I think equal status is very very important and I think that also comes with tone of voice.  I sit quite often watching speakers with my wife and she finds it quite annoying but a speaker would actually come one stage and they will literally say, Good evening or whatever the time of day is.  From those two words I would go, oh no, it’s going to be terrible or I’m going to go, this is going to be good.  And I can tell from the first two words how it is.  And in those two words it has to do with where their voice is placed, where their status is or how much charisma they have.  In other words, are they saying genuinely good evening or are they actually concerned that I am there?  It’s what I call, how you show up. It’s literally what you bring to the table, what you walk on with.  And audiences, even if they are not qualified or specialized in reading body language, on a gut level they will know I like this person or I don’t or I trust this person.  And that’s what we are trying to do and that’s what I work with with clients, it is to get them to a point where they are comfortable in their own skin and they come across with equal status and they speak from their emotional center with authenticity.

Kelly: Okay, I want to explore this empathy and equal status just a bit more.  Tell me if I have this right, empathy requires us to at least acknowledge and recognize that we have people in zone one and zone three. Zone two we are fine with. And then we have these different tactics that helps us try to get them moved from zone one and three to zone two to bring them to equal status with us.

Robin: That’s absolutely true.  And we have to get them to choose to do that.  You can’t hurt anyone.  You can’t push them, they have to choose to do that.  If they got themselves into zone three, and often, by the way, they are not bad people it’s often nerves that make people into zone three.  So when these networking events that many people say they don’t like they walk into a room full of people with badges on and  glasses of wine and they go, it’s a whole room of people I don’t know and I somehow have to make an impression.  The reason those networking events don’t work is you have got an entire room of zone threes. Everyone has become zone three.  They aren’t necessarily bad people, they’ve just gotten themselves in this position where they think to hand out cards and make contact and whatever.   I walk into a networking room now and I look at the room and I think, okay, here is a lot of very un-centered people who are not really very comfortable with being in this place so if I can go in and make, say, five people this evening feel really comfortable then in a sense I have done my job and I have probably connected with them.  So I will basically go up to someone and I will say, if they are in zone three, I will find something that I can flatter them about and maybe, for example, it might be something like if I discovered they are a CEO of a company or they are an entrepreneur, I would say, you know you are incredible young to have done that, it’s amazing, you know.  So, whatever it might be, whatever is appropriate, I will say something, I’ll say, what is it, with the word love in the second sentence, always.  I’ll say, what is it you love about being an entrepreneur?  What is it you love about starting your own company?  And by putting in the word love there, what happen is, their voice changes immediately and they would say, do you know, actually, and whatever their answer is.  And suddenly then I am having a normal conversation as opposed to, of course, networking conversation, because what we are doing is, we are having a proper conversation.  The implication is, I could see being in zone three, not being very comfortable in zone three, when you are with me I am so impressed, you don’t have to impress me anymore we can just have a normal conversation, and it’s so relaxing for them because very few people do that.   What most people do is, they join them in zone three so you have a zone three person saying, I am important. And the other person who is also at the networking event feels they should big themselves up and at the same time say, yes, well it’s very good, so I am quite important too, you know.  And it’s a bit like these conversations where you see somebody has got a sun tan and then you say, oh, you just come back from holiday and they say, yes, I have just come back from the Bahamas or somewhere.   And they say, alright, we just came back from Jamaica or whatever.  And what they are doing is, they are not really asking you questions about their holiday, they are almost looking for an excuse to get their holiday and to make themselves feel important. But I think if we fight that urge and we just go, wow, it’s amazing. So, you know, you would laugh about the Bahamas.  Suddenly you can have a proper conversation with these people and then they choose to join you in zone two.  So it’s about noticing them ultimately in the zone three.  Now, you are going to ask about the zone one, what we want to do with the zone one is just literally, it’s not frightening the horses, it’s treating them like somebody in a shop who is saying I just want to browse. So what you do is, you tease them with the carrot.  So, I’ll maybe have a thought and  I’ll finish my thought on them, actually, I turn to them,  right, towards the end of the thought and I’ll have eye contact with them, just on the end of it, so it lands and then I’ll move away.  I’m not waiting long enough for a response, so they don’t feel under attack but they do feel included, and gradually they will come to join you.  You can’t ignore them because that doesn’t work and you don’t want to eyeball them too much.   So you can probably hold eye contact longer with the zone two person because they will probably be smiling away, you know.  And often, I don’t know if you have had this Kelly, but when you are giving a talk it’s very easy to give an entire talk to three people because towards the front of the hall you can find three very open faces who are nodding and smiling and you think, oh, they are nice, I will come back to them.  I’m feeling a little bit vulnerable, so I get back to these nice people.  And I used to think these are people that are loving it but I have shortly now discovered that those people are just people pleasers so they love everyone.  But I don’t spend my time with those people, I think, okay, I want to try and win around the zone ones and the zone twos and then I’ll know actually.

Kelly: Great, exactly.   Great stuff!  Robin that’s terrific.  I really appreciate your time.  How should people get in touch with you? Give us your, I presume your website, email address, how would you like to do that?

Robin: Well it would be very lovely to hear from any of your listeners, of course, you can buy the book on Amazon which is, Speak: So Your Audience Will Listen.  You can contact me by the website which is zone2, that’s z o n e the number 2, and my email is  I look forward to hearing from you and hearing how you are getting on with your presentations and your speeches. 

Kelly: Great Robin, thank you very much, cheers!

Robin: Thank you so much Kelly for having me.  I really appreciate it.

Kelly: Well, that concludes part 1 of my interview with Robin Kermode.  I strongly encourage you to get his printed book and the audio book entitled Speak So Your Audience Will Listen: 7 Steps To Confident and Authentic Public Speaking.  They are terrific.  In a week, we will have part two of my interview with Robin and we will discuss things like where to put your hands, how to stand, the importance of smiling, and a really interesting five-step checklist you need to do before each of your presentations, to up your game in public speaking.  Thanks for listening.

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program is hosted by Kelly Coughlin.  If you like    this program, please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers, Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

Jul 10, 2017

Title:  Understanding Hidden Risks in Insurance Companies and Impact on BOLI Asset.

Prepare yourself for your bank owned life insurance (BOLI) annual review with a better understanding of insurance company "General Account" portfolio hidden risks. 

Attendee and Guest: Kelly Coughlin, CEO, BankBosun; David Merkel, CEO, Aleph Investments, CFA and Actuary                                       
Date:         July 10, 2017

There are only two things as complicated as insurance accounting. And I have no idea what they are. Andrew Tobias, The Invisible Bankers


Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.


Greetings, this is Kelly Coughlin, CPA, CEO and program host of BankBosun, helping C-Suite executives manage risk and discover reward in a sea of threats and opportunities.  One of the classic risk management strategies is to use insurance to manage the risk of loss in many assets, whether it be a home, a car, a health, life, a revenue stream, a cyber hack, offloading the risk through a third party who assumes that risk and pay a fee, a premium, to do that has been employed for hundreds of years. 

The first case of life insurance actually began in Philadelphia, providing a death benefit to the surviving widows of poor Presbyterian ministers in the 18th century.  Today, life insurance is utilized by banks to manage the loss of key management, and as an alternative asset class to municipal bonds and mortgage backed securities.  It’s called Bank-Owned Life Insurance or BOLI and it’s used by over 3600 banks that hold over $160 billion in assets.  

As part of their annual report to the Board, and frequently regulators, the consultant involved in placing the BOLI asset with the bank with all the financial update on the insurance company or companies that hold the asset.  And to get a famous plug but a fully disclosed plug I do independent   consulting work with Equias Alliance, one of the best in the business for placing and monitoring the BOLI market.  Most of the BOLI assets are placed in the general account portfolio of the bank which means the bank’s assets are held on the balance sheet of the insurance company, somewhat like a loan to the insurance company.  And like any loan to a company, you want to look at the ability of the borrower to pay it back along with the expected interests. 

So one of the things we do is look at the value of the insurance company.  We frequently look to third party rating agencies to provide some sort of analyses on this, but I thought it would be interesting to have someone that has actually done this work as part of their career. David Merkel, CEO and CFA of Aleph Investments who has a BA and a MA in political economy from the prestigious Johns Hopkins University, was a senior analyst with Hovde Capital, a hedge fund, and he was chief economist and director of research for Finacorp.  And David is an inactive fellow in the society of Actuaries.  I have David on the phone, who is going to talk to us about valuation of life insurance companies.

Kelly:                            David, are you on the line there?

David:                           I am here, okay.

Kelly:                            Thank you for joining us.

David:                           Happy to join you.

Kelly:                           Give us a little bit of personal background.

David:                           Okay, I’m based in Ellicott City, Maryland, which is just outside Baltimore.  My wife and I decided to try for something big and we were able to have three children and we adopted five more.  The kids have a lot of fun, in my opinion.  It has had its challenges, it has had its successes and failures but in general I loved doing it.

Kelly:                            Great, congratulations on that.  Life insurance companies, at their core, are basically investment companies.   Is that a fair statement?

David:                           Yes, and that’s become more true as the years have gone along When I was a young actuary, the society of actuaries syllabus tended to work on a level saying, analyze the policies that you write. And they gave us all sorts of ways to do that, but they didn’t talk much about investments.  But the company I worked for, initially, Pacific Standard, which was the largest consultancy of the 1980s.  And since you have never heard of Pacific Standards, you know that the 1980s were pretty kind to life insurers that grew up a part of Junk bonds of Michael Milken.

The game changed and since that time virtually every insurance company that has failed has failed because of their asset policy.  I think there has been a grand total of one that has failed for other reasons, and make that two, AIG and its derivative counter parties, that was another thing.  But a lot of the failures there was apt an investing policy too.  

I actually wrote a paper that was picked up by the special inspector general, the TARP on AIG to point out the aspects of the failure that was due to the securities lending agreements inside the life insurance companies.   I spoke?? to Wall Street Journal and the New York Times and it had actually even got read by Warren Buffet who supposedly thought it was a good paper. But assets are the main factor of what makes insurance companies fail, that’s the long and short of it.  That is why we should analyze it more.

Kelly:                            It seems to me, insurance companies are more like mutual funds so I would kind of like to start with that as kind of the baseline. Other than not being a completely separate legal entity, which a mutual fund is, how does a general asset portfolio resemble or differ from a mutual fund other than the fact that an insurance company has a mortality risk expense that’s kind of built into that?  If you take the mortality risk expense out of there, doesn’t it resemble a mutual fund in that sense?

David:                           The main difference between a mutual fund and an insurance company in the way that you invest with them, because I have invested for both of them, is that with a mutual fund, you don’t have a balance sheet.  Your mutual fund holders can come and go as they please and everything is valued at par.  With a life insurance company, you have liabilities that are relatively sticky, at least many of them are sticky.  

And one of the key aspects of trying to ascertain the riskiness of a life insurance company is in understanding how much of the portfolio of liabilities can run, i.e. there is no surrender charge, and there aren’t that many consequences for leaving and measure that against how much do you have in assets that can be rapidly liquidated.   Because, again, it is risk based liquidity that is really the thing that you try to look at, in terms of the asset portfolio, to understand what is the true risk of a run on the company, and it does vary from company to company.

Kelly:                            And we’re talking about bank owned life insurance general asset portfolios, what are the types of liabilities that should cause concern, or at least tension, of a banker who is holding a GA portfolio.

David:                           Yeah, there are some liabilities that life insurers write that are not under-writable.  In some cases, the insured knows more than the insurance company.  The best recent example of that is long term care, in the sense that long term care policies have consistently lost money for insurance companies.  And so you have to be weary of a company that writes too much long term care. I mean, generally if even as one of the bigger writers has gotten out of it that life is left writing business, that’s been one really ugly liability.

Kelly:                            Where can they find that on the balance sheet?

David:                           You would have to actually begin looking at the statutory statements to find out how much is long term care.

Kelly:                            There has got to be an asset and a corresponding liability related to that, correct?

David:                           It’s going to be, I guess, it’s another thing that’s written in the General Account.  I know that the rating agencies will write up and describe how much of the business that a company has would be in long term care, if it is a material amount.  Things that are a little more fuzzy these days though are the things where we don’t have either good ways of hedging or good ways of actuarially coming up with reserves.  And those things are things like Universal Life, Secondary Guarantees, Term Life policies that are ultra long, that might go over the whole of someone’s life, that end up being lapse supported, and the reserving for those just does not work.  We don’t have good models for that.

Kelly:                            Now, you are listing out the liabilities that should get attention, right, long term care, universal life with secondary guarantees?

David:                          I should mention that variable life and annuities that have secondary guarantees as well because there is no good way to hedge those and if there is no good way to hedge them there is no good way to price them either. There is no good actuarial basis that you can say, this is what it is worth and this is how we can invest to make sure that we are always going to have enough to pay our claims. That is probably the biggest single thing in the life insurance industry today.  

If it stays small, I guess you don’t have to worry much but if it becomes a really big part of an insurance company, the secondary guarantees, then you have to begin to ask questions. And there are examples of companies that when they realize that they sold the secondary guarantee on an annuity, just as an example, a variable annuity, where it has some sort of income benefit, accumulation benefit, death benefit or withdrawal benefit. 

When Cigna was originally writing the reinsurance for all the people who were doing the guaranteed minimum death benefits in the 90s, Cigna eventually ended up taking something like a $4 billion dollar hit because they did not understand what they were doing and how open ended the claims would be.  With the Hartford, they were one of the biggest writers of these guarantees and had to scale it back dramatically. 

They were going to people to buy out the liabilities because as they began to try to estimate what they might be worth because there is no actual way to truly know what they are worth.  They were paying 110, 120, and in some cases 130 percent of the contract value to get out.  And what I told the people who approach me, I said, the odds are, they are only giving you about half the premium you deserve.  And so long term guarantees that involve investment risks mixed with other actuarial risks like debt or longevity are impossible to price.  There is no good mathematical way to do it and all the reserving methods that are done on a statutory or a GAAP basis are inadequate.  This is not a happy thing to think about what I say to people, after I say this, is just make sure it’s not a large part of the General Account of the company.

Kelly:                           What’s a large part, 10 percent?

David:                           I would simply say, make sure that your company is below average with respect to it, versus the whole industry, because you don’t want to be in one of the companies, that is one of the early ones to blow up on something like those.

Kelly:                            Do you have any bench mark numbers on those three categories combined or separately what a kind of average is?

David:                           And one thing you have to realize, one of the secondary guarantees is that the actual contract value of the accumulated value of the variable life and variable annuities and variable universal life is in the Separate Account, however, all the secondary guarantees are in the General Account.  This is one case where you have to really consider that the Separate Account do have an impact on the General Account, the degree that they have written business that has secondary guarantees. 

Those are the types of liabilities that make me suspicious of a company but until the stock market falls hard most of these aren’t going to have any punch but if it’s down 40 or 50 percent and it stays there for a while, like after the great depression, you will once again find that the life insurance companies will have harder times.  The ones that were launching variable business with the secondary guarantees.  That’s the biggest one, and maybe other secondary guarantees, the little interest rate guarantees, are relatively small.  The ones with the equity components are the big ones. 

For the most part, if you get away from those, the ordinary life insurance and annuities that are written by insurance companies are easy liabilities to hedge and value.  That should be 80 to 90 percent of the total liabilities of the General Account.  But again, it’s a good question to ask and see who your consultants are.   

Kelly:                            In your mind, how did we go about determining whether a life insurance management team is (a) competent and (b) conservative?

David:                          Okay, well starting with competent, the main thing is that they try to manage risk on the front end.  And the example that I give is, some companies that write disability business will do significant underwriting on the front end before they write a policy but will not for every claim.  But then the others who will write every policy and then basically force people, sue them to get the payment.

But the good companies that are competent do the risk management on the front end.  And that applies to every aspect of writing a policy, whether it’s their investment policy, all the things that go into that.  They are careful in choosing the lines of business that they go into.  They are disciplined when it comes to doing mergers and acquisitions. 

The really good companies will do small acquisitions and they will do it to gain competencies, synergies, new markets of distribution methods rather than doing big scale acquisitions.  Large scale acquisitions have a large probability of failure and tend to be far more expensive than you might think when it comes to the total integration of it. 

Competent managements tend to be good in using their excess capital whether it’s returning it to shareholders in a flow and disciplined way through dividends and buy-backs or to mutual policy holders through the dividend scale.  Because, again, these places don’t just exist for themselves, they do have clients that they have to satisfy who are owners, whether mutual or stock.  They will be careful in the way that they do send money back and how they use free cash for growth. 

Now, as for conservatives, here are a couple things that I think about.  They put profits ahead of growth and they are willing to grow more slowly when conditions are bad.  They will try to grow free surplus so that they have more options in front of them rather than all those who consume their free surplus and be running as tightly as they can against the risk based capital levels.  Conservative management, when you hear that they have adjustments they tend to be positive non-recurring adjustments. 

They tend to be disciplined in reserving and in their credit analyses.  The Companies that are taking a lot of risk in their assets are the ones that are always constraining that liquidity during their phase of the cycle.  One other thing about the conservative management team is that even during the bull phase of the cycle they tend to grow a little slower than other companies.  They pick their response and they are looking for profitable growth ahead of just growing to gain market share.  They are not controlled by their marketers, they are controlled by businessmen

Kelly:                            What types of investments do these insurance portfolio managers invest in that are different from, say, a fixed income mutual fund?  Do they tend to buy a lot of private securities, is that it? Is that accurate?

David:                           They do have more private securities.  And private securities are not necessarily worst and often they’ll have better covenant of protection.  It depends what they want to do. So, for example, some will have their own mortgage origination arms.  Some will engage in doing credit tenant leases.  Those aren’t bad asset classes and those can be done quite conservatively.  It’s a question of what your stress on credit quality is.

One of the questions that I pose is, where do they look for returns greater than triple B corporate bonds?  You take a look at a life insurance company’s portfolio, most of its public corporate and public mortgage backed and things like that, and that’s enough to get you to a certain level then maybe the last 10 percent of the portfolio has to be invest in somewhere.  And there might be common stocks, and a lot of it will be in junk bonds, depending upon the company, and some will originate their own assets.  The most traditional one is commercial mortgages; do you have a good credit discipline or not?   And that, at least, you can track overtime because your mortgage losses are disclosed in the statutory statements of the life insurance company. 

Those are tracked pretty carefully, ever since the mortgage defaults of the 1990s.  The question I would pose is, every company tries to earn above average returns at some point, where are they doing it and why do they think they have expertise there?  Since the insurance industry actually came through the crises better than the banks you might want to ask how did they do   1999 -2003.  That was a much worst period.

Kelly:                            Do insurance companies tend to lump all of their general asset portfolios into one consolidated portfolio or do they segregate it by the underlying product type that brought in the assets?

David:                           Okay, we typically notionally do that.  It will be one big account, as far as the investment department will be doing to manage, however, the actuaries will come along and say, “These assets provide the income for this segment of liabilities.  These assets provide the assets for this segment of liabilities.”

And then they will try to match and then they will go back to the investment department and say, Okay, here is what we need for each individual line of business and here is what we have.  Here are the tweaks we need in order to have something that’s good for the company as a whole in order to match up against our models for what assets are needed for each liability stream.

Kelly:                            If one of those, let’s just call them products, sub accounts, over-performed, let’s say the BOLI over-performed and then the universal life secured guaranteed underperformed, will they transfer some returns from the BOLI over to the universal life to lend them, so consequently, BOLI gives up its extra juice it got, how would that work?

David:                          As I said, the segments are notional, they are just one big general account and it’s the way that the actuaries then try to figure out, what is the true profitability of each line.  It is something that is an internal calculation but the credit results are going to be spread across that general account portfolio.  They will probably have the same credit quality across each of the segments but what vary is what the length of the assets purchased for each notional segment.

Kelly:                            The other long-term risk that one needs to think about?

David:                           These long-term risks that is not getting talked about enough is what happens if interest rates stay low.  Because what’s happening at many insurance companies is that they bought long bonds and they thought it would be good enough to hedge all that they were doing. 

Many of the annuities that they wrote in the 1980s, ‘90s, maybe even into the early 2000s, they carried long term guarantees that were sometimes as high as 6 percent per year forever.  To have a stream like that for the remaining amount of annuities or life insurance is pretty considerable down at those guarantee rates and right now long bonds, long corporates, it’s pretty difficult on a conservative portfolio when you strip off the expenses for a life insurance company to have with things that can meet those long term guarantees. 

And it gets a little worst every year as bonds mature on the life insurance portfolios.  That’s the biggest challenge that virtually every life insurance companies are going through right now.  Because if you look at the expected flow of liability cash flows versus the expectable on asset cash flows, even if you have the rough interest rate sensitivity of the match, you are going to have more liability flows then more asset flows and then more liability flows.

As these portfolios age, the real risks come if interest rates stay low.  The optimal scenario for life insurers, that should it ever happen, is that interest rates rise slowly.    If interest rates rise slowly, life insurers do wonderfully.  That would be the ideal scenario for virtually every life insurer.  When they do their interest rate test for their asset level liability management, typically these days, the worst scenario is, interest rates drop and stay down.  And the best one is, interest rates slowly rise.

Kelly:                            Any quick dirty simple mathematic measures one can look at to determine long term credit quality of a life insurance company?

David:                           Yeah, one thing, not mathematical, just to start is that mutual companies tend to think longer term and tend not to make the best of what that company make.  They tend to be better off through really long-term obligations, but do they maintain a high ratio of surplus to risk based capital?  Now if you are looking for where you can find that, if you look in the blue book, that is the annual statement from the statutory statements of the life insurance companies.  Those are published on the five-year historical pages.   Aside from that there is no place publicly that they are published, unless you go to the rating agencies. 

Now, rating agencies aren’t horrible, in fact, they are usually quite good.  They failed in the early 1990s regarding guaranteed investment contracts.  When the rating agencies tend to fail over time is when they deal with new things.  Once something has been through a failure cycle the rating agencies are pretty good at analyzing.  So, when you think of them on corporate credit they are usually pretty good but they were horrible though with structured corporate credit because they have never been through that. So when the financial crises they got floored. 

Other things to look for, look for a slow rate of growth over time.  You don’t want them shrinking.  You don’t want them staying flat but you don’t want them running really quickly.  Conservative management teams grow slowly and they are happy enough with it and they try to get more profitability out of what they are doing.  Also, see if they lose money more rarely on a GAAP basis, they should make money in bad times.  That’s the sign of a conservative management team.   And if they have surprises they should be positive ones. 

You want to see that they are better than their competitors. Over time, because conditions change I don’t give an absolute set of numbers for this, but you want them to be better than the average of their industry in these areas.  But the one thing that I learned as an actuary who had to be at both ends for credit analyst and a portfolio manager for equities where I was analyzing insurance companies, it was that the most important things though, aside from a few basic mathematical calculations, is to try to understand the management team.  And again, are they conservative, are they competent? 

That would take you a lot further, particularly for long run judgments.   And since you are thinking long run and since we are talking life policies, you should ask whether they have a culture that will maintain itself after the existing management team.  Do they tend to reproduce managers that continue to be competent and conservative?  I think often that the mutual companies tend to be better at that because they have no one else to report to.  They don’t have to put out quarterly earnings, except to the state regulators. 

And the companies that blew up, often life insurance companies often last 30-40 years, were the rapid growers.  They had aggressive management teams, I worked for such companies, AIG was one of those.  Always grow grow grow and take chances to do it, you know, you would never hear about the little dirty secrets inside most companies like AIG, just as an example, but in the early 90s my boss and I found five reserving errors that were greater than $100M each, and one was a billion, and these never came through the gap statements because AIG found a way to basically find sufficiency in their assets to cover it over.  In general, the companies that are better managed tend to be moderate growers.  They are trying to grow but they are not trying to grow faster than anyone else.    

Kelly:                            You mentioned leverage, talk about that.

David:                          This comes in two forms.  The more common form is if you are a stock company you are borrowing money at your holding company.  The more that a company borrows at its holding company level, in general, the more aggressive they are going to be as a management team.  The lesser way is if you are writing guaranteed investment contracts and other types of short term business.  To the degree that you are doing that, that’s a form of leverage because that means that you are...and especially if you are writing anything like a floating rate contract that can be terminated within, say, seven days, those are the sort of things that if they get written you have to be really good at managing your liquidity as a company because you have big payouts that are happening in the short run.  With most other life insurance or annuity portfolio that doesn’t happen.

Kelly:                            Great.  The underwriting process, you distinguish between initial front end, heavy duty, due diligence and acceptance versus accept anybody but then be real tight with the payouts, how can one distinguish between those two?

David:                           Basically, it’s by reputation or you can...if you are looking for something that’s actual data, in the annual statement of every life insurance company there is a schedule as per denied claims.   A good company has relatively few denied claims. It is the companies that have pages and pages of denied claims that you have to go, “what are these guys doing?”

Kelly:                            Right.  Well, David that’s all I have.  I appreciate your time, and do you have one of your favorite quotes that you operate by, your business life or personal life?

David:                           Here we go.

Kelly:                            Say it slowly.

David:                          It is appointed to men once to die and after that the judgment, so live your life in the sight of God and not because men are looking over your shoulder.

Kelly:                            Oh, very good that’s a nice one.   David, that’s perfect, thank you very much for your time.


We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC; and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Jul 3, 2017

Bank Marketing Ideas in One Page by Alan Dib, Best Selling Author

Introduction: False facts are highly injurious to the progress of science, for they often endure long; but false views, if supported by some evidence, do little harm, for everyone takes a salutary pleasure in proving their falseness.  And when this is done one path towards error is closed and the road to truth is often at the same time opened, Charles Darwin.

Kelly Coughlin is CEO of BankBosun, a management consulting firm helping bank C-Level officers navigate risk and discover rewards.  He is the host of the syndicated audio podcast,  Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank and Merrill Lynch.  On the podcast, Kelly interviews key executives in the banking  ecosystem, provide bank C-Suite officers,  risk management, technology and investment ideas and solutions to help them navigate risk and discover rewards, and now your host, Kelly Coughlin.

Kelly: Greetings, this is Kelly Coughlin, CPA, CEO of BankBosun, helping bank C- suite officers navigate risks and discover reward in a sea of threats and opportunities. 

One of my favorite quotes of all times is attributed to Pablo Picasso “Good artists copy; great artists steal.”  There is no better example of the quote I selected for this opening from Charles Darwin. He distinguishes between false facts versus false views. And there is no better example in the business world demonstrating the importance of distinguishing between false facts and views versus true facts and views than in the marketing world.  That is the world of client acquisition, client retention and revenue creation. 

Today is an outright theft from the experience I have learned from others and their success and failures and through my own successes, and more from my own failures over my 25 years of experience in competing for revenues.

Why revenues?  Well, I have been in the workforce for 25 plus years as director of risks, a consultant, a CEO and CPA and of all the technically challenging   brain burning problems I have had to face in my career, by far, I can honestly say, the most challenging and frankly interesting part of the business world is marketing and revenue creation or as Alex Baldwin said in Glengarry  Glen Ross, Getting them to sign on the line which is dotted.

Let’s consider the business plan.  I have personally looked at hundreds of business plans and I have been responsible for authoring at least a dozen.  A boat load of time is spent on the big picture things like, macro environment, management bios, competition, risk disclosure and financial projections, oh yes, those beautiful, wonderful financial projections.

The problem with the business plan in general and the problem with financial projections in specific is, tons of work is spent on those things that are fairly predictable and controllable that really don’t determine the success or failure of the business.  And not enough time is spent on the single greatest factor that determines the success or failure of the business plan. Revenue.

Why?  Management history, competition, expenses, let’s face it.  Labor costs, cost of goods, occupancy costs, sales costs etc, they are all fairly easy to project and predict and so those get more than adequate attention.  But revenues, the dreaded revenue projection, I think of the quote by sixth century Chinese poet, Lao Tzu.  I don’t know if that was Sun Tzu’s father or something, but anyway, Lao Tzu said, those who have knowledge don’t predict, and those who predict don’t have knowledge. In the business plan, focus is put on those things that they can predict and those things that they can’t predict, well, let’s just say, it doesn’t get adequate attention. 

It’s the revenue side that is the most challenging and perplexing.  And most business models and plans failed not because they missed their expense projections, they failed because of their revenue projections. They fail because they didn’t adequately and accurately project and predict how they are going to get customers in the door or drop their goods in the online shopping cart and purchase.

I recently came across a book titled The One Page Marketing Plan.  I listened to it first on audio book, driving from Kansas City to Minneapolis, and then I purchased it in hard copy.  I strongly encourage you to do either, listen or read or both.  The book is divided up into three sections, for the three phases in a sale cycle.  The Before Phase -  you are dealing with prospects, and the goal is to get them to know you and generate some interest in you.  The During Phase - you are now dealing with a lead and the goal is to get them to like you and buy from you for the first time.  And finally, the After Phase - you are dealing with a customer and the goal is to get them to trust you, buy from you regularly and refer a new business to you. 

It’s that simple.  The book covers things like, the 80/20 rule and its derivative, 64/4 rule which I hadn’t heard, or put another way, why 96 percent of the stuff you do is a waste of time; how or why marketing is the biggest point of leverage in your business.

The main thing I took from this book is the absolute importance to put attention and resource into marketing tactics, not just marketing strategy.  I love the Sun Tzu’s quote, “Strategy without tactics is the long road to victory.  Tactics without strategy is the noise before defeat.”  This book does a brilliant job   of focusing the importance of tactics. 

The author of this book is Allan Dib, and I reached out to Allan  to see if he would be willing to do a three-part podcast series with me, and he said yes, where we can deep dive into these three phases of customer acquisition and retention. He too shares my commitment to helping small and medium size banks compete and win, and is willing to do whatever he can to help.  I suggest you go to his website, www.1 (That’s the number one) 1PMP (Patrick Mary Patrick).com and get on his mailing list.  He really does put some good stuff out there. 

The really cool part about Allan is, he lives in Australia, and most of us know that, well, Australia was settled by a bunch of convicts from the British, especially Irish, I believe, and so Allan is joining us from his prison cell in Botany Bay where he and his sixth generations have been serving out multi generation prison sentences for not paying their rent to a British landlord.   Allan, are you there, and how is the reception in your center block dwelling?

Allan:              {Laughs] No, It’s so good, I am out on parole, so...

Kelly:               So you are out on parole, excellent, nice!  Just to be clear, Allan is not serving a prison sentence.  Well, Allan thank you very much for joining us.  I appreciate it.  Could we get right into it?

Allan:              Let’s do it.

Kelly:               Okay.  I like your definition of marketing and the circus, tell me about that.

Allan:              This was one that I had come across and I might have read it, right out of a book but it basically gives you a good bird’s eye view of what marketing is, because if you ask 10 people what marketing is you’ll get  likely 10 different answers, you know. Some will say it’s branding.  Some will say it’s advertising.  Some will say any number of different things. 

So I came across a really good simple jargon free definition of marketing.  If the circus is coming to town and you paint a sign that says, Circus Coming To The Showground Saturday, that’s advertising.  If you put the sign on the back of an elephant and walk into town, that’s promotion.  If the elephant walks through the Mayor’s flower bed and the local newspaper writes a story about it, that’s publicity, and if you get the Mayor to laugh about it that’s public relations.  If the town’s citizens go to the circus and you show the many entertainment booth, explain how much fun they will have spending money at the booth, answer their questions and ultimately they’ll spend lots at the circus, that’s sales,  and if you plan the whole thing, that’s marketing.

So basically, marketing is the planning of everything that takes a customer from not knowing you to becoming a customer and a raving fan.

Kelly:               And each of those items that you mentioned are tactics within that marketing strategy, correct?

Allan:              Absolutely!

Kelly:               You talk about why most business marketing fails, then you focused on large companies versus small companies, let’s talk about large company marketing and branding versus the smaller company marketing and branding.

Allan:              Sure, that’s a good one.  It’s interesting that I have seen this mistake made many many times and it’s a way that small businesses basically lose a lot of money when it comes to their marketing.  But basically, have a look at one of the large bigger competitors in their industry, they could be in any industry, banking for example, and they look at what some of the large companies in their industry are doing in terms of marketing and advertising. 

And very often it’s just sort of brand building kind of stuff.  “Okay, well if my big successful competitor is doing this then I should do this as well” That’s where they sort of mix up the causation.  So, why this is so erroneous is because large companies have a very different agenda when it comes to their advertising and their marketing than smaller companies. 

So large companies, they have a very very different agenda and they have very different goals to small businesses.  So, for example, a few other things that they want to achieve when it comes to their marketing and advertising is pleasing the board of directors, pleasing shareholders, satisfying their superiors biases, satisfying existing clients preconceptions, winning advertising and creative rewards and then getting buy in from various committees and stakeholders. 

And then somewhere down the bottom is making a return or a profit, whereas for a small business, the only thing that matters is making a return or a profit on their advertising.  So it’s just like if I was in the real estate development business and I looked at some of my bigger competitors, I had a look at high rise developers like, let’s say Donald Trump or someone like that, were doing.  They build massive multi-storey buildings and if I was to use the same strategy and tactics as them I couldn’t afford to do that because I am a small developer and it doesn’t work if you do that on a small scale. 

I mean, you have to build the whole hundred floors for it to be a successful office building development, whereas as a small business, you maybe can afford to build half a dozen dwellings or so.  You can’t build one hundred floors with six hundred units or six hundred offices.  So you must understand that strategy and tactics change with scale. 

So if you are working on a larger scale, then yeah, you can afford to do branding and all these sort of exercises which may take years and may take millions of dollars to execute properly.  But if you are working with a budget that is tens of thousands of dollars you have to have a very different tactic and strategy to get a return.

Kelly:               Would it be a fair statement to say that branding and direct response marketing are kind of the opposite extremes of a marketing tactic?

Allan:              Yeah, I would say that, although they do intersect.  With direct response marketing the whole point of it is to get a response, first of all, and to also get a return on investment.  For example, you want to spend $10,000 on a campaign and then you are able to measure it very well and you are able to say, look, we got 300 responses and on average we sold $1,000 each.  And so you are able to quantify the exact money spent, the exact level of response and the exact return on investment. 

Whereas with branding, you sort of just want to get your name out there, you want to get a bit of awareness and then you help that down to attract that result in more sales.  And again, like I said, making more sales may not even be your ultimate goal with branding, it may be just getting the name out there so  investors can see  and  you’re out in the market place so that your boss has his superior and his superiors have their biases and preconceptions satisfied.  Whereas, I tell small businesses the best sort of branding for a small businesses is sales.  If you sell your product, that is the best form of branding for a small business, because realistically, branding is what happens after the sale, not before the sale.  A lot of people think branding is kind of a thing that happens before the sale, it’s really something that happens after the sale.  It’s when they experience your product and service and then they are able to connect with your business.

Kelly:               Okay, so is it a fair statement to say that at a minimum 80 percent of the marketing budget should be spent on direct response marketing and very little on this branding, mass marketing thing?

Allan:              Certainly, for small businesses.  And as I mentioned, strategy changes with scale so if you are a business who is doing maybe one hundred million plus, maybe branding is appropriate.  If you are operating on a smaller scale, and if you have got a marketing budget that’s not within the millions of dollars, and if you need to get results that’s not a few years away then certainly it’s wise to consider direct response marketing.

Kelly:               You have mentioned that targeting everyone with your product or services is a terrible idea.  Why is excluding certain customers actually a good thing and why does being all things to all people lead to marketing failure?

Allan:              Yeah, now that’s a great question.  So, it’s funny [inaudible -13:46] market is and very often, I would say, everyone, you know, they just don’t want to exclude anyone and they want the widest sort of audience.  On the face of it, it doesn’t make sense because, you know, you want as many people as possible working with your business.  You may have a business that realistically can work with anyone but that’s a very typical newbie marketing mistake, for a few reasons. 

First of all, it’s very expensive to target a very large group of people, everything to everyone.  So you need to do basically, again, mass media marketing which small businesses is not only a waste of time because they just don’t have the budget and the fire power to get their message out broad enough to make a return.  So that’s one of the reasons why it’s a real mistake for small businesses.

The second reason is because it’s a principle in direct response marketing where you want the response to your ad to be, someone says, hey, that’s for me.  They want to read an ad and it will be highly relevant to them because we are all exposed to so many advertising messages each day that our brain would go crazy if it paid attention to all of them. So our brain actively scans for things only if they are relevant to us and brings our attention to that.  So if you make it too general it’s just going to get left behind by the person’s brain.  So that you will want to read an ad and say, hey, that is for me. 

And, you know, you think about it, in life, so if you have injured your knee, do you want to go to just a general doctor or would you want to go to a knee specialist?  In fact you have seen, say an ad for a knee specialist, when you have injured your knee, I mean , that is the perfect most relevant message at that time so that is going to get a much better response than, hey, we are a doctor, we do everything.

Kelly:               I like how you recommended, identifying your ideal customer and you even go so far as to creating an avatar or like a virtual representation of that customer.  Why is that important?

Allan:              It’s very important because when you are crafting your message you want the message to be extremely relevant to your target market.  Now, if you are a part of your target market, so let’s say for example you are creating an advertising campaign for   plumbers, and you are a plumber, okay, well you understand the mindset of a plumber and you understand some of the challenges that you are having in the industry and so on and so forth, but if you are outside of your target market, so let’s say you are targeting lawyers and you happen not to be a lawyer then getting an understanding of the target market is absolutely critical and it’s the first thing you should be doing before crafting any kind of advertising campaign. 

You do research into the industry, research into their mindset, what’s keeping them up at 3:00 a.m., you know?  Is it the fact that their billable hours are now reduced from what they were a few years ago?  Is it that there is increased competition?  What are the things that they are discussing at industry conferences?  What are the things that they are concerned about?  What are the threats coming up in their industry?  So, if you can get into their mind and then craft a message that has happened to them then that’s going to be much much more relevant and will get a far far bigger response than something just general and vague.

Kelly:               So as part of that you came up with this personal fulfillment value to market place and profitability as being key to defining your target mix, as key to defining your target market.  You call it the PVP Index, explain that to us.

Allan:              I usually tell them that there is essentially three factors you want to consider when selecting your target market.  And when I say each of us selecting a target market, we are talking about that from an advertising and marketing prospective.  It doesn’t mean that if someone outside of your target market approaches you and says, can I buy from you, that you say no. Of course, you can take other business outside of your target market but here we are talking about when you are building your marketing campaign and your marketing strategy, you need to have at the top of mind, very tight target market, and what are the best ways to define your target market. 

Because this is a place where a lot of people get stuck and confused and where they don’t know who they should be targeting.  It is three factors, so we call them as an acronym, PVP.  So “P” stands for Personal fulfillment, “V” stands for value to the market place, and “P” for profitability.

                        So, if we go to “P” - So “P” is the personal fulfillment part so P, people who you   enjoy working with, you know.   If there is a target market that you hate working with and there is another target that you love working with, well, the obvious thing is to be working with the people that you love working with. I mean, no one wants to do a job that they absolutely hate.  Personal fulfillment is certainly a big factor.  It’s not the only factor.

The next one is value to the marketplace. So, how much does this marketplace segment value your work. For example, if you were selling consulting services. So, for a business that relies on your type of consulting to make a profit, they value that extremely highly, whereas if you were targeting a very small business customer or someone who doesn’t really need your services then they place a low value on your work. So, you want to target someone who is willing and able to pay you the appropriate amount for your work.

And lastly is Profitability. So that’s basically how much profit do you make from that target segment, because sometimes, I mean, revenue is obviously not the same as profit.  And it’s critical to remember, it’s not about the turnover but it’s about the leftover. So sometimes, you know, I’ll find clients they maybe do a lot of revenue with a particular type of client that when you net, because of the high cost of servicing or the high cost of goods or whatever there is very little profit in the deal.  So, these are three factors I encourage people to consider when considering their target market - personal fulfillment, value to the market place and profitability.

Kelly:               You know, the personal fulfillment and the profitability, the two “P’s” seem to be fairly easy to kind of value or measure.  The tricky one in my mind is the “V” the value to the market, the “V” and the PVP.  I mean, how much does the market value your product or services and how do you do that other than put it out there and see if they will pay for it.  Because that’s kind of what you are asking, it is, how much you will pay for this, how much do you value it at?  Is it 10 bucks an hour or is it 200 an hour?

Allan:              Yeah, absolutely.  And part of everything that we do in the marketing prices, there is an element of test and measure. I mean, there is a research element so you may well go out in the marketplace and ask, look, with my type of product or service what would you be willing to pay?  And surveys are great, but very often people give misleading information in surveys so there does need to be an element of test and measure. 

So, what I recommend is do a campaign to a target market that you think might be ideal and let the market, say, test small and then if you find you are on    a winner you increase that and if you find that it fell flat, which often it does, you cut that.  So you don’t go all in on one sort of gamble, it’s exactly like you would within an investment.  You might part of your portfolio in that type of investment and see how it goes and if you are doing well then you might increase that leverage you have in that investment or if it’s not growing then you might cut that. 

Kelly:               You mentioned that companies needed to define their USP, their unique selling proposition, which needs to answer, why should they buy the product and why should they buy it from you and not your nearest competition.  These are the questions that should have clear and concise and quantifiable answers. 

Now, in financial services, which is where the banking world resides, products and services can in many ways be a commodity type product.  In part of your book you mentioned that customer service and quality of products are really not features and benefits you can attach to your product to get differentiation because these are experienced after a purchase, so what can a bank, by example, do to get some sort of differentiation in an environment where it’s somewhat commoditized?

Allan:              Yeah, I get that question a lot, and like I say in the book, there’s really nothing new under the sun.  I mean, before Apple came along there were computers and before Google came along there were search engines and all of that sort of stuff.  So, there really is nothing new under the sun but we are not saying about coming up with a unique selling proposition. I am not saying invent something brand new that’s never ever been done on planet earth. It’s just a matter of being slightly different.  

And that can be in the way that you pack your product, that can be in the way that you price the product, it can be in the way that you deliver the product.  So, I give an example in the book, there is almost nothing like a bigger commodity than coffee.  So, you can get coffee for a dollar and you can pay five or six dollars for a coffee.  And it’s funny, like, I have seen coffee shops that they just plop it in a paper cup and just give it to you for a dollar and then there is one that do things like coffee art and things like that and, you know, have all sorts of options and features and all of that and they charge five or six dollars for a coffee.

So very often, not necessarily the core service that you, you know, are creating that’s unique, but it’s the way it is packaged or delivered or supported and all of that.  And the reason why I say good service and good quality is not a unique service proposition because these things are just expected.  I mean, for you to be competent and deliver good quality service and good quality support and all of that, those are things that are just basic and expected.  In marketing, we are really trying to say, how can we attract people in this place.  So, of course we want to retain them and make them very happy customers, and we do that after the fact   but for the fact we need to have a way of attracting them.

Kelly:               Having a live customer service person could be a part of a USP, correct?

Allan:              Absolutely, absolutely, I mean, if your industry is full of people who do things in an automated way or in a way that customers don’t like and you are able to differentiate yourself in a way and service customers in a way that they prefer then, absolutely,  but to differentiate and a potential to be a USP.

Kelly:               That’s what we have community banks that are residing in these local communities that are competing against the big banks that aren’t residing in these communities, having bricks and mortar of a live person, for instance, that they could talk to and not just a 1800 telephone line to reach the banker.  I think that’s a pretty significant USP.

Allan:              I agree.

Kelly:               Okay, I am going to challenge you with a couple of things here. You mentioned five major motivators of human buying behavior, fear, love, greed, guilt and pride.  Now here is your challenge.  Can you render any off the cup ideas on how a banker could use each of these?  How could they utilize fear in capturing clients?

Allan:              I think fear would be an easy one to motivate people and fear of loss especially is a huge motivator when it comes to motivating people.  People are more motivated by fear of loss than the possibility of gain.  So, if you are saying, look, invest with us and we have a special investment program where we limit the amount of loss that you are able to get or we guarantee that you won’t lose on a particular investment.  I mean, that’s a big motivator and that’s a way that you can use fear in your marketing strategy.

Kelly:               Okay, love.

Allan:              Love, so that’s a big driver as well.  And what’s one of the reasons that you may want to create investments and make a secure nest egg for the future and maybe love for your children and your family, make sure that they are taken care of.  You could use that as a motivator to sell insurance policy, life insurance for example, to make sure that your loved ones are taken care of should the worst happen.

Kelly:               Okay, good one, greed.

Allan:              Well, that’s an obvious one with financial products as well. So, being able to show the client what they have to gain.  The whole make money kind of industry is all revolving around the feeling of greed.

Kelly:               Okay, guilt.

Allan:              Guilt, for example, almost the opposite of the love ones.  So can you take care of your love ones, are they able to be taken care of should the worst happen to you or are you protected in case of a loss of an income.

Kelly:               Alright, final, pride.

Allan:              Pride, that’s a huge motivator for a lot of people and one of the reasons why a lot of people want to be successful and do well financially is because they want to feel proud of themselves and feel proud of what they have accomplished. If you can show someone that they will be able to be proud of their accomplishments, I mean, that’s a huge motivator.

Kelly:               Alright, I want you to finish with, talk about the 80/20 and the 64/4 rule which I love this thing.

Allan:              Sure, I mean, a lot of people are aware of the 80/20 rule.  And it basically comes from an Italian economist name Vilfredo Pareto, and often it’s called the Pareto principle.  And that’s nothing new to a lot of people, but basically, it’s an amazing rule that holds true for almost anything.  You know, for example, 80 percent of a company’s profit often comes from 20 percent of its customers, you know, 80 percent of road traffic accidents is often caused by 20 percent of drivers.  Interestingly, this economist observed that 80 percent of wealth is actually owned by 20 percent of people.

And it’s interesting, in the research for this book I looked at wealth distribution at chart and, in fact, despite new technology, despite everything that’s happened in the last 100 years this rule still pretty much holds true. So right now, if we look at 80 percent of the world’s wealth it’s pretty much owned by 20 percent of people.  So that’s the 80/20 rule and it’s funny that the 80/20 rule can actually be applied to itself.  So, if we take 80 percent of 80 and 20 percent of 20 we actually end up with the 64/4 rule.  

And again, I looked into the wealth distribution chart and sure enough if you look at, 64 percent of the world’s wealth is actually held by 4 percent of the world’s people.  So basically, put another way, 64 percent of your fix comes from 4 percent of your causes.  So about 96 percent of the stuff you do comparatively just doesn’t move to the middle, it’s almost a waste of time.  It’s the 4 percent that you have done has resulted in 64 percent or more of your results.  And this is where I encourage people to focus heavily at marketing, so because marketing is the 4 percent of things that you do in your business that   can have a dramatic result, that’s the 64 percent plus result in your business.

Kelly:               And to be more specific, a direct response marketing is where you think the resources and attention should be spent, correct?

Allan:              Absolutely.

Kelly:               That’s terrific.  Allan, I really enjoyed that. We’ll set up part two of the podcast to cover the During phase.  What’s the best way for listeners to get in contact with you?

Allan:              To touch base on my website which is  You can sign up for my mailing list and you will get a lot of free articles and good advice there.

Kelly:     , I’ll get that posted in the show notes as well.  Okay, that’s it.

Allan:              Thanks Kelly.

Kelly:               Thank you Allan.

We want to thank you for listening to the syndicated audio program,  The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.  Video content is produced by the Guildmaster Studio, Keenan, Bobson Boyle. Voice introduction is me, Karim Kronfli.  The program s hosted by Kelly Coughlin.  If you like this program please tell us.  If you don’t please tell us how we can improve it. And now some disclaimers.  Kelly is licensed with the Minnesota Board of Accountancy as a certified public accountant.  The views expressed here are solely those of Kelly Coughlin and his guest in their private capacity and do not in any way represents the views of any other agent, principal, employee, vendor or supplier.

May 24, 2017

Topic: Can Banks Earn Revenues Helping Customers Reduce Property Taxes??

Date: May 24, 2017

Attendee and Guest: Kelly Coughlin, CEO, BankBosun; Jason Ziccarelli, CEO, StrydeSolutions,


Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CEO of Bank Bosun, helping community banks with risk, regulation, and revenue creation. Community banks face enormous threats today. And I put these threats into three primary categories.

I call them the three R's. Risk, regulation, and revenue. I've spent much of my 25-year career participating in the first two R's, risk and regulation. I worked for PWC and their internal controls and risk consulting area in the ‘90s. I was director of risk management for a number of subsidiaries of Lloyd’s Bank out of London in Minneapolis, and this included a trust company, mutual funds, broker dealer, investment management, and dealing with regulators in the US in the UK.

But today I'm focused on the third R - Revenue. While banks face enormous threats and challenges from a risk management and regulatory perspective, the biggest threat they face is on the revenue side of the balance sheet. Rather, the income statement.

Banks generate revenues and profits from two primary categories. Net interest income and non-interest income. The net interest margin has dropped from nearly 5% in the mid-90s to less than 3% in 2015. I don't need to tell you bankers that these fees are being compressed. Add to this compression the unfair competitive advantage that some non-bank financial companies get - credit unions and Internet companies. Every day I see expensive ads from Lending Tree and Quicken.

Well, this just adds to the revenue threat. I am committed to helping community bank executives manage this. We set up a management consulting firm, BankBosun, with this singular purpose. There really is a two-pronged approach. One, get more market share of the deposit and credit business. And all the related revenues you can get from that without getting in the jam that Wells Fargo did. Those of you that are familiar with my vision and mantra is using audio messaging, especially locally based syndicated podcast programs, is the most effective and efficient way to get your message out.

The second prong is generating more non-interest other income, and you can do this two ways. Generate more revenues from existing business lines or generate more revenues from new business lines. Certainly, generating more fee income from depository banking is a help. Those of you that have wealth management and trust know this is a big bonus to your revenues and profits, and capturing greater market share certainly will help with those business lines.

Today’s interview is with Jason Ziccarelli, CEO of Stryde Solutions. In full disclosure, I've not met Jason personally, but I've talked to a number of companies and individuals that are using his solutions to generate fee income. Some of what Stryde does might not fit into the banking business model, but some of it will. I don’t think much of what he does competes with banks. Rather, it complements what banks do, and more importantly it allows the banker to get a few more crumbs from the client’s cake.

I like the Tom Wolfe description used in describing his job as a securities trader. “We simply take a few more crumbs on the plates of our customers.” Stryde has business lines that sound like this: Credit card merchant audit. Work comp audit. Waste and recycling audit. Cost segregation. Property tax mitigation. WOTC, welfare work tax credit.

Now, I'm not sure bankers really want to get into reviewing whether a company recycles and how much waste they generate. I'm just speculating on that, but helping some of their merchant clients that accept credit cards reduce their expenses and earn a fee to help without taking on any overhead to do this. Well, I'm speculating again. This might be something to talk about. So rather than to speculate further, I've asked Jason Ziccarelli to get online to talk about some of this.

Jason, are you there?

Jason Ziccarelli:

I am, yes sir.

Kelly Coughlin:

How are you today, Jason?

Jason Ziccarelli:

I am well, thank you.

Kelly Coughlin:

Great. Jason, where are you right now? Where do you live? Where do you work?

Jason Ziccarelli:

I'm in Buffalo, New York right now. We live in Buffalo, New York. I'm kind of back and forth between our Buffalo and Fenton offices in Fenton, Michigan. So, I'll spend about one in three weeks in Fenton and the remainder of the time in Buffalo. Then on occasion, we get up to our vacation home in Alaska.

Kelly Coughlin:

Boy, you like the northern latitudes, don't you?

Jason Ziccarelli:

Well, when you're as round as I am, you like it where it's cold here. You get hot fast.

Kelly Coughlin:

That's great. Well, let's get right into it. Jason, you've got a bunch of different business lines. What is your mission and vision for Stryde, and is there a common value proposition for all of these different, somewhat unrelated business lines that you have?

Jason Ziccarelli:

Well there is, and the underlying concept or idea is simply opportunity. We work with lots of different individuals in a lot of professional backgrounds. They could be financial professionals. You mentioned of course the focus of your show, the banking world, and commercial realtors, business brokers, business consultants, legal professionals, tax professionals. They all see value in what we do and the opportunity to differentiate both they themselves from their competition and the services then that they're bringing to the table. Opportunity is the underlying idea behind everything that we do. When you see how we combine everything, what you'll see is the most comprehensive, synchronous service that exists in the business consulting community today.

Kelly Coughlin:

So, they all seem to be somewhat underserved service lines I should say. Credit card merchant audit, waste and recycling audit, cost segregation. I've been in consulting for better part of 20-plus years. I don't think any of us ever looked at these business lines. Are these kind of underserved, hidden sources of revenue for consultants?

Jason Ziccarelli:

Well, they are, and beyond a shadow of a doubt. In fact, it's not just the consultants that are missing the boat, of course. Then, it's the consumers that the consultants represent or work with that are missing the opportunity. If we look at the various categories, you mentioned a few of them. Let's talk about the merchant audit. I think that sometimes at first blush, folks can get confused and think that what we're going to do is come in and identify savings opportunity and change vendors. We're not a vendor. We don't change vendors. We don't associate with vendors. We are true business consultants and auditors. What we're going to do is, we're going to go in and do an 11-point, proprietary audit on the merchant processor that's being used and the fees that are being applied.

We are almost universally darn near 100% of the time going to find errors, inconsistencies and even abuses as identified by the federal government approximately six years ago when they kicked out their last study on this topic and suggested that somewhere between $60 and $80 billion a year are erroneously taken from business owners by their merchant processors. We go after that. We get them their money back, and when we're successful as we are 100% of the time to date after 16 years of doing this, when we're successful we keep a percentage of our success, and that is exactly how we're paid in each and every platform. When you look at applicability and you reference an underserved market, we can go topic by topic and point out that in a work comp audit, we find opportunities 72% of the time.

If we look at cost seg studies, these for example, less than 8% of all businesses out there that can engage in a cost seg study have actually taken advantage of it. R&D is less than six percent. It is absolutely an under-served market, one that we developed and exploded as a business consulting firm and have been servicing with the highest level of success, again, for the last 16 years.

Kelly Coughlin:

Okay. I want to dig into that a little deeper. Or as the media likes to say, I want to unpack that somewhat here. Let's make sure we're clear with our terms here. I'm a CPA, so I'm always sensitive to the use of the term audit. You're not doing an external accounting type audit. You're doing more or less an internal audit on behalf of the company, correct?

Jason Ziccarelli:

Yes sir, that's correct. We're were nonintrusive, non-disruptive in nature. The audits that we do tie up very, very little of the business owners time, that or of their staff or other associated professionals such as their tax firm. We're not looking to supplant or replace or usurp any of their current representation.

We're going to work in conjunction with the representation. We're just going to do what they don't do. When we talk about opportunity, what it comes down to is this. Every single business owner in America, and there's 28 million privately held businesses in this country before we talk about publicly traded and Fortune 500 and so on and so forth.

Twenty-eight million privately held businesses in America, and all the folks out there competing with one another to sell product or to do this or that. The one thing that every one of those business owners are after and for which there is little to no competition, is Refined Profit. Refined operational cost, tax mitigation, which then result in refined or enhanced profits. That's exactly what we bring them, and we do it on our dollar at no risk to them through our contingency based model.

Kelly Coughlin:

You used the term refined profit. Explain that a little better.

Jason Ziccarelli:

When we look at the businesses that are out there today, there's only a couple of ways to make more money. One way, of course, is to try to grow, and there is risk associated with that. There's downtime, there's infrastructural cost, there's all sorts of things that get in the way of that. Again, there's a substantial degree of risk.

The other way to make more money is to refine costs. Now, there can be risks associated with that because sometimes the way we refine costs are layoffs and things of that nature. With our program, we're able to refine costs, mitigate taxes, accomplish all of that in that non-risk based scenario as a result of our contingency-based fee structure. One, we're not disrupting anything. Two, we're not changing the business model or business practices. Three, what we do in being non-disruptive, non-changing of vendors affords us the opportunity to provide the benefit at no risk to them.

Kelly Coughlin:

Got it. You threw out the term 72% when you guys do an internal audit of a work comp deal. Seventy-two percent have some money coming back to that. Let's say we've got a bank with 1,000 clients. Lend them some money, they do some traditional depository traditional banking services.

How would a bank work with Stryde? I think I've seen some video that shows the primary way one of your customers works with you is, you have an app where many of the business lines are on this app, and the banker kind of answers a handful of questions on the app and basically, this qualifies the client as a good candidate for one or more of these services. Then, your team takes it from there. So, the bank doesn't really have to staff up for this. Is that a fair statement?

Jason Ziccarelli:

Oh, absolutely. It's a very accurate statement. Our platform is app centric. When we look at that, it's all based and built around our app which is our proprietary software. We built that in-house. It's not a modification or a white label of another system. We built it based on our years of experience and doing what we do. There's hundreds of thousands of in-house studies that went into the algorithm tied into that, and also in real time ties in with federal state and regional tax databases. It is a real time responsive interactive tool. There's a lot of stuff that goes into it. I won't bore you to death with that.

Fundamentally, what we'll do is, we'll work with the bank to educate them solely on the application and use of the app. The app is a very, very simple tool to use. In fact, it was it was built with the idea that it had to be so simple that a child could run it. It actually is built such that a child can run it. You do not need to be an expert or even have moderate experience in the various services that the app represents to be able to run the app and to do so professionally.

That's the key to all of it, to be able to do so professionally. What the app does, it uncovers various opportunities relative to the dynamics of the business and the activities that they're engaged in. It walks through what the opportunities look like or what the benefits could be to that business by engaging us, then moves into a discovery call option where they have the opportunity to work with our staff.

In doing that, they can schedule real time right on the app. What the app does is, it looks at based on the answers to the questions, it looks at everything that that client will qualify for. It then looks to all of our in-office experts that would be appropriate to put on that call to address any potential questions, overlays all their calendars in real time and issues times for which all of those individuals will be available.

So, at the click of a button. There's no multi-calendar coordination or anything like that. It's instantaneous and real time. It then goes back and walks through each and every one of the services with regard to what they are, how they work, what our fee structure is, images of existing and past clients, and then the dollar figure that's associated as far as the potential savings.

Then, it moves into the contracting and document collection pages again, all of it fully automated. So you see, once you become familiar with that structure you don't have to be an expert in what we do. You don't have to step up. We support everything. All components of the application and execution and maintenance of our program and the service for the client.

Kelly Coughlin:

Okay. We've got a community bank, regional bank. The bank has 1,000 business clients. From what I can tell, many of your services are focused on cost reductions, expense reduction, correct? 

Jason Ziccarelli:

That is correct.

Kelly Coughlin:

Okay. They have 1,000 clients. They meet these clients periodically throughout the year. Maybe they're doing deposit business, lending. They would just meet with them on their recurring cycle. In this scenario, the bank would find the relationship, do the qualifying through the app and through discussions. You do some training with them, obviously. They complete the questionnaire and then they identify a property expense category. We come up with a $25,000 property tax expense reduction. Would that be looking backwards that they were overcharged and they are now entitled to a payment from the county for those property taxes?

Jason Ziccarelli:

No. Property tax is one that's on a go forward basis, so that's non-retroactive. Work comp is look back as well as go forward. Things like WATC are go forward. Cost seg studies, cost segregation studies. We can look back a little bit as well as go forward. R&D, we can look back a little bit as well as go forward, so it all depends on which services we're looking at as far as applicability and associated timeframe.

Kelly Coughlin:

So let's say it's a going forward one. How do you get paid on that? How does the banker get paid? How do you get paid? Let's say it's a cost reduction to $15,000. You get paid on the savings that they would experience over the next five years? How long does that last?

Jason Ziccarelli:

It's based on service. Each service is a little different and we have a very clear and outlined compensation schedule. Of course, working with an organization like a bank, we custom design exactly what products we're going to offer as well as the associated compensation schedule within our existing schedule.

It's based on the service that's being offered. For example, if we did a cost segregation study we're never going to charge greater than 10% of the benefit to the business owner. A merchant audit, for example. We're going to charge 50% and we're going to do it for three years. And the associated advisor's going to get 30% of that.

It all depends on the service, the service it’s going to impact. Is it a one-time fee, like a property tax audit? That's one time? Is it several years of repetition or is it is it perpetual in nature will it go on as long as a client? Each service has its own set of rules, guidelines, regulations, and then associated fees.

Kelly Coughlin:

Obviously on a property tax expense, if you find a $15,000 annual reduction, they're not going to pay that for 10 years. They might do it one time, I'm thinking, right?

Jason Ziccarelli:

That's correct. And what you look at there is, it's a fantastic return on investment. If for example we have somebody’s property tax reduced by $50,000 and you look at the fee doesn't come out of their pocket. They're already realizing $50,000 in savings, so they give us back $25,000 of that. In that example, 50% first year. It is not a burden for them, but if you look at that over say a 10-year time period, $50,000 savings over 10 years is a $500,000 benefit for an upfront cost out of the savings that we created. It's truly not even an out of pocket cost.

Kelly Coughlin:

You mentioned cost segregation. Tell us what that is.

Jason Ziccarelli:

Sure. Cost segregation is something that the IRS says, anybody that invested in, built, renovated a commercial property, if I if I bought a commercial property, if I built a commercial property, if I leased a commercial property and have modified it, I've spent money on engaging in enhancements, the monies I spend will traditionally be depreciated in a straight line model over 39.5 years. What the IRS says and what a cost segregation study says is that everybody should engage in one, and that's itemized deductions.

What we're going to do is say, instead of depreciating the entire building, the gross costs associated with same over a straight line 39.5 years, we're going to segregate the components of that building into their own itemized appreciation schedule. One of the examples I give very frequently is that I pace a lot when I'm talking. As I'm talking to you right now, there's actually a pattern in my floor that you can see as I'm pacing. It's just my style. I like to move around while I'm speaking, and I wear out carpet very quickly.

Well, here's an example of the argument. Carpets in general are going to last three to five years. If it's me, it's going to last a year and a half. But the point is, let's say it last three years. Within 39 years you then mathematically have replaced that carpet 13 times. Yet, if you depreciate the building as a whole, you're still depreciating the dollars allocated to that first round of carpet even though you're now on the 13th round.

What we're saying with a cost seg study is, carpet is not going last 39.5 years, so we're going to put it on say a five-year depreciation schedule. Then, I'm going to look at your partition but I'm going to look at your plumbing and your wall, and PVC will go on a shorter depreciation schedule than copper will. Different grade wiring will go on a different depreciation schedule than one another.

So, every item, every aspect of that building goes on its own depreciation schedule, and by virtue of that, you drastically accelerate the depreciation and put a great deal of money back in the clients’ hands today. It's something that has proven very, very successful for us over the last 16 years and every one of our clients have participated in it as we've put hundreds upon hundreds of millions of dollars in their pockets through this and others of our tax strategies.

Kelly Coughlin:

Now, that cost seg project, that seems fairly labor intensive, isn't it? You've got to really look at the granular assets that they have and in essence, what you're trying to do is reclassify them as expenses, right? Or instead of a five-year depreciation, three-year, but doesn’t that require quite a bit of detailed analytics to do that?

Jason Ziccarelli:

Very detailed analytics, and it's done on our side, on the client side.

We're looking at getting copies that depreciation schedule and having some dialogue with their tax planner. On their side again, we talk about being non-disruptive nature. You're talking about a handful of minutes of time of that business owner and their staff. Whereas it's a lot of time on our part.

But again, we go back to being non-disruptive for all the work that needs to be done. It doesn't tie up the time or energies of that business owner and/or their resources, their staff. So, all of that work is done on our side. Again, when you look at our structure and contingency based model, that's where we see such a high-level of adoption of our services within the business owner community.

Kelly Coughlin:

Right, but you guys do all the heavy lifting there. That’s part of the model?

Jason Ziccarelli:


Kelly Coughlin:

Okay. Let's talk about worker’s comp audit. How do you find value there?

Jason Ziccarelli:

Well, there's a lot of different things that we're going to look at, but a good example, a very, very easy to understand example for anybody that's listening just not familiar with that is that all too often, you'll get an insurance agent because of the commoditized nature of the industry that really just wants to get a contract signed and move on to the next. They don't want to overly analyze it and jeopardize losing the opportunity. I'm not suggesting for a moment that they're not doing their job. But again, they specialize in the product, and there's a lot more to this as there is to anything else than just the product at hand.

What can happen all too often is, you can get, again, it's just one example of many that we'll look at. You can have employees carry one classification that may or may not be appropriate and/or an employee carrying a classification wherein they should carry several. One of the examples I very frequently give is, let's look at a construction site. Construction is generally considered higher risk of various professions, so tends to be more cost associated with workman's comp.

With that, we could have Mr. John Smith who's out in the field today. The work comp, the agent comes in and says, he's a laborer. Well, he very well may be a laborer, but he may be a labor for hours a day out of a 10-hour day, and another two hours he may be in the office bidding on work, and another two hours he might be in training to become a supervisor. Whatever the case may be, where he or she should carry multiple classifications that by virtue of that reduces the overall costs on he is an individual.

Then, you extrapolate that out across all of the employees and all of a sudden, you find that you've been overpaying for an extended period of time, and not just overpaying for a period of time but that you will continue to overpay until these reclassifications are established. Again, as I said, that's but one example of the of the types of stuff that we'll look at. Again, in that case, I mentioned merchant audit this is darn near 100% of cases that we find inconsistencies, errors, and even abuses. In this case, it's approximately 72% of the time that we see overcharges occurring.

Kelly Coughlin:

So, you uncover that, and then there's sharing for a period of time. Either one time or a period of quarters or years. The entity is on its own. They get to keep all the savings from that, correct?

Jason Ziccarelli:

Exactly. Correct. As with all of our services, everything again is contingency based and performance based. We can go to work for the client on any one of these topics, and if we don't find a benefit, there is no cost.

Kelly Coughlin:

Okay. Then, the final one that I'd like to talk about is credit card fees. I don't know how many of the community banks and regional banks that are out there are actually earning credit card fees themselves. So, they could be a target of your internal audit. Or if they're not earning fees from it and they use credit card processing companies to do that work for their customers, then they or their customers could benefit from that. What's your take on that?

Jason Ziccarelli:

Well, you'll see in the banking world as you just said, there's various realities for the different banks and institutions that may be listening to this call. Some of those realities are that they're providing these services, at which point our offering same would be a conflict of interest. Under those circumstances, it would simply be omitted from the audit so it wouldn't come up.

You'll have other institutions that are not offering those services and then could look at it as one of two things. One is, it is a good service to the client to find opportunity, provide savings, and again, facilitate benefit for that client. If it's an institution that does provide the service but is not doing so for that client, it's also a great opportunity to uncover and demonstrate that the folks they are using are not treating them as fairly as they should. And it then creates an opportunity for that bank to win over that business.

Kelly Coughlin:

Got it, interesting. Let's say a banker listening to this says, yeah, I'd like to get onboard with this or I'd like to explore it. I think you charge them $99 a month upfront on a recurring basis. They need to more or less assign a point person at the bank to be responsible for this business line. It seems like that point person could be a new banker -  one or two years out of college or something like that. It doesn't have to be the executive senior guy there, but you could appoint someone that would learn the product, get proficient in it, and then work with more senior bankers to get it rolled out to their customer base. Does that seem like a logical way to approach this?

Jason Ziccarelli:

That's the logical way. It is an incredibly easy thing to run. If it's a junior, brand-new member of the bank, they will have absolutely no problem. You see all ends of the spectrum and everything in between. Whatever the dynamics, whoever the personnel, the system will accommodate incredible opportunities and will be something that anybody can successfully learn, do so very quickly, and then exercise on a regular basis.

Kelly Coughlin:

That's terrific. I think that covers pretty much what I would like to do on this podcast. I'm going to recommend that any banks interested in this get in touch with me, and I'll help them navigate through you and Heather to make sure we advance this thing.

Jason Ziccarelli:

That would be fantastic.

Kelly Coughlin:

Okay. Jason thank you very much for your time. I look forward to working with you guys in the future, and let's see if we can help these banks generate an additional source of revenue so they can more effectively compete against the big banks and the big brokers out there. Sound good?

Jason Ziccarelli:

It does sound good. I look forward to working with you and all those on this call, and appreciate the opportunity.

Kelly Coughlin:

Thank you. Bye.


We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC;  and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle.

Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin.

If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers.

Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Apr 28, 2017

Once there was this lion who had many friends, big and small. One day the lion got trapped in a net. Help, yelled the lion. I’m coming, said the elephant and with a swing of his trunk he missed the net holding the lion and got trapped in a different net. Help, yelled both the animals and all their large friends came to help, and also got trapped in nets. Help!, they all yelled and then 1,000,000 ants, mice, rats, bees, wasps bit through the net and didn't get caught.

Aesop: Many small friends can be the best of friends.


And now your host. Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CPA and CEO of Bank Bosun, helping C-suite bank executives manage risk, regulation, and revenue creation in a sea of opportunities and threats. Today, we're going to talk about a tactic that can without any doubt generate new customers and create new revenues for a bank. But first some background. I started my business career back in 1982 at Merrill Lynch selling mortgage backed securities and municipal bonds to banks and credit unions. In those days, I kept a 3” by 5” card box of contacts filed two ways, alphabetically and chronologically by next date of contact. I would staple a new business card of a banker to the 3” by 5” card with all the contact information on the alpha card. On the chronological card I would have the name of the individual and the company and the contact history with dates I met with them, calls I made, information I sent, and the next future contact date.

Looking back now, I don't see how I was able to manage that system. Very inefficient, but very effective, provided you recorded all activities and filed each card correctly. There was frequently a panic if a call came in from a contact and you had to scramble around to identify the contact in the alpha box and then locate the contact history in the chronological box. In 1986, I bought one the very first personal computers by Compaq. This is a couple of years before Windows. I think I paid about $8000. Got a long term five-year lease for it. I bought some software that had a very primitive contact management system. It was called Exsell, spelled E-X-S-E-L-L, not related to the spreadsheet software. I don't know what happened to that company, but as primitive as that software was, it changed my life. At least my life in terms of sales marketing. That one simple software reduced my contact management maintenance time by 90%. It was more effective in that there were fewer errors and now more efficient, and that I only had to maintain one record in which the contact info and the past and future contact info was maintained on that contact record.

The reason I tell you that story is, in today's podcast we're going to learn about a sales and marketing tactic that will have as great an impact on how you identify new business relationships, develop those relationships, and convert those relationships to new customers. But this podcast isn't for everybody. Specifically, it's only three types of bankers interested in growing revenues. One, they are using LinkedIn now but really don't do much with it in terms of generating new clients. Number two, they are using LinkedIn now to generate new clients but spend more than 45 minutes per day on it. And three, they're not using LinkedIn now because they haven't really seen the benefits of it but would like to see the benefits. You will notice the common word in these three categories is LinkedIn. Why is LinkedIn so important? Because LinkedIn provides a platform that enables people to cost effectively connect with over 313 million members in over 200 countries and territories. No other platform allows that. Please note I did not say efficiently. I said cost effectively. In my accounting world, effectively implies accuracy and functionality, and efficiency implies time and effort, which for many of us equates to cost.

Most of you use some sort of spreadsheet software. Excel is the most popular. On my first computer, I used Lotus 1-2-3. Remember the backslash you had to use before you entered anything in that program? Painful. I've been a power user of Excel for many, many years, yet I estimate I only utilize about 15% of Excel’s total functionality. The same is true with LinkedIn. In today's podcast, we're going to focus a little bit on a more effective use of some of the hidden functionality of LinkedIn, kind of like that moment when I discovered the pivot table function in Excel. That was a brilliant moment. More importantly, though, we're going to talk about a more efficient use of LinkedIn. Then you can rest assured this is not some theoretical podcast on the benefits of social media, nor is it on the benefits of advertising on LinkedIn. This is focused exclusively on using LinkedIn to identify target customers, develop a relationship with them, and convert them to new customers, all within a minimal amount of time. So, if you're in category number two, spending over 45 minutes a day on LinkedIn will show you how to reduce that to 12 minutes per day, max.

If you are in category number one, only using LinkedIn to maintain your profile, we'll show you how to uncover a couple of hidden functions and use your profile to identify new customers and new revenues. If you are in category number three and aren't using LinkedIn at all but are curious about it, this might be the perfect thing for you, because one is probably kept you away from LinkedIn is you perceive it as a waste of time. For many, it is just that, a complete waste of time. I know this firsthand. I was in category number one. I used LinkedIn mainly as a way for people to find me, and somewhat, I was in category number three. I didn't use it very much. I frankly was never in category number two, spending over 45 minutes a day on it, because I never saw the value of doing that. But I'm in a whole new category now. I'm going to call it Category AAA. I spend less than 10 minutes a day and generate new contacts and new relationships every single day, and frankly love it. All because I'm a software as a service solution created by Don Brailsford, the CEO of Social Leverage Venture, Inc. It delivers revenues. It's inexpensive. In fact, I can make it cost $0 for certain banks, but that's a separate discussion. With all that said, I want to introduce Don Brailsford, the CEO of Social Leverage Ventures, Inc., located in Wilmington, North Carolina. Don, are you on the line?

Don Brailsford:

I am. Thanks so much Kelly. Thanks for having me.

Kelly Coughlin:

Thank you, Don. I hope you're having a great morning. It's Saturday morning. Why don't we start out with just a real short introduction of who you are, what you're doing? Family, that sort of thing. Give us some context of who Don Brailsford is.

Don Brailsford:

Sure. I've been in the financial services space and the marketing space and a serial entrepreneur basically my whole life. I've done real estate development. Grew up in Connecticut. Came out of a traditional business education. Next, I ended up teaching some classes at the University of Connecticut, but my real love is marketing. I love to talk to people. It's my life. I enjoy it, and I'm always fascinated by how hard it is to get good ideas and quality people together. The friction between getting the right person to the right idea just amazes me because it seems like we've built so many bad ways of “selling” or marketing that there's more resistance than there is acceptance. I'm 59 years old. I live in a little town just north of Wilmington of the water called Hampstead. I have a 20- and a 21-year-old son, and I've got a beautiful Catahoula. I think the most telling time in our history was when the immigrants came to America.

The immigrants came in and most of them were destitute. They had nothing, but the first thing they did was they formed networks. Those are the neighborhoods. Those neighborhoods, all those people did was everything they could for each other. If someone knew where there was a good place to buy food or a good place to live or there was a job, or anything they could do. Those groups, despite having absolutely nothing, very quickly prospered, and it wasn't to the detriment of anybody. It was to the benefit of everybody. That rising tide lifted all ships. That's what great networking does. It's not, I'll do this for you Kelly if you do it for me. It's, Kelly, if I can help you in any way, let me know. I'll be looking for ways to help you, and it would be great if you did that for me too. If we both did that we got 20 other or 30 other or 40 other people to do that, we'd be unlike everybody else in the business industry, where very few people have anyone trying to help them succeed. If you can become one of those rare few who can put a team together where everybody is trying to help everybody succeed, your life becomes infinitely easier. You have fellow travelers in your journey, and it's much more enjoyable, and life becomes just much, much sweeter. I just love facilitating that for people. 

Kelly Coughlin:

Yeah, that's well said. You use the term immigrant networking. I use the term ecosystem. We're now all part of a similar ecosystem. We're talking to community and regional banks, and everyone participating in that ecosystem. That is our audience for this podcast, and that's the audience for Bank Bosun as well. Catahoula? Is Catahoula a boat? Or is that an animal.

Don Brailsford:

Catahoula is C-A-T-A-H-O-U-L-A. Catahoula is a dog. It's the oldest cur in the United States. It's actually the state dog for Louisiana. Your listeners down in the Deep South will be familiar with the dog. It's a dog bred for hunting wild boar and bear, which makes it sound ferocious, but the fact is they're incredibly sweet, amazingly fast, and beautiful, gentle animals.

 Kelly Coughlin:

You've used the term immigrant networking. I use the term ecosystem. So, let's stick with the term ecosystem for our purposes. When we look at an ecosystem, many organizations currently use LinkedIn as a way to connect to their ecosystem. In the subject of this podcast and my discussion with you, is a more efficient use of LinkedIn. You listened to my introduction. I talked about the primitive version of my sales and marketing experience at Merrill Lynch, where it was a 3x5 card system. This is free technology. Then, there is some CRM software that was available for nothing. At that time, nothing really enabled us to connect to a network or an ecosystem, but LinkedIn is kind of the first one to do that. How do you see most organizations use LinkedIn? I know you have a more efficient way of using LinkedIn, but before we get into that, let's describe what's the state of the state before you guys are involved with it.

Don Brailsford:

Honestly, LinkedIn, nine years ago the marketing that I was doing was much more conventional. I had a mail center and a call center, and we did a lot of work doing seminars. We'd set up seminars for our clients in their communities and created the idea of having online sign ups. We did online sign ups, which is a whole novel thing. Did automated phone follow ups to follow mail that we sent. We'd call up and tell people that we were writing to them about the letter that we'd sent them to and invite them. That was all kind of novel, but it was also slow and you could see the costs just spiraling out of control, and you could see this this nascent social media coming on, Facebook coming on. Back then, it was Myspace. Nine years ago, I switched. I just couldn't do the seminars anymore because I just felt like so many guys were spending so much money and it was such a huge risk for them. A lot of people showing up just because they were planning their weeks around where their free food was I looked at the different social media spaces, and LinkedIn was a few years earlier—I don't remember exactly when it was, but I joined LinkedIn because I always like to check out the new stuff. It had a couple hundred thousand people. I think it was seven or eight hundred thousand when I first got into it.

I didn't pay attention for a bit, but then I started paying attention, and nine years ago, they were in the millions. They started to make sense, and I found out about the groups and things and I said, gosh, there's an opportunity. Never mind the seminar. If I put 2,000 or 3,000 people with someone, that's a lifetime supply. We started going into LinkedIn, and LinkedIn back then, everything was free because they used either the crack cocaine sales model where you give everything away until everybody is hooked and then they can't go away because they're so addicted to it. They've built an amazing, one of the most valuable databases in the world, honestly. Everybody worth knowing has dumped their information into LinkedIn and has presented themselves on LinkedIn. It's amazing that people on LinkedIn who might not ever take your phone call or an e-mail or anything from you will connect with you on LinkedIn and then you can send them a message. One of the hardest things we had to do when we started out was just convince people. They'd say, well why will they connect with me?

I said, because they just do, because people are social, because we're pack animals. That's what they want. A lot of times I had to spend 30 minutes convincing people. I promise you they will. They just will. We want to be connected even if we're wealthy and important and famous. We still want to have connections. It's such a small world when you have relationships. Going back to the immigrant thing, you'd be amazed at who knows who and who meets who. If you treat people right and if they know what you have to offer and what you're trying to accomplish, and they know that you're trying to help them with theirs, reciprocity is incredibly powerful. LinkedIn as it started out was just basically they started off thinking, okay, we're going to get people jobs. Then, they quickly realized that they had this massive database of all these people. I frankly believe they can say whatever story they want, but I believe that their users created the idea that actually it's even better as a sales and marketing and partnering and affiliating and joint venturing tool than it is hiring tool. I think the biggest part is, they do more business as a result of trying to find prospects and clients than they do trying to find employees.

Kelly Coughlin:

How does one go from category number one, using LinkedIn mainly as a way for people to find each other, to category two and three? Especially number two which is using it as a way to more actively do business with each other? Connecting with clients that might be looking to do a business loan or looking for wealth management services or looking for trust services or looking for bank cards or services? How do they go from passive use to active use?

Don Brailsford:

One word, systematically. Nike said, just do it. It's right. You sit down and on a daily basis, LinkedIn gives you these great tools for searching. You can search for exactly the kind of people you want to work with. I would submit to you that unlike in the financial services of the life insurance industry where everybody is a sales person, bankers aren't viewed that way, so they have a big advantage. When their banker reaches out to connect you, you're like, sure. I'll connect with a banker, because I might need a bank. The thing I didn't get to say in the beginning, or I didn't think to say it, I'm a huge proponent of community banks. I so much prefer a local bank that understands the community and is invested in the community and cares about the community. The way that you work is you sit down and you take LinkedIn and you say, all right, we what are the people we can best help? What kind of people are we looking for?

You do a search, and they have these great search tools. Basically, you pick what industries you want to work with. Who is the person in the business? Do you have specific businesses? You can target anything you want almost. Then, you just reach out and you send them a contact request and it has to be personalized. Kelly, if it was you and you were the client I wanted to reach, I'd reach out to you and I'd identify you as the CEO and I sort of manufacturing company that I would certainly love to make a loan to and get deposits and things from. I would say, hey Kelly, we're a local community bank and we always like to connect with local business leaders with the opportunity of perhaps helping each other out. We're also involved in many local events and things. Let's connect and hopefully get coffee and just get an introduction and see if there's ways we can help each other. I'd sign it, Don, and that's all I would say.

Kelly Coughlin:

Let's take an example. Let's say I'm a bank down in St. Petersburg, Florida. My footprint is in a 120-mile radius of St. Pete. I do a search on LinkedIn and find all businesses roughly within that radius, and then I could even refine it further by look for manufacturers or look for whatever target profile.

Don Brailsford:

Absolutely. The way you do it is as you would do—it's not exactly 120. So, it would do a 100-mile radius, is their biggest radius. You can always move your center, so you can move your radius around. Do 100-mile radius and then you just search what kind of business you want. It tells you what industry you want to get and you can search for particular businesses if you want if you know them, but if you don't know the business but you just know, we work well with manufacturers or we work well with service companies or we work well with professionals or doctors, attorneys and people like that, the kind of people that can bring you business. You reach out and you say, here's all the people. Again, I would submit to you that for bankers, it is a target-rich environment because they're not viewed as salespeople they have to be defended against even though there is a sales function, very definitely a sales function, in it. It's just not viewed that way. They're going to be pretty well received, and they're going to get an opportunity to at least get to the door and create a relationship and do that.

You could so easily keep your marketing or your business development staff could be steadily building on a daily basis. You could have two or three new introductions and meetings and get togethers. You could have 20 or 30 people a day coming into your ecosystem where you connected to them and you can start communicating with them. Reach out to connect with them, and then on your connection message you could say, I'd love to get together and have coffee. There's two ways they can respond. They can just accept your connection request and become connected to you, which is a win because now the door is open. Or, they can respond and say, yeah Kelly, I'd love to have coffee. If they say, I'd love to have coffee, hey you're in dialogue. There you go. Now you're off where you wanted to be. If they don't respond, I would send another message to you.

If I'd sent that to you and all you said was, yeah, I'll accept your connection, but you didn't respond to me, I'd send you another message a couple days later. Hey, Kelly. Thanks so much for connecting with me. I love to get together and just get an opportunity to at least buy you a coffee and hear about your business and tell you about the kinds of things we're doing in the community. Would you be available for coffee sometime next week? Then, I would wait and I would wait another week to 10 days. Ten days later I'm like, hey, Kelly. Hope you're having a great week. Just wanted to put this back on the top of your inbox. I'm sure you're very, very busy and you may not get to LinkedIn very often, but I am still very interested in getting together. Hopefully we can work that out. If you're available any time next week, please let me know one or the other. That would be great.

Kelly Coughlin:

Or, if they've done say a podcast, you could send a link to a podcast that say, hey we just did this podcast on estate planning and trust work, and have a listen. Tell me what you think.

Don Brailsford:

Absolutely. That's the great thing. It's a win when they connect. As soon as someone connects with you, you can go to their profile. You get all their information about them. Their titles. A lot of times they'll have addresses and phone numbers and Twitter handles and their websites that they use. You'll know who they know, and that's huge, because it might be that I get to you, but who I really wanted to get to is the guy that you know. The guy that you know, the guy who's the CEO of the company that I desperately want to work with because there's a huge opportunity they're going to build a big building and I want to make them a loan. I'm going to sit down with you and say, hey, Kelly. I was really impressed with your profile and the connections you've got are spectacular. You've got a great reputation in town. I see you know Bob Jones over at Dewey, Reitman, Howe.

I'd love to meet with Bob. I know they're starting a big project and I'd love to chat with him about that. Would you be kind enough to make an introduction? Introductions are better than just connection requests because obviously, they're a third-person endorsement, basically. It's an opportunity to get in there. Most of the guys I work with are identified as, and are in fact, salespeople. Bankers aren't viewed that way. So, when a banker asked to be introduced to somebody, you're like, oh yeah. Nobody's afraid to introduce a banker. Again, target-rich environment. Just an unbelievable opportunity. I know the banking business is very tough, but the connections and the opportunities to get to the door and make your pitch and create the relationships are absolutely there.

Kelly Coughlin:

Let's back up for a moment. In the webinar when I first got introduced to you, I believe you had a five-step process that you envisioned.

Don Brailsford:

Yeah. You target the people you want. You do your searches. You try to niche it down as much as you can. I actually think the biggest problem banks are going to have, they'll have too many responses. You want to make sure that all your responses are as close to exactly what you want as you can get, because you could keep a business development office busy constantly. My gut feeling, because I know the reaction that bankers get, so that's what I think. You target first and then you contact. You target and then you send out your connection request. Then you connect and you nurture, and you nurture that by keep prodding it along. If they don't respond to you, just keep prodding it along, that nurturing. As you said brilliantly, establish value in the relationship. Show people that it's not just about, I don’t view you as a commission or you're not just an automatic sale. This is a relationship. I want to be helpful. How can I help you? Who can I introduce you to? Is there anything else?

That, by the way, is one of the most powerful things you can do. As you build these connections, you're going to start having the ability to connect people, make some powerful connections for other people. So, it's target, contact, connect, then nurture. The nurturing is, you share information with them, you take the opportunity, you keep pushing them along towards having a meeting or invite them to a webinar, invite them to lunch and learn. Send them podcasts. Ideally, here's a podcast that covers this, whatever it is. Anything you have of value, and just show people that I'm a go giver, as they say. That's a great book by the way, Go Giver. Then, after that is, just sell. The great thing about it is, when you do it like that, they're not a transaction. They're a relationship, and that sales lead to not only more sales because they'll keep working with you, but it also leads to referrals.

The referrals are automatic. They just keep coming. People want to feel good about what they did. If I refer someone to someone who can help them, it makes me feel good. I think that you're the kind of person who makes people feel good and does things that help them. I'm going to refer you actively because it benefits me. It makes me look good. It makes me feel important. It validates me as a person. That's how referrals work. They don't do it because it's good for you. Human beings don't work that way. Mother Teresa was self-centered, and I say that tongue in cheek, but the fact is she did what she did. It made her feel good. Thank God, she was an amazing person and did the most unbelievable things. Human beings act in self interest at all times, and one of those things are when we feel good about helping someone else, it's still self-centered although it's altruistic in that way.

Kelly Coughlin:

I wrote down five things. Identify, contact, connect, nurture, and sell. That can take an extraordinary amount of time. I did a certain amount of that every day for the entire ecosystem before I got involved with your software solution. Frankly, it was quite painful. It just takes up an inordinate amount of time. But what got me interested in your deal is you reduce that by 80%. Let's talk about that.

Don Brailsford:

Sure. You send me home and tell me here's 15 pieces of paper you got to fill out, and you get to make an entry over here, and don't forget to write this letter, don’t forget that spreadsheet. I'm like, oh please, shoot me now. I don't want to spend 20 minutes doing that because that's awful. That's painful. It's just too time consuming to sit down and execute. Our system does 50 initial outreaches a day. Then, it also does up to four follow ups for all of them from all the ones that have gone back a month. It's talking about literally thousands of communications over the course of a month, which just fills the pipeline. If you do that yourself, you're going to spend four hours a day. You're going to sit there for four hours a day cutting and pasting and personalizing, and cutting and pasting and personalizing so that people get something from you that doesn't look like, we're both on LinkedIn. We should connect. Don. That's not a connection request that's going to get anybody to work with you.

Kelly Coughlin:

Congratulations on your anniversary. I hope you have a good day.

Don Brailsford:

Exactly. People like a lot of things. I'm sorry. I've been in social media for nine years. I never even noticed when somebody like my stuff. To me it's like, okay. Good, I've got some likes, but I didn't chase the guy down. Hey, thanks for liking my stuff. Another thing that LinkedIn or social media experts like to say is, you should post articles. That's great. Questions under that. Talk about taking time. Oh, my God. It's really very, very simple. Honestly. It's very simple but it's very time consuming, and it requires discipline and consistency. I found in my brief history on the planet earth that I'm a lot more consistent when the machine is doing my consistency. It does a lot better job of showing up every day and never getting bored and never getting tired and executing when it's a piece of software or it's a machine and it's not me.

I seem to have these problems of getting distracted, having to chase my dogs because he got out. I have a better idea. Not feeling like it that day. When you have a system where you know every day, every day out there, your work's getting done, and the sole thing that we say for the clients is the things that human beings have to do. You get to pick who you want to go after. Then, once they start communicating with you, once you get into dialogue and it's interpersonal communication which we all love, that gets handed off. All of the, keep nudging, keep nudging, keep nudging, keep nudging, keep delivering, keep nudging. That's all automated.

Kelly Coughlin:

Let's take the five categories. Identification first. Does your system reduce the time involved in that?

Don Brailsford:

We use all the same things for searching that LinkedIn does, but ours is sort of easier to do. It's just a few clicks. I wouldn't really look at it as time saving so much as setting it up. Once you set it up where you really saved a bunch of time, it's because it's not the initial figuring out how you want to go after, and that search comes up and there's 283 them. Well, now I've got to sit there and by hand put together 283 messages that say Kelly and then Bob and then Mary and then Eric and then whatever. Then, putting some information in it about them and then changing the message and putting my signature. Our system, you write the message that you want. If I'm writing to a whole bunch of manufacturing executives I'm going to say something about the manufacturing field, let's say something about our firm. We're very active in manufacturing industry locally. Heard great things about you. Love to get together and have coffee and meet and discuss ways that we might be able to assist you. Then, our system will go through and just deliver all those for you.

Then, it's not just that message. It's the follow up message. When people connect with you, if they don't respond, basically you just go, okay, and you wait, and the system will send out the follow up. Hey, when we connected a couple days ago, as I mentioned we'd love to get together for coffee. Still serious about that. Would you be available sometime next week? Oh, and by the way, here's an interesting article you might like about tax breaks for manufacturing concerns that were created this year. Whatever it is. I'm making that up, obviously. Then, the third message and the fourth, all the way to an email. You sent three messages by LinkedIn, and then the last one you should send by e-mail because you do have your e-mail.

Some people don't spend a lot of time on LinkedIn, and some people don't have that LinkedIn messages forwarded to their e-mail. So, try them a couple three times on LinkedIn and then you say, well, I'm just going to reach out to you on e-mail. The last message to you might have said, hey Kelly. We connected a while back. I mentioned I want to meet with you and reached out to you a couple of times and haven't heard anything. It occurred to me you might not be on LinkedIn very often. Is this a better way to communicate? What I said to you was, I'd love to get together and have coffee. I've got this, this, and this to offer. If you can let me know one way or another. I certainly don't want to waste your time, and I hope you're having a great week. At that point, you're going to get a response sometime. You can't ignore four communications.

If they do, at that point, who cares? It's nice to be able to say, some will, some won't. So what? Someone's waiting. As long as you always have someone ready to go to, you don't feel like you're ready to starve. It's awful exciting to know that every day I've got this long list of people to see, and my biggest problem is I don't have enough time for all my new meetings and new opportunities, versus I don't know how I'm going to get to see that guy. I don’t have anything going on. My boss wants a report of my activities. Not real happy about that. 

Kelly Coughlin:

What kind of time reduction do you see users would experience?

Don Brailsford:

It does what would take a human being, some nights it could be four hours. Some nights, you might be able to knock it out in one or one and a half if you just put your head down and just went like a maniac. Bottom line is, on a daily basis, your responsibility is open up your inbox and see if there's anybody who responded to you, who you need to talk to, and tag them that they did that so the system knows, okay, you got this. We're done with our sequence, and that's it. Fifteen, 20 minutes to do what needs to be done versus an hour and a half to four hours is, I think, a pretty substantial time savings. I think you'd be a superstar in the banking industry with this. I really do. 

Kelly Coughlin:

That covers what I wanted to cover, Don. one of the things I always end with—I didn't give you a heads up on this, but this might be a little bit of a curve ball. I'll give you the choice of giving us one of your favorite quotes, or tell us one of the dumbest, stupidest things you've ever done in your business career.

Don Brailsford:

My favorite quote is, I've learned so much from my mistakes, I'm thinking of making a few more.

Kelly Coughlin:

Don, thanks again for your time, and we'll be in touch.

That concludes my interview with Don Brailsford, a LinkedIn marketing guru. I have negotiated a discounted fee with Don for community banks only. He shares my commitment to helping community banks succeed, and he's offered us a great program at $97 a month with the final two months at no charge. You should know that in order to use his LinkedIn marketing application, you need to subscribe to LinkedIn’s Sales Navigator program, and that is around $75 a month. LinkedIn is free if you just want to post your own profile, but if you want to use it to really help get business, you need Navigator. If you use Navigator, you absolutely need this application. $97 a month to save two to four hours per day. That is a savings of about 60 hours per month. So, if your time is worth at least $1.60 per hour, then you need this. I use it and I love it. That's it for me. I'm Kelly Coughlin, CPA and CEO of Bank Bosun. Thank you.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Apr 28, 2017


And now your host. He thinks his uncle, Father Bernard Coughlin, SJ, is a saint. Kelly Coughlin. Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly Coughlin:

The name of the book I read is Sell with the Story, and this is part two of my interview with Paul Smith, who’s the writer of that book. Paul, how about you and I do some play acting now? I'll be the banker offering traditional commercial banking which are depository and lending services. I know you've deposited your wealth of money in your bank there and you've probably borrowed money for your home. I've produced two sales pitches that are in my mind clear, concise, and credible. That's been my mantra as you've heard me saw a couple times in the previous podcast. I want it clear, concise, and credible. Now, I have not focused on it being interesting, attention getting, and memorable, and that's where you come into the picture. I'm the banker. You're going to be the prospective client whom I've never met. This is just a sales introductory presentation. I'm going to give the initial pitch, and you just make some comments on how I could juice this up a little bit. It probably doesn't lend itself perfectly for a story, but if you can't get this introductory piece down where it's interesting, attention getting, and memorable, I never get a chance at telling the story. All right?

Paul Smith:

Yeah. That would be great.

Kelly Coughlin:

Let's give it a shot. Hello, Paul. My name is Kelly Coughlin. Paul, I'm a vice president and commercial loan officer at Bank Bosun in Minneapolis, Minnesota. I love to work with companies to help them succeed and grow by offering high-quality, competitively-priced cash management and lending services. We've been around since 1960. I was hoping I could come by your office and get to better understand your business and the banking services you currently utilize and maybe identify any services we have that might help you better manage your business. Would that be okay?

Paul Smith:

At this point, there's a couple of different types of stories that you might tell instead of what you just said. By the way, that was just first two or three sentences. If you and I really had a conversation, it would last three or four or five minutes. You'd have time to say more stuff than just that. A couple of types of stories you might tell there. One is, once they know that you're a commercial banker, they're used to getting phone calls from commercial bankers. They'll know what a commercial bank is and the kind of things that you might offer. What they're wondering at that point is, how are you any different than the other five commercial banks in this county, four of whom have already called me? That's what they're wondering. Why should I even bother meeting with you if you're going to be the same as all of them? What you need at this point is a how we're different from our competitors’ story. Let me give you an example of one of those from a different industry, the industry of the commercial cleaning business.


These are the folks that literally come in at night and clean your offices. You've got these companies. One of them is United Building Maintenance. I think they're in New York. The owner of that, Sharad Madison, when he's at that stage and he's got to convince people that his company is different than the others. Instead of listing, here are the four reasons why we're better than our competitors. He tells them a story about the last new client that he got. He said, when we get a new client, I always go in before the old cleaning company has stopped so I can observe them working because I typically end up inheriting the contract labor that comes with these cleaning services and I want to see how they're doing their job now because I'm going to have to get them to do it better, because I want to do better. He says, we go in, in the middle of the night, and we come across this guy. He's shampooing the carpet. He’s shampooing with one of those shampooers that you'd use at your home, a residential style shampooer. But there's a half a mile of carpet just on one floor of this building.


It's going to take this guy weeks to get through shampooing all of these carpets. What I did, as soon as we took over the contract I put him in a commercial-grade riding shampooer that you can sit on. It's three times as wide. It goes twice as fast. He can get the whole building done in one night. He said, then we went over to the offices where they were cleaning the cabinets. I looked on top of all the file cabinets and there were these half moons swiped out in the dust. I know exactly what that means. What that means is, the person cleaning the cabinets isn't tall enough to reach the back, and they're just reaching up and they're swiping out a little half-moon shape. The truth is, it would be better if they didn't even clean it, because it's the contrast between the dusty part and the clean part that makes it obvious that it's dusty. He said, I went to find the people that are cleaning those cabinets. Sure enough, I was right. Most of them were about 5’4” tall and these cabinets are 6’ tall.


They just can't reach the back of them. I gave them these simple, little plastic 2.5’ extension wands on their dusters so they can reach the back. That solves the problem. He just told these little simple stories like that. Now, you know the difference between the way he does business and the way his competitors do business. For you, I would come up with a story like that that explains in a very concrete way how doing business with you as a commercial bank is different than the bank across the street. Now, if you're calling on somebody who doesn't know all the basics, then it's a different story you need. It's one of those introducing yourself stories that explains in a very simple way what it is you do. But it's not going to be radically different from what anybody in your industry does, because you're just explaining the basics. That's a different kind of story that you would use.

Kelly Coughlin:

Yeah. That's terrific, Paul. There's a story I remember reading in your book about, I think it was Andy Smith and these relocation bonds I thought was pretty interesting. Why don’t you share that with us?

Paul Smith:

This is a guy who works in investment banking, I guess you would say. His job, he's a bond dealer who sells bonds to banks, to other banks. You know how these Fannie Maes and Freddie Macs will aggregate a bunch of home loans and put them together into a big multimillion-dollar asset that they can sell to banks. All of them are essentially the same, depending on what the number. It would be, these are 30-year mortgage bonds with 3% coupon and they're trading at 30 basis points below par or something. If it's another package of loans and it's got the same numbers, 30 years, 3% coupon, 40 basis points below par, it's going to be almost identical in terms of an asset. What he wants to do is differentiate the ones that he's putting together or the ones that he's selling from the others. One of his favorite ones to sell he calls relocation bonds. The way he explains that is he says, these are bonds that are almost identical to all the others that are 30-year 3% coupon 40 basis points below par, except all of the borrowers, all the homeowners that have all these mortgages are people who have recently been relocated with their company.


You know how that works. You get a big company, a General Electric, a Ford Motor Company, a Procter & Gamble, whatever, and they want to send their senior managers to a new location to run the new office here and then move them around somewhere else because they're grooming them for senior management positions. Every three years, they pick up and they move somewhere else. The company literally buys out their mortgage, pays to relocate them to a new city, they buy a new house, they get a new mortgage. Then, three years later, it happens again. The company is buying out that mortgage and moving them somewhere else. What you've got, the numbers sound the same, but the truth is, the underlying riskiness of these bonds is way different because instead of being Paul Smith that's on the line to pay off this mortgage over the next 30 years on month at a time, the truth is in three months, some multibillion-dollar company is going to pay of the mortgage, which is a guaranteed thing. General Electric is not going to go bankrupt tomorrow, but Paul Smith might.


The risk profile is really different, even though the numbers all sound the same. Even if he's not getting relocated, these relocation people, they're so upwardly mobile that they're going to get promoted soon and they're going to want to buy a bigger house. They're going to cash out this loan and get a new one. This thing is going to turn so much faster than a regular loan that has the exact same financial statistics attached to it. He would tell a story like that about these people moving from house to house, from city to city, getting promoted. He'd pick one person. He actually tells a story about his brother, which turns out to be me, by the way, going through that career that way. That's his story that sells the bonds that helps the bankers see that this set of bonds is different than the others. It's a story that that banker can then tell the bank president, and the bank president can tell that story to the shareholders of the bank. It will give all of them comfort that, oh yeah, we're investing smarter than just your average banker who’s buying bonds just based on the numbers.

Kelly Coughlin:

Okay. That's terrific. I want to finish with just a restatement of your perspective on story structure, because I think that's what I want the bankers to come away with. Can you talk about selling with the story structure, the steps, the transition in explaining the hook again? Context, challenge, conflict resolution. I show you have transitioned out. I'm not sure what that means. Lessons, and then recommended actions. Do you mind spending some time on those?

Paul Smith:

Yeah. The main four parts of the story are the context, the challenge, the conflict, and the resolution. Those four parts, that’s the real story. I'm often asked by people, how do I transition into my story? How do I kick off my story and get into the storytelling from whatever else I was saying before? That's what the hook does for you. It gets your audience’s attention and lets them know that if you will pay attention for the next two minutes, I'm going to tell you something that's very important to you. It's going to be a story, but they don’t need to know that. It gets their attention and forces them to be interested in listening to your story.

Kelly Coughlin:

That would be the why.

Paul Smith:

Yes. That's that first question that you need to answer, which is in the hook, which is why should I listen to this story? It's a half a sentence. It sounds like, the best example of that I've seen was, and then you start into your story. If somebody asks you, why do customers come to your bank instead of other banks? Your answer could be, I think the best example of that was, a customer of mine named Bob that we just had start last week. Let me tell you about him. That's your hook. All the hook does is, it tells them, I'm going to tell you a story about a guy named Bob who’s like you, but that's the hook. It's, oh, good, because that's exactly the kind of thing that I want to hear right now. I don’t want to hear some sales pitch. I want to hear about somebody real. So, that's the hook.

Kelly Coughlin:

If it's a millennial that's coming that's coming into your bank and, why should I go with you versus Rocket Mortgage? You don’t pull out, I had an 80-year-old woman in here.

Paul Smith:

Remember we said three most important parts of the story is get a relatable main character, a hero they care about? People will care about a hero that's like them.

Kelly Coughlin:

Like them, okay.

Paul Smith:

Yeah. That's the first question. Then, you're into the context, and two questions you've got to answer in that part. Where and when did it take place? And who’s the main character and what did they want? That sounds like, back a few years ago at this other bank, there was one of these customers who was trying to get a loan. That's it. That's the context. The next thing, the challenge. What was the problem they ran into or the opportunity they ran into? The problem was, it was too hard to get a loan at that bank and they couldn't get a loan. They couldn't buy the car or the house or whatever. Their wife divorced him because he couldn't provide for the family. That's the context is, some guy two or three years ago, at this other bank, trying to get a loan. That's the context. Then, like I said, the challenge or opportunity is what good or bad happened that created the whole need for the story to happen? Question five gets you into the conflict.


Question five is, what did they do about it? This is where you show that honest struggle between the hero and the villain. You've got to see them. You'll say, he did this and then the banker did this and then he tried this and then the banker did that. This is the longest part of the story, by the way. The conflict. Answering question number five could be half of the story. Half of the words in the story. Half of the time is this conflict about the back and forth between the hero and the villain, the struggle they had. When you're done with that, then you've got to answer question number six, and this is the resolution of the story. It's, how did it turn out in the end? How are the things or the characters in the story changed as a result of this? A made-up story it might be, he got so fed up that he took all his money out of that bank and came across the street to deal with me. That's how the story was resolved at the end.

Kelly Coughlin:

I assume that you like to do consulting with banks and other companies, obviously. What do you do, training sessions with them and public speaking? That sort of thing? Is that part of your business model, too?

Paul Smith:

Yeah. It's specifically training on using storytelling to either help them be a better leader or help them be a better sales person. I do half day and full day training sessions with their whole team, usually not one-on-one. I can do that as well, but the most effective ones are a full day, in a conference room with their whole leadership team or their whole sales staff on how to craft better stories to be more effective in their job.

Kelly Coughlin:

I want to know how people can find out more about you and your work and get in touch with you. Is there anything else that I missed that you feel need to be communicated?

Paul Smith:

For now, folks can find me, the easiest way is on my website which is, which is the name of my first book. They can find out about my books and the coaching and training I do on storytelling for leaders and sales folks.

Kelly Coughlin:

Paul, thank you very much. That's terrific. I enjoyed talking to you. Thanks.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Apr 28, 2017

An old Native American Proverb: “Tell me the facts and I’ll learn them. Tell me the truth and I’ll believe. But tell me a story and it will live in my heart forever.”


And now your host. Kelly Coughlin. Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CPA and CEO of BankBosun. As most of you listeners know, BankBosun and I as CEO are committed to helping community banks navigate risk and discover reward in a sea of risk, regulation, and revenue threats. While risk and regulation threats are key and critical forces to consider when managing your bank, revenue threats and revenue opportunities are what really gets me excited and jazzed. Absent high-quality revenues and revenue growth, it becomes very challenging to deal with the other two. I like using the term creating revenue. Some have asked me, why the word creating? Well, it's simple. Revenues really are the only thing that businesses create, like an artist from Greenfield. More blank canvas. Sometimes from nothing, sometimes from just an idea or a vision. We have an idea. We put some packaging on the idea. We offer it to others, some purchase the idea, and shazam. We've created a revenue. Expenses on the other hand, are revenue ideas created by others.


If we like those ideas, we have to pay for them. Those are expenses to us and revenues to them. In my mind, the creation of revenues is first and foremost the primary duty of the chief executive of a company. Everybody else is responsible for ensuring that these revenues generate profits for the company. Consequently, creating revenues is becoming my singular purpose with BankBosun, whether it be through improving your public speaking with help from my actor colleague Chris Carlson at Narrative Pros or using our tactical ecosystem marketing strategy to produce your own syndicated podcast and develop new customers and centers of influence, guaranteed. Or developing fine-tuned sales messaging that is clear, concise, and credible. It is our mission and goal to help community bankers create and grow revenues through the utilization and implementation of some key practical tools. Today, we are going to talk about sales messaging.


To be clear, sales messaging includes sales phone scripts, one-on-one personal visits, emails, and presentations. For years, my mantra on sales messages has been that they must be clear, concise, and credible. To me, sales messages are a bit like poetry. I like to say, you have small words to communicate big thoughts effectively and efficiently. However, the one thing I had missed was to ensure not only your message was clear, concise, and credible, but interesting, attention-grabbing, and memorable. My accounting background is one that tends to lead me to believe that simplicity, clarity, and accuracy are all you really need, but the reality is, if your message isn't interesting, your audience will never really hear how clear, concise, and credible it is. This leads me to my daughter, Cara. I have four daughters. Two months ago, Cara started selling drugs. Marijuana. How do you think I felt about that? Actually, terrific. Cara took a job communicating to medical doctors the benefits of medical marijuana for certain types of patients with chronic pain or seizures. Totally legit, totally legal.


She works for one of the highly regulated medical cannabis distributors in the state of Minnesota. In the course of talking to Cara about her sales job, I learned that she and apparently many millennials refer to sales as outreaching, not sales. Outreaching. Apparently, sales is a bad word. As we started talking about how and what to communicate to the doctors and clinics to whom she was outreaching, we started working on her outreaching phone call script and her outreaching office visit messaging script. I started to research ways and methods I could help her with her outreaching script, and I started coming across the works of Paul Smith. Smith is one of the world’s leading experts on organizational storytelling. He's a bestselling author of the books Sell with a Story, Lead with a Story, and Parenting with a Story. I purchased the audio book version of Sell with the Story, and I must say I loved it so much. I didn't buy the whole company. Rather, I bought the printed book as well. I told Cara to listen to it and read the book. I thought it would help her with her outreaching script. It did help her.


It helped Cara convert a sales script that needed to quickly overcome the inherent skepticism medical doctors had about what was once an illegal drug to an effective outreaching story about how medical cannabis helped a 14-year-old boy who had repetitive seizures and was teased by classmates to now live a happy and healthy life. Today, we're going to focus on sales messaging because today, I'm going to interview the author of that book, Paul Smith. I'm going to divide this interview into two podcasts. Part one we are going to focus on the general perspective on what storytelling is. Why is it important? And the theory behind his work. In part two, we're going to focus on specifics related to the financial services and community banking space so our listeners can come away with some clear and specific ideas to help structure clear, concise, and credible messaging that is interesting, attention-grabbing, and memorable.

As part of his research on the effectiveness of storytelling, Paul has personally interviewed over 250 CEOs, executives, leaders, sales people in 25 countries, documented over 2,000 individual stories. Leveraging those stories in interviews, Paul has identified the components of effective storytelling and has developed templates and tools to apply them in practice. His work has been featured in the Wall Street Journal, Inc. Magazine, Time, Forbes, Fast Company, The Washington Post, PR News, and Success Magazine, among others. Paul holds a Bachelor’s degree in economics and an MBA from the Wharton School at the University of Pennsylvania. He lives with his wife and two sons in the Cincinnati suburb of Mason, Ohio. With that background and context, let's get Paul here. Paul, are you on the line?

Paul Smith:

Yes, I am, Kelly. It's good to be here.

Kelly Coughlin:

Great. Did I mess up anything in that introduction?

Paul Smith:

No, that was great. I'm pretty sure that was me you were talking about. So, that's good.

Kelly Coughlin:

More importantly, how bad was my storytelling in that introduction? Be honest. I can handle it.

Paul Smith:

No, no. That's good. I liked hearing about your daughter and a very nice surprising beginning to that with the marijuana sales. I didn't see exactly what twist that was going to take, but it clearly took an interesting one. So, well done right off the bat.

Kelly Coughlin:

To be honest with you, I put that in there after having read your book. I thought, I think that's what you're talking about, is get something that is interesting and personal. I got a specific time, person, event, and that's what you're all about, aren't you?

Paul Smith:

You did, and you got a nice surprise at the beginning to grab attention. Well done. Something must have worked in the book. I'm glad to hear that.

Kelly Coughlin:

Let's talk about the book that I read, Sell with a Story. Tell us what exactly is a sales story. Let's start with the very basic thing.

Paul Smith:

That’s a great place to start, because I think a lot of people have a very different idea about what the word story means, especially when attached to the word sales. Imagine it's Monday morning and you're in a meeting with a number of your peers and comrades and you're preparing for a big sales pitch that you've got to make in a week or so and the boss comes in and maybe that's you and leans out over the table and says, all right, people. What's our story? Now, do you think for a minute that what that boss means by story is an actual story? A narrative about something that happened to somebody sometime. The answer is almost certainly no. What they mean is, what is the series of facts and data and arguments that we can put together in a logical sequence probably in a Power Point presentation that we're going to walk the prospect through such that by the end of the meeting, we've got the highest odds of successfully making a sale? That's what they mean by, what's our story? In other words, what's our sales pitch? But that's not the kind of thing that anybody would have called the story 20 years ago. They would have called it a sales pitch or talking points or a message track or presentation slides, or something.


Today, people use the word story for all kind of things that was really never originally intended to mean. When I talk about a sales story, I do not mean another word for a sales pitch. I mean actual stories about things that happen to somebody. The indicators of that are the things that you mentioned earlier. There's a time, a place. There's a main character like your daughter. That main character has a goal. There's usually someone or something getting in the way of that goal. There are events that transpire throughout the story that hopefully by the end resolve themselves nicely in either the main character achieving their goal or not achieving their goal, and generally some lessons to be learned from it. That's a story, an actual story. As opposed to a sales pitch, which is, Kelly, let me tell you the three reasons why you should hire me as your sales consultant. Then, I give you my list. That's not a story. That's a list, or that's a sales pitch. That's what a sales pitch is, essentially. It's a list of reasons why you should buy what I'm selling.


One of the uses of sales stories is contained within the sales pitch itself. You may have 30 minutes that your prospect has agreed to meet with you face-to-face or on the phone. So, you've got 30 minutes to make your sales pitch. You've got 30 minutes on the phone and you're going to spend five minutes of it building rapport and then 25 minutes of it on your actual sales pitch. Of that 25 minutes, you might spend five minutes actually telling a story. You might tell two, two and a half minute stories within that 25 minutes of well-structured logical sales pitch. The rest of it is the normal kind of thing as you would do when you're making a sales pitch. You're giving people reasons why they should hire you. You can also use these stories at other places in the sales process that is not the sales pitch. The whole sales process is a much longer thing. It starts with introducing yourself and building rapport and yes, making the sales pitch itself, but also handling objections and closing the sale, and even managing customer relationships after the sale. So, there are sales stories that you will use throughout all of those phases of the sales process and only one of those phases is the actual sales pitch itself. Does that make sense?

Kelly Coughlin:

Okay, I got it.

Paul Smith:

In fact, can I share an example with you? I think that’ll make it even more clear.

Kelly Coughlin:


Paul Smith:

May, a year ago, we were at an art fair. It was actually something that happened to me and wife. She was looking for some art for our kids’ bathroom at home. We're going booth to booth. We get to this one booth of this underwater photographer. He just takes these mesmerizing pictures of underwater life like sea anemones and coral reefs and sea turtles and things like that. She gets emotionally attached to this one picture that to me just looked about as out of place as a pig in the ocean. The reason is because it literally was a picture of a pig in the ocean. I just thought that was a craziest thing. Pigs don’t live in the ocean. They generally, you don’t find them swimming around. When I finally got a chance to ask the artist himself, I said, dude. What's with the pig in the ocean? That is when the magic started. He said, it was the craziest thing. That picture was taken in the Bahamas off the coast of this uninhabited island called Big Major Cay.


Apparently, what happened is a few years earlier some local entrepreneur decided he wanted to raise a pig farm for bacon, I suppose. He bought all these pigs and he throws them out on this uninhabited island so he can keep them for free. The problem was that there wasn’t much on the island for them to eat other than cactus. Apparently, pigs don’t like cactus. He said they weren't thriving. They got lucky in that they noticed that there was some local restaurant owner on a neighboring island who would boat his kitchen refuse every night over to Big Major Cay and dump it a few dozen yards offshore, just literally over the side of the boat. Pretty soon, these pigs get hungry enough that they're like, I'm going to swim out there and get that food, even though they generally aren't known to be native swimmers. So, one pig braves the waters and then two pigs brave the waters. Here it is, several generations later and all the pigs on Big Major Cay can swim. He said, that's what it made it so easy for me to get this picture is because they've just been trained that any time a boat comes near shore, they assume they're going to get fed. They think it's the guy from the restaurant. He said, I boated up to this island and these pigs swam out to my boat.


I didn't even have to get out of the boat. I just leaned over and stuck my camera in the water. Boom. Easiest picture I ever took. Of course, at that point, I got my credit card out and I'm like, okay. We'll take it. Why was that? Two minutes earlier, that picture was worth nothing to me. It was barely worth the paper that it was printed on, but after hearing that short, two-minute story, all of the sudden, I had to have that picture. It was literally worth more money to me now because I wasn't just buying a picture. I was buying a story that had a picture with it. Every time somebody comes to my house and goes to the bathroom, I can tell them that story, and I like telling the story. It's this history lesson and geography lesson and animal psychology lesson all rolled into one. That's an example of a sales story as opposed to a sales pitch, because what that guy could have done is said, look, Mr. And Mrs. Smith, here are the three reasons why you need to buy this picture. First of all, it's the right size to fit in your bathroom. Second of all, it's got the right color palette to match your towels and the pain on the walls. And third, it's in the right price range that your wife already told me. So, don’t you need to just buy this right now? That's a sales pitch. They're logical, rational reasons why I should buy it, but the story is very different. It was far more effective at getting me to buy that picture.

Kelly Coughlin:

That's a great story. I love that one. Why do you think stories are so effective?

Paul Smith:

Probably my top three reasons are, first of all, this storytelling speaks to the part of the brain where decisions are actually made. There's been a number of studies lately that show that human beings make subconscious emotional, sometimes irrational decisions in one place in their brain. Then, they rationalize those decisions a few nanoseconds later in the logical conscious part of the brain. We think that we're making these rational, logical decisions, but the truth is, we're really making emotional subconscious decisions a few nanoseconds earlier. The second one is, it literally makes things easier to remember. Right now, I'm giving you a list of three things. My guess is that by this time tomorrow, you and most of your audience members are not going to remember these three things. I'm telling you right now. And it's okay. I'm not going to be insulted.


My guess is also that by this time tomorrow, you and everybody listening to this will remember the story of pig island. A week from now and a month from now and even a year from now, most of you listening to this will be able to tell the story of pig island and get most of the facts right, but there is nobody that a year from now is going to remember this list of three things that I'm giving you right now. It's just a list of three things. Storytelling literally makes things easier to remember. I guess the last reason I'd give you is that stories inspire. Slides don’t. When’s the last time you heard somebody say, wow, you'll never believe the Power Point presentation I just saw? Nobody says that. But they will say that about a great story. I think that's what you want your communication to have that kind of an impact on people.

Kelly Coughlin:

What makes a great story from simply a good or average one? Or do we need great stories?

Paul Smith:

The worst time to tell a story is when you don’t have a good story to tell. In fact, I'd even say, if you don’t have a great story to tell, don’t tell a story at all. What makes the difference between a great story and just an average story, I think, is three things. This could be any story. A movie, a novel that you'd read. Any kind of storytelling really centers around having a hero you care about, a villain you're afraid of, and an epic battle between them. Think Star Wars. You've got your Luke Skywalker, you've got your Darth Vader, and you've got this epic battle between them. That's what great storytelling is at its core. I admit that sounds rather Hollywood. If you translate that into business relevant language, what that means is, a relatable hero, a main character your audience can relate to. A relevant challenge. So, the villain becomes a relevant challenge, which could be a business situation. It doesn't have to be a human being they're fighting with. Then, that epic battle just becomes an honest struggle. You need to see your main character struggling with this challenge that they're faced with. If there's no real struggle, it's just not an interesting story. I've got to add one thing to that since it's a business story and that is, there's got be a worthy lesson or an actionable recommendation that comes out of it. Or you've just entertained people. Those are the four things, I guess. A relatable hero, a relevant challenge, an honest struggle, and a worthy lesson at the end.

Kelly Coughlin:

I recall in your book you said there is, I think, about 20 or 25 stories that every sales person should have in his or her repertoire. Tell us about that.

Paul Smith:

As I mentioned earlier, what I found when I was interviewing people for this book and by the way, I interviewed professional sales people and professional buyers at over 50 different companies just for this last book. I was looking for where in the whole sales process are great sales people telling stories. Real stories like I'm talking about stories. I was surprised to find out it was throughout the entire sales process all the way from introducing yourself to the buyer to preparing for the sales call. Even stories they told themselves prior to the call just to motivate themselves for the sales call, then to building rapport with the buyer, making the actual sales pitch, handling objections in the call, closing the sale. That never occurred to me that somebody would tell a story to actually make the final closing of the sale. I thought that would be a very fact-based, handshaking type moment. Even managing customer relationships after the sale. In those one, two, three, four, five, six, seven phases of the sales process, there's three or four specific types of stories that I found great sales people using in each of those phases. That's what the first third of the book does. It just documents, here are the seven phases and the 25 stories that you probably need to have at your disposal. It's throughout that entire process.

Kelly Coughlin:

You'd probably agree that the stories have to be authentic, real stories.

Paul Smith:

Yes, stories definitely need to be genuine and authentic. Actually, that's one of the things that most stories are. Just telling a story in general, especially if it's a story about yourself, is going to almost always come across as genuine because, I was there. I'm telling you something that actually happened to me as opposed to, I'm reading you a script that my marketing department told me to read over the phone to you. That is going to come away not genuine. In fact, this is where I think I learned more from the professional buyers, professional procurement managers than I did sales people. One of the questions I asked them was, what is it that makes a sales pitch sound like a sales pitch? They had a lot of really interesting answers to that. In fact, most of them described how it made them feel when they could tell that they sales pitch had officially started. They said, basically, it just made me want to throw up. One of them said it made the hairs on the back of my neck stand up, and I would get very defensive. I just thought, oh, God. It's started.  


It's not a feeling they want to have, and it's not a feeling you want them to have that they can tell exactly when your sales pitch has started. It turns out, and I asked them, what is it that makes you know that the sales pitch has started? Most of them said when the tone of the conversation changes from something that sounds conversational and extemporaneous to something that sounds memorized and scripted. That's when I know the sales pitch has started. If you don’t want your sales pitch to sound like a sales pitch, don’t tell it to people in a fashion that sounds memorized. The best way to make sure that it doesn't sound memorized is quite frankly, don’t memorize it. Don’t memorize every word of your sales story or your sales pitch. Memorize the general ideas and the general flow of it and then every time you tell it, it’ll be slightly unique because you're going to choose different words to craft your sentences. Now, they'll mean the same thing, but it will sound like it's the first time you've ever told that particular story before, because it will be the first time that you've ever told that precise story because you're having to make a little bit of it up as you go along. Or at least make up the words that you use because you didn't memorize word for word.

Kelly Coughlin:

Yeah. Fair enough, but I think you would agree that it's good to at least memorialize the script so that you're not wasting words. I look at it like writing business poetry. Try to get big ideas in small words. In today’s environment where you've the attention span has probably been cut by 70% in this whole culture, you don’t have much time. So, don’t be rambling on with the big, long sales pitch. Fine-tune it, work it, use precise, concise words. Otherwise, you're going to lose them.

Paul Smith:

Yeah, I agree. That's just a little different than memorize the whole—I think you said memorialize, and I think that's a good word for it. You're memorizing the major concepts and the order in which you're going to deliver them. You've probably thought through some of the key words that are going to help you deliver it, but that's different than memorizing a script. If you do that, you're going to deliver a memorized script. Then, it won't sound authentic.

Kelly Coughlin:

How long do you think the sales story should be?

Paul Smith:

Of all the sales stories that I documented in the book, the average length was about 300 words, which was about two minutes to tell. They ranged from as short as 50 or 60 words, which is like 30 seconds, to as long as three and a half minutes, maybe four minutes. The average was about two minutes. I found that interesting because in my first book Lead with a Story, which about storytelling for leadership purposes, the stories were twice that long. Four minutes on average. I think that makes sense, because leadership stories oftentimes, you're telling it to the people that report to you. People will listen to the boss longer than they'll listen to a sales person. They're your boss. You have to listen to them and show some respect and deference and all that. When a sales person is telling a story, they're telling it to the buyer. The buyer is the boss. Your time is cut down. We're not talking about five or 10 or 20 minute stories. We're talking about two-minute stories that you might use to punctuate a 15-minute sales call. They're very short things.

Kelly Coughlin:

Let's talk about story structure. I've always been schooled in this presentation formula of, tell them what you're going to tell them. You tell them, and then you tell them what you just told them. Then, you have the journalist’s approach where you give the meat first, the lead, I think they call it at the very beginning. You do that to get their attention or the reader won't ever get past to the remainder of the piece. Now, I think you recommend a bit of a modified approach to this where you focus on context, action, result. Then, you also then talk about seven steps including the hook for business. For business and banking pitches, what structure would you recommend?

Paul Smith:

Those other two that you mentioned, the tell them what you're going to tell them, tell them what you told them, then the journalist one, those are good structures but not for storytelling. The first one is the one that you learned in the third grade, and it's the structure of a presentation. If you're going to stand up and give an oral presentation about the book you just read, tell them what you're going to tell them, tell them, and tell them what you told them. It's introduction, body, conclusion. That's not a story. That's a presentation. That's a speech. That's the structure of a speech. The journalist one is not a structure for stories, either. It's a structure for a newspaper article. I know some people say it's a newspaper story, but it's not. It's a newspaper article. It's not a story unless it really is a story about something that happened to somebody. They have to write in that inverted pyramid, and for lots of good reasons that we probably don’t have to go into today. That's not the structure of a story, either. Real storytelling structure is the structure that you would use when you're writing a novel or a screenplay for a movie or something like that.


Those are real stories. People like that follow very complicated, very complex story structures like Joseph Campbell’s Heroes Journey story structure, which is 17 steps long. I don’t recommend using that simply because it's too long to use for a two-minute story. What I recommend is a four-step process. It's context, challenge, conflict, and resolution. That's the main body of the story. Now, what I've found is that people need a little bit more help than that. How do I get into the story? Then, how do I get out of the story and do some business with the story? I've added the hook at the beginning, which is how you get your audience to pay attention and listen to your story. Then, when you're done, the lesson that you learned and the recommended action are two extra steps after the story is told. The main body of the story is just this context, challenge, conflict, and resolution. Probably the best way to think about it, Kelly, is not in terms of these steps, but in terms of the questions that your story answers.


In fact, there are eight questions your story’s got to answer. I'm just going to give you all eight of them right now. This is the order in which it should answer them. Number one, why should I listen to this story? That's the hook. If you can't answer that question, then they might not listen to you story. Then, you get into the main body. It's, where and when did the story take place? Who’s the hero and what did they want? What was the problem or opportunity they ran into? What did they do about it? And how did it turn out in the end? That's the first six. Now, you're done with the story, technically. The remaining two questions are, what did you learn from that story? And what do you think I should do now? That's your opportunity to make a recommendation. If your story answers those eight questions in that order, you've got the story structure right. It doesn't matter if you call the first part the context, the challenge, the conflict. That's less relevant than getting those questions answered and in that order.


Every time he or she tells the story, that's the structure that it should be in. If he or she is actually telling a story, if what they're doing at that moment is, I just want to tell you a little bit about my bank. There are three reasons why we're different than our competitors across the street. Let me tell you about those three things. He's not telling a story. He's giving you a list of reasons why they're different, and that's fine. You need those things. You don’t need a context, a challenge, a conflict, and a resolution if you're going to give somebody a list. But if you're going to tell them a story about one of your bank customers who came in and said, look, I used to bank across the street and I've had it with them. I can't stand it anymore. Let me tell you what happened. I went there and I tried to open up a checking account. I had this problem and then in finally got it resolved. I went back and then I needed to get a car loan. They made me fill out 500 sheets of paper, and it was ridiculous. Then, they told me I wasn't qualified because of some silly thing that was wrong on their part. Now, you're telling a story. That story needs a context, a challenge, a conflict, and a resolution if you're going to do it well. If you're just going to ramble on, you can say whatever you want. If you want an effective story, you'll answer those eight questions in that order. The conflict is simply the struggle that the main character is having achieving their goal.

Kelly Coughlin:

In the banking world, you can pick a new customer that you've got because they had a bad experience with a competitor. You can tell that story around how you were able to get this customer and solve their problems because the competitor had created these problems. That's the conflict part. Or, a customer that you took care of as a sample case study on, here's how we take care of our customers on a recurring basis. There's no real conflict with that, right?

Paul Smith:

What you're describing is one of the type of the 25 stories. It's a customer success story. It's story number 14, by the way, in the book. There's still conflict in a customer success story because the customer has to have a problem that needs to be solved. They struggle with that problem, and the solution they decide to settle on is hiring you. The other type of story you just mentioned is called a problem story. That's story number thirteen. It's a customer having all these problems but not having a good solution. Hopefully, that's with one of your competitors and not with you. The customer success story is hopefully when they come to you, they have a better experience. Those are two of the 25 types of stories, but your banker, your hypothetical banker we're talking about might tell a story that's story number 10, which is the story of the founding of their company. Who founded this community bank? And why did they found it?


What made them quit their day job? Because nobody ever quit their day job for a boring reason. It's always because they're fed up with the boss. They hate their job. They hate the industry they're in, whatever. I'm going to go become a restaurant owner. I've always had a passion for cooking or whatever. It kills me that all these farmers around here can never get loans at the big city banks. My dad was a farmer and his dad was a farmer. I'm going to go start a local bank. That can be a fabulously important story for a banker to have in their repertoire is their founding story, because that tells you a lot about the bank. Why was it started? That will have the same structure. A context, a challenge, a conflict, and a resolution. The main character is going to be the founder of the bank. That's three of the 25 types of stories, but they all follow the same structure.

Kelly Coughlin:

Give us the 25 story categories so that we've got a good feel for those if you can.

Paul Smith:

I'll mention a few of them, and I'll send you a list and you can put that on your website. The seven categories are the ones I mentioned earlier. Introducing yourself, that's where you'll tell a story about what you do for a living in an interesting way as opposed to just reading your job description. You tell a short story about somebody that you've helped and how you helped them. Then, in the building rapport part, that's where you tell a story about the founding of the company is an example of one of them that would be in that building rapport. Or you might tell a story about yourself, why you decided to do what you do for a living. Why did you decide to be the CEO of a bank? What attracted you to banking? That’ll tell somebody some important about you. In the main sales pitch itself, we've talked about two of those types already. The explaining the problem story and the customer success story. There's other types there, as well. The pig island story is an example of a value-adding story. That's a story where the story actually adds value to the product that you're selling. I've actually got an example from a bank there on that one that I can tell you shortly if you're interested. The next phase is handling objections. Somebody always says, oh yeah, I like what you're selling, but the price is too high or I don’t like your quality or you're too far away or whatever.


So, stories to help resolve those objections. Sometimes even before they're brought up with a story about somebody else who had the same objections, and it turned out not to be a problem after all. You just thought that was going to be a problem, and it turned out not. Then, in closing the sale, there are stories that will help you create a sense of urgency on the part of the buyer to become my customer now instead of waiting six months. That can help you close the sale. An example of one in the last phase which is managing customer relationships is a loyalty building story. This would be stories that you tell your customers about other customers of yourself who love you and why they love you. Let me tell you what we did for this customer that lives six blocks away from here, and what we did for her. Let me tell me what we did for this other guy that lives in the next county but he drives all the way to our bank because we do this for him that nobody else does. The reason you're telling those stories about other happy, loyal customers is because you want this customer to be a happy, loyal customer and know, wow. I'm never leaving this bank. If you do all that for other people, you'll probably do that for me when it's my turn to need that kind of thing. Those are examples of the 25.

Kelly Coughlin:

I want to know how people can find out more about you and your work and get in touch with you. Is there anything that I missed that you feel needs to be communicated?

Paul Smith:

No, that's good. I think we're going to do the second podcast, and I can share one or two of those banking stories then. For now, I guess folks can find me, the easiest way is on my website, which is, which is the name of my first book. They can find out about my books and the coaching and training I do on storytelling for leaders and sales folks.

Kelly Coughlin:

Paul, thank you very much. That's terrific. I enjoyed talking to you. Then, we'll continue with part two of this. Thanks.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Mar 25, 2017

Sun Tzu and Woody Harrleson Help Banks with Revenue Creation

Narrator: He learned strategy by playing chess with his older brother.

Narrator: Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover reward. And now your host, Kelly Coughlin.

Kelly: Greetings, this is Kelly Coughlin, CEO of BankBosun, helping community banks navigate risk and discover reward in a sea of risk, regulation, and revenue creation threats.

Today we are going to talk about marketing strategy, tactics, and revenue creation. BankBosun has a program for banks called Tactical Ecosystem Marketing. It is the results of three years of research and discussions with marketing experts and community bank executives. It’s a program guaranteed to generate new revenues from all bank business lines. And get all the banks’ centers of influence – that is those people and companies who influence and recommend banks and bankers – get them fully on board and engaged to help you get new customers. Guaranteed. How you might ask? Spoiler Alert: By primarily promoting them – your clients, prospects and influencers – and their businesses and services -  and then secondarily promoting your services and yourself.

In 2014, I started researching ways that complex financial technology or financial services companies could be more efficiently and effectively marketed and closed. I use the terms efficiency and effectiveness carefully and intentionally, because they imply a reduction in time, as in shortening the sales cycle; reduction in expenses, travel, entertainment, and other direct business development costs; and reduction in effort, as in reducing the days, months or years it takes to close a deal. This was the challenge and, believe it or not, I actually figured it out.  But first it requires some attention to strategy and tactics and then a discussion on marketing and revenue creation. I have invited my friend Chris Carlson to join us in a few minutes.

You see, Chris is one of my favorite people on the planet. He is a lawyer and an actor. Not one of those Hollywood elite actors though – he lives in South Minneapolis. But I think he has a small part in a movie coming out this summer. Chris has been very helpful to me in helping me craft my message and public speaking skills and style to conform not to dull and boring business standards, but to the stage and theater standards. Not that you need to be an entertainer. I certainly am not. Rather, you need to be your true and authentic self. Chris is terrific with this. So I asked him to help me with my messaging on this. And I thought, let’s do it as an interview and a podcast.

I know you have heard plenty of people talk about strategy…and some business people use strategy and tactics interchangeably. In war, if you do that, it can be life threatening. In business you can sometimes get away with blurring the two with the result ranging from financial and operational inefficiencies to the ultimate penalty in business…death through bankruptcy. I don’t like to blur them. Because I think it is critical to achieving success to define your strategy and constantly be revising your tactics to implement that strategy.

In short, strategy describes the destination and tactics describe the specific actions you will have to take along the way. Generally speaking, strategy doesn’t change that much, but tactics will constantly be adjusted and modified.

When I lived in Seattle, I used to have a sailboat. I loved participating in sailing races. There was one race in the winter of 1985. I think they called it the Frostbite Series. This taught me at the age of 25, the real difference between mission, strategy and tactics. There was some heavy weather on the Puget Sound…probably around 25 knot winds. The mission was to have no more or no less a crew suitable to lead, navigate and operate the boat in that competitive situation and in that weather condition. Round each buoy and finish the race in the shortest time; and win the race.

Before the race we developed our strategy on buoy placements and how we would round them; wind direction and speed and what sails we would need; and the number of boats, competition and the starting line placement and how we would approach the start. In a sailboat race, if you have a lousy start, you will have a very difficult time making up that time lost. Taking too much risk to cross the finish line ahead of the gun and have to circle back and re-cross could cost you five minutes. In a sailboat this can be painful.

Our tactical decisions went something like this. We added one more crew to the boat. We used a starting tactic where we went to the finish line two minutes before the gun, and sailed perpendicular away from the line for one minute. And then we tacked and turned around and started sailing back to the start line. The tactical theory here is that if you sail away from the start for one minute, it should take you more or less one minute to return to the start. If it takes you more, you are late, if it takes you less, you are early. I liked that starting tactic. We decided to not fly the spinnaker because it was so windy. The cost of that decision was a loss in boat speed. But the gain was that we expected others would be more aggressive and fly their spinnaker and either struggle with that during sail changes or perhaps experience a knock down. We adopted a more conservative tactic and hoped our competitors would be more aggressive and get hurt by that. The end result was while we were winning the race, but because one of the buoys had blown free during the gale storm, the race was canceled. We actually chase that windward buoy for about 90 minutes past the original placement of it until they finally notified us by radio the race had been canceled.

This one race taught me so much about the relationship between mission, strategy and tactics. In this race our mission never changed. Win the race. Our strategy was defined at the beginning based on conditions and competitive landscape. But our tactics were constantly being modified and adjusted and corrected to deal with the ever-changing conditions and our competitors’ reactions to those conditions. It taught me to not get caught into myopic thinking about how we win a sailboat race. The concept of not flying our spinnaker seemed so very foreign to me at the age of 25. Now, at 59, it makes total sense.

In 1980 a Harvard business school professor, Michael Porter wrote a seminal article, “Competitive Strategy: Techniques for Analyzing Industries and Competitors". Commonly referred to as Porter's Five Forces. Porter maintains there are five undeniable forces that play a part in shaping every market and industry in the world. If you haven’t created your own, Five Force Analysis, you need to do so. I love doing these things.  This will help you determine how to modify your strategy and tactics based on your competitive landscape. And always update it at least annually, if not quarterly.

So in summary, strategy and tactics work together as means to an end. There are a number of good quotes on strategy and tactics. More on strategy than tactics actually, because frequently the same principles in strategy apply to many, many areas including war, sports and certainly business. I just finished reading the book, POWER by Robert Greene. He even claims that there is strategy and tactic in romance. He quotes the 17th century French poet, Francois La Roche Foe Cou. I bet I butchered that name. Sounds a little like….Well anyway…“A reasonable man in love may act like a madman but he should not and cannot act like an idiot.” I love that quote.

Many of the concepts in strategy, apply to many if not all human endeavors. But tactics are more specific to a particular business and industry. There are hundreds of great quotes on strategy and tactics ranging from Caesar in the war versus the Gauls to Norman Shwarzkopf in the first Iraq war. I certainly have a couple favorite quotes on strategy and tactics including this one by Sun Tzu:

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

But my favorite quote on strategy and tactics especially for smaller banks with limited capital and budgets competing against big banks and big brokers with much bigger capital and seemingly unlimited budgets. It’s a quote by Napoleon, one of the most brilliant military strategists and tacticians, ever. Napoleon said, “The amateurs discuss tactics. The professionals discuss logistics.” I’m going to repeat that. “The amateurs discuss tactics. The professionals discuss logistics.” To me this plays exactly in to my core message in this podcast of revenue creation strategies and tactics that are both effective and efficient. Napoleon is saying, I don’t want to talk about tactical ideas that can’t be implemented, because of logistical constraints…only those we can actually implement. For community banks, this means, let’s not talk about big picture ideas that we cannot afford. Rather, if you have ideas that fit in our budget, then terrific. If not, let’s not waste each other time.

Well, rest assured, if you keep listening to this podcast and other video and audio content we have produced on you will see or hear that these meet the Napoleon standard referenced above. It is a discussion on tactics that are logistically feasible and reasonable for all community banks.

So with that in mind, I think I have my friend Chris Carlson on the line. I’m gonna start with a quote from a director who actually despised actors…recall Chris is an actor. Let’s see if Chris can identify the source: “I never said all actors are cattle; what I said was all actors should be treated like cattle.” So with that said, Chris time to come to the slaughtering pen…can I hear your best moo cow imitation?

Chris: I’ll try to give you my best moo cow imitation. But I’m first need a motivation. What is my cow trying to communicate?

Kelly: First of all, can you identify the source of the quote? What is the source of that quote?

Chris: I don’t know. It would have to be some sort of director. It can’t be Woody Allen, because he likes actors.

Kelly: Alfred Hitchcock

Chris: Alfred Hitchcock, that would make sense. What is my cow trying to communicate? I mean, because it could be Moo (uplifting). He’s trying to solicit an answer from the other cows. Or it could be Moo (forcefully). Like, move out of the way rancher, because he’s trying to cattle prod me into a slaughtering pen. Or it could be maybe a seductive Moo, that wants to get something going with one of the other cows.

Kelly: Let me hear that seductive one, again.

Chris: Moo, Kelly, Moo. Is that good? I mean. It’s not as good as a pugilist. You can do a good impression of, can’t you?

Kelly: What I thought you would do is just like a Mooooooo!

Chris: Oh wow! See, that’s why I’m in a nationwide movie opens tomorrow and you’re not.

Kelly: Why, ‘cause mine was just too kind of stereotypical?

Chris: Well I don't think they'd put your picture on the poster with Woody Harrelson peeing in a urinal. But they did for me.

Kelly: Did they? What's the name of the movie?

Chris: Wilson. I haven't seen it yet so I can't speak to the quality. But Woody Harrelson is pretty good.

Kelly: Alright that is terrific.

Chris: And I will not be mooing in it.

Kelly: So let's get down to business. Chris you heard my introductory statements, or as you actors call it, a soliloquy. What questions do you have about what I'm doing or how do you want to start?

Chris: As an actor you know I want to know how to make money. But you’ve got these kind of inventive ideas with generating revenue as you call it. So why don’t you fill me in and let me know if I can get in on it.

Kelly: As I mentioned earlier in 2014, I started researching ways that complex financial technology or financial services companies could be more efficiently and effectively marketed. Technology, the Internet, and mobile devices have enabled many businesses to operate more efficiently and effective in my mind…I think of Uber and many other kind of virtual companies. Many of these companies don’t even have a human being available to sell, support or service. They pride their business models on the ability to open up a sales funnel and close a deal without ever having to talk to or “touch” the customer. Those are “air quotes” under touch. Build a technology platform. Offer it to consumers. Make it easy for the consumer to pay for the services. And collect the money and deposit it. And spend more to capture more consumers and more money. No human interaction at all. If any of you have had to deal with Uber for ride sharing or Facebook or LinkedIn for advertising, you know exactly how challenging it is to talk to somebody there. In their minds, they are the perfectly fine-tuned efficient and effective revenue generators.

I use the terms efficiency and effectiveness carefully and intentionally, because they imply a reduction in time, as in shortening the sales cycle; reduction in expenses, as in travel, entertainment, and other direct business development costs; and a reduction in effort, as in reducing the days, months or years it might take to close a deal. This was the challenge and, believe it or not, I actually figured it out.

Chris: Well wait a minute though. I mean hasn’t digital marketing and especially social media don't they help with efficiency and effectiveness. That has to have been a good thing, isn’t it.

Kelly: Well, yes. In part, it has. Here’s how I see it. There really are two ways we develop business relationships: directly to the buyer and indirectly to the influencers of or to the buyer. The combination of customers, prospective customers, and influencers of customers plus the other businesses and individuals that also sell services to members in that ecosystem, comprise the total ecosystem. All require an investment in time, expense, and effort. Social media like LinkedIn has helped us stay easier connected to buyers and influencers. And this ease has certainly helped with efficiency, as it doesn’t cost much to connect on LinkedIn or Facebook. But in terms of effectiveness, it doesn’t quite get it done in that it really just the beginning of the relationships. It’s more like an advancement of the old days of giving somebody a business card and they stick it in their rolodex. And hope they remember you some time. Do you even remember what a rolodex is??

Chris: Yes, I do remember what a Rolodex is. It's a thing you wear on your wrist, right?

Kelly: That would be a Rolex.

Chris: Rolodexes are no longer. How do you parse that problem? What's your way to phrase the big dilemma?

Kelly: The reality is the method by which we initiate business relationship has changed a bit with social media and email. But developing the relationship, hasn’t really changed that much. We make contact. We connect. We get them in the funnel. Then we do some mix of pounding them with emails, and sending them articles about our products and services or information that we think they would find interesting and useful. We might call them on the phone. Maybe get a face to face. There is always a challenge to deliver sufficiently good and interesting content to get the buyer motivated to accelerate their sales cycle with you. And there is always a struggle to keep your product and your company top of mind to the influencers of the prospect. This all takes time, expense, and effort. And also a patient CEO, board and shareholders.

Chris: Well wait, wait, wait. What did you figure out? What did you figure out in terms of efficiency and effectiveness that you were talking about earlier?

Kelly: It was my experience as a sales and marketing professional and as a CEO and manager of sales people and responsible for revenue creation, that sales cycles were dreadfully long; sales messaging was painfully repetitive and uninteresting; and there were constant and continual struggles to come up with a new excuse to call a prospect to see where they were in the sales cycle – hot, warm, or cold; and to make sure the center of influence still remembered you as the go-to company for a client referral or recommendation. We’ve been exploring this and we’ve developed a revenue creation strategy that solves the problem of efficiency and effectiveness. We call it Tactical Ecosystem Marketing.

It utilizes the cost efficiencies of digital marketing, especially audio content that is produced and syndicated on iTunes, google play and YouTube; coupled with connecting with the client on social media and promoting THEM…not you.

At its core, Tactical Ecosystem Marketing is a marketing strategy whose primary focus is not to promote your company and your products, rather to promote your CUSTOMERS’ and PROSPECTS’s company and products. The secondary focus is to promote YOUR business and YOUR products. And the same applies to the Centers of Influence.  You focus on promoting THEIR business and THEIR products and a secondary focus on YOUR business and your products. How do you promote them? Through your own audio podcast program.

It delivers high quality content for your sales people to distribute and discuss with your clients and prospects. High quality content for your ecosystem members to distribute and discuss with their clients and prospects. It’s one big fat happy symbiotic ecosystem. Everybody wins.

It’s highly effective. It’s very efficient. It’s very Sun Tzu. You attack your enemies’ weakness and avoid their strengths. This strategy and tactic does just that.

Chris: So, Tactical Ecosystem Marketing is a revenue creation strategy. And the tactics are designed to help community banks create, publish and syndicate on websites, YouTube, iTunes and GooglePlay and all those other things. And they promote all the products and services of the bank’s ecosystem, as well as its members.

Kelly: Yes, Chris. It’s kind of like Tactical Ecosystem Marketing is a way a community bank can pay it forward and in return good things will happen. Well, we're up to the twenty-minute mark. Is there anything you want to add about what you're doing with Narrative Pros these days with you, Chris.  

Chris: We're just trying to help people like you Kelly make their point and connect with their audiences. Some people don’t have the gift of gab like you. So, what we do is we try to help them come up with a clear way of conveying their message and do it in an authentic and genuine way. Unfortunately, you do not have need of our services. You're a master and we respect that.

Kelly: Hmmmmm, I don't know. I think I have paid you a few dollars over the years to help me Master those skills though.

Chris: That's true. You're one of our star pupils, so I will accept that.

Kelly: Chris, I appreciate your time. Take care of yourself.

Chris: You too!

.Narrator: We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way represent the views of any other agent, principal, employer, employee, vendor or supplier.

Feb 17, 2017

A Banker’s Voice is Mightier than the Pen and the Sword.

We have entered the era of total competition. No matter your industry, company, or nationality, there is a battle-ready competitor somewhere who is busy thinking how to beat you. There are no safe havens.

Yet the hard truth, for all the talk of new paradigms, reengineering, and organizational learning, is that most executives in most companies are still equipped to fight the last war. Their strategic assumptions, management structures, information systems, and training programs are geared to a competitive battlefield that no longer exists. The rules of engagement have changed. Strategic mind-sets have not.

In the life-or-death quest for strategic change, business has much to learn from war. Both are about the same thing: succeeding in competition. Even more basic, both can be distilled to four words: informed choice; timely action.

The key objective in competition - whether business or war - is to improve your organization's performance along these dimensions:

  • To generate better information than your rivals do
  • To analyze that information and make sound choices
  • To make those choices quickly
  • To convert strategic choices into decisive action

Together they represent informed choice/timely action.

This is Kelly Coughlin, CEO of BankBosun, helping bank C-Suite Executives manage risk and discover reward.

Kelly Coughlin is the CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Greetings, this is Kelly Coughlin, CEO of BankBosun, helping bank C Suite execs with risk, regulation and revenue creation in a sea of threats and opportunities. Just to remind you, in case you don’t recall from podcast shows from last year, a bosun is a nautical term referring to the crew member on a ship that helps the sea captain (that’s S E A ) in all areas of the ship’s navigation, operations and management. As such bankbosun, me, I’m the crew member that helps you, the C-Suite Captain of your ship – your bank – in all areas of risk, regulation and revenue creation. Got it…pretty creative isn’t it. Here’s a boatswains whistle for you..

Today’s podcast is on revenue creation. And specifically the use of audio podcasting as a cost-effective tactic to get your value proposition communicated to your market to get new customers and create new revenues.

Some smart guy, they don’t actually know who, said “The pen is mightier than the sword,” implying that a person can change the opinion of others with words more effectively than with force and violence. Well, I have a corollary or addendum to that. It goes like this: While the pen is mightier than the sword, the voice is mightier than both.

Some of you might remember the TV ads against drugs. I think they were in the 80s led by Nancy Reagan. It went like this. A guy picks up a whole egg. And says, this is your brain. And then the guy cracks the egg in a hot skillet with scalding hot grease and it bubbles up and he says, “this is your brain on drugs.” Well, you might ask, what the heck does that have to do with banks and revenue creation. Permit me to demonstrate.

Here is a mashup of some sales pitch lines from five top financial advisors in the US.

Here is what the sound like when they are READ by their intended audience in say printed material. This equates to the brain on drugs. The fried egg.

I’m a professional wealth manager who provides custom financial solutions for your unique financial challenges and goals. My entire firm is passionate about helping people like you make smart financial decisions. We help people make sound decisions to enjoy a full life. My expertise is in the development, implementation and ongoing management of a customized portfolio builder and diversification strategy created just for you. Personally, my mission is to help you build wealth and successfully maintain your financial security every step of the way.


There it is…financial planning platitudes fried up in the skillet.

Here is what it sounds like when the reader has taken your printed material and put it in their briefcase to read on the plane.

Professional wealth manager…custom financial solutions… financial challenges…passionate….helping people …sound decision…expertise…implementation…management…customized portfolio… diversification….mission…wealth…financial security. Flight attendant, would you please take this and throw it out.

Now, here is what they sound like when they are HEARD. This equates to the healthy brain, the whole fresh egg.

I’m a professional wealth manager who provides custom financial solutions for your unique financial challenges and goals. My entire firm is passionate about helping people like you make smart financial decisions. We help people make sound decisions to enjoy a full life. My expertise is in the development, implementation and ongoing management of a customized portfolio builder and diversification strategy created just for you. Personally, my mission is to help you build wealth and successfully maintain your financial security every step of the way.


Academy award nominations for that performance would be much appreciated.

I hope you can see…rather hear that the human voice, your voice is the key. Your voice showing what I call the three Es: emotion, emphasis and empathy. These are the key and critical differences. Even today, in this world where people are obsessed with digital communications, email, and texting - people are hungry for the communication and connection of the human voice…your voice.

Here is what I propose and I guarantee it will help your bank claim market share and grow revenues. You create a podcast channel with your brand – ABC Bank Podcast show – once or twice per month with one or more representatives of your company…from your CEO down to your product technical specialists would be interviewed and recorded. We talk about your industry; your market space; the needs, issues and challenges your customers face. And what your industry does to help them deal with those needs, issues and challenges; and why and how you are so much better and different than anyone else. We can even interview your customer prospects. Trust me on this, it’s a great way to build a relationship with a prospect. You are put in a position where you get to truly LISTEN to them and show empathy for them. An opportunity to understand their outlook on life, family, business world. It’s a great way to build a relationship with existing customers and more importantly with prospective customers.

But the real hidden benefit…and it truly is the secret sauce…the algorithm…the black box….that I am going to share with you and you alone in this podcast. I call it tactical ecosystem marketing. In short it works like this…you include in your podcast program interviews with anyone and everyone who exists in  your banking ecosystem. Picture your bank and your customers as a big coral reef. And you have all these creatures, eels, sharks, groupers, all swimming around the reef. Let’s say your ecosystem is banking services for individual lending, business lending, personal wealth management and trust services, private client; portfolio management for institutional accounts and of course traditional depository banking. That’s a big reef. Some of you might not have trust and wealth management by example. Regardless, there are many, many influencers who exist in this ecosystem. You have accountants, lawyers, pension consultants, board member of pension plans, other business owners, all of whom have desires to get their brand and name exposed to your entire ecosystem. Your goal is to keep building a big-league ecosystem. The traditional way of building this ecosystem is to exchange business cards and hope like heck the other members will think of you when an opportunity comes up. And then you periodically follow-up with them to make sure they continue to think of you.

A better way is to include them all in your bank podcast program. Interview them. Record it. They will want to send out the link to the podcast to all their clients, this gets your name out there in front of all their clients. They benefit. You benefit. You create value and you capture revenues.

Big banks and brokers can’t do this, because they can’t possibly let their local branches create their own messages in any media, but certainly not audio podcast channel. And financial advisors don’t have the diverse products lines… depository, credit, insurance and wealth management to offer. They talk about a few of these product lines. Banks have many products and services to talk about…I’m going to list a handful so you can get an idea on what I’m talking about…

Here’s some podcasts related to your bank’s culture and market position:

  • History, Mission and Purpose of Your Bank
  • Community Involvement in Your Bank
  • The Importance of Community Banks in the Community

Here’s some Podcasts related to Wealth Management:

  • Why do I need a wealth manager when I can use the Internet?
  • Is there a difference in fees between banks, brokers and financial advisors?
  • Are brokers fiduciaries?
  • Are bank fiduciaries?
  • Do I need a fiduciary?
  • What is a fiduciary?

Podcasts related to Lending:

  • Five issues that kill a business loan
  • Which is more important for a bank loan: Revenue, Profits or Assets?
  • Accounting records: Will and audit help me get a business loan?

And how about some podcasts related to trust accounts:

  • Can a broker serve as a trustee for my kids’ trust accounts?
  • If a bank fails are my stocks, bonds and mutual funds guaranteed?
  • Do I need a trust account?

These are just a handful of topics. We could go into financial instruments…explaining what mutual funds are..or portfolio risk…portfolio management…the topics are unlimited. The goal is to get your target audience whether it be current customers or prospective customers, listening to your messages.

Sun Tzu said, to beat your enemy you must Avoid his strengths and attack his weaknesses. The weakness of big banks and brokers is all marketing and branding and promotion comes out of their centralized corporate office. Imagine a top ten bank allowing its 500 branches creating their own podcast channel…it just ain’t gonna happen. But a community and regional bank can easily do this. So, don’t listen to me…listen to Sun Tzu, ”Avoid the strengths of your competitors and attack their weaknesses.”

There are a couple additional benefits to a more human connection you get with audio it allows executives to multi-task while listening like driving, exercise, watching a sports event on TV. Now, you might ask, if the human voice is so important why don’t I just call them on the phone. Answer: Because you are interrupting them when you call them. And it’s not repeatable and shareable. With a recorded audio podcast, you give your audience the opportunity to hear from you at their time and place of choice in a non-intrusive way. And many of the business development people like trust officers, wealth management execs and credit officers at banks aren’t real keen on cold-calling…like brokers in a bullpen. But sending links to podcasts and following up on that…well that is a much different story.

Memorializing your story in an audio podcast is so much more effective than sending them a printed document. By the way we transcribe all our podcasts. So you get both the printed and audio media. But this enables you to tell your story once with the energy and passion it deserves, and then have it shared between husband and wife and even kids to help them get more educated on your bank or among board members or officers for commercial business. Millennials connect with this. Since they hate talking on the phone and dread stepping foot in your bank, so we are told.

Well, that’s my story, and I’m sticking with it. I encourage all of you to give serious consideration of this. It will generate new customers and new revenues…guaranteed. I know banks don’t have a lot of discretionary funds. So, I am all about coming up with a program that you can afford. The investment in this program can range from zero, for banks holding bank owned life insurance asset or if you don’t have that asset, a one-time fee to generate one or two podcasts for the year or a monthly fee to generate one or more podcasts each month. The average fees are about $3,000/month for a monthly program. Give me a call at 612-232-6640 or send me an email at

Thank you for listening.

We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC;  and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle. Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier

Feb 3, 2017

The hawks and crows made an agreement that they would split everything obtained in the forest. One day, they saw a wounded fox lying helpless under a tree. The crows said, “We will take the upper half.” And the hawks said, “We will take the lower half.” The fox laughed and said to the hawks, "I always thought the hawks were superior to crows and as such they should get the tastier upper half." "Oh yes, that’s right," said the hawks. "No, not at all," said the crows. Then a war arose between the two parties and many were killed. The fox continued there for some days leisurely feeding on the dead crows and hawks and observed, “The weak benefit from the quarrels of the strong.”

Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Hey this is Kelly Coughlin. I’m the CEO of BankBosun. Selling products and services to banks is a challenge. Frankly selling products to anybody is a challenge. And the more features, benefits and complexities you have to offer… the harder it is. Why? Mind share and attention. The only time you can get mind share and attention from a decision maker is at conferences or an office visit, your website and of course the phone and written communication.

That’s it.

We all know how awkward and challenging it is to search for target prospects at conferences by squinting at the name tags during the social hours. And then looking away when its not a desired target as if they were not worthy of your attention. And then you have the phone. Good luck getting that done. Do you leave a message or not. If you do, you can’t call back for at least 4 or 5 days or you are pestering…and executive secretaries are quite skilled at blocking you. Face to face office visits are ideal…but time consuming, and expensive and those are also tough to get done. You need to advance the prospect a bit down the sales cycle so you are not wasting your time and their time on a prospect who cannot or will not buy from you. The other approach is to write articles or reports. I have certainly done my share of that. But sadly, you will not get a bank executive and decision maker to read a paper longer than three minutes…that’s it.

Here is what your beautifully written report sounds like in the mind of the banker when he reads it:

“My company has been in this industry for over 20 years. We offer superior products and services that meet the needs of our bank customers. We are a strong, innovative, and highly successful company and our employees love to take good care of our customers. And we are so excited to help you compete, succeed and win.”

That’s what your written report sounds like.

So what can you do? Audio. The human voice. Your voice is the key. Audio allows you to show your passion and energy for your company, products and services. Even today, in this world where people are obsessed with digital communications, email, and texting - people are hungry for the communication and connection of the human voice…your voice.

Here is what your report sounds like if you communicate it by audio:

My company has been in this industry for over 20 years. We offer superior products and services that meet the needs of our bank customers. We are a strong, innovative, and highly successful company and our employees love to take good care of our customers. And we are excited to help you compete, succeed and win.

Now, I’m no Robert De Niro…although people say I did used to look like Mel Gibson, in his early years. I wonder if they meant Mel Gibson when he played William Wallace in BraveHeart though…Regardless, hopefully the audio version sounded a little human than the robotic simulated written version.

In addition to a more human connection audio allows executives to multi-task while listening like driving, exercise, watching a sports event on TV. Now, you might ask, if the human voice is so important why don’t I just call them on the phone. Answer: Because you are interrupting them when you call them. And it’s not repeatable and shareable. With a recorded audio podcast, you give your audience the opportunity to hear from you at their time and place of choice in a non-intrusive way.

I propose that one or more representatives of your company…from your CEO down to your product technical specialists be interviewed and recorded. Interviewed by me. Where we talk about your industry; your market space; the needs, issues and challenges your customers face. And what your industry does to help them deal with those needs, issues and challenges and why and how you are so much better and different than anyone else.

They need to HEAR that you know this and that you CARE about them. In short, they need to know why do you exist and why should they care that you exist. This is big picture stuff. Oh and by the way, everyone in your organization should know this.

If you are selling paper clips and post its, maybe this is not as critical. But if you are selling products and services that require buy-in from multiple departments and people including the board, and if there are fairly significant vendor management quality controls and approvals in place, which you certainly have with banks and Dodd Frank regulation, then this big picture stuff is absolutely necessary.

Memorializing your story - the picture - in an audio podcast is so much more effective than sending them a printed document. You will most like want to supplement it with that. By the way we transcribe all our podcasts. But this enables you to tell your story once with the energy and passion it deserves, and then have it told 100 times within the organization through the sharing of the content. It also ensures that your message is told consistently throughout your enterprise. It’s a great way to get your mission, features and benefits in front of your market…and it’s a heck of a lot cheaper than multiple office visits.

So send me an email to  Remember here is what that email sounds like when I get it:

“Hi Kelly, I would love to increase revenues this year in a cost-effective way. My board and boss are killing me for revenue growth…I could really use some help.”

Or Give me a call at 612-232-6640 to talk…and here is what that sounds like:

“Hey Kelly, I would love to increase revenues this year in a cost-effective way. My board and boss are killing me for revenue growth…I could really use some help.”

Thanks for listening and one final word…FREEDOM!!... that was Mel Gibson in Braveheart.

We want to thank you for listening to the syndicated audio program, The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC;  and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle.

Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin.

If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers.

Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of Equias Alliance nor any other agent, principal, employer, employee, vendor or supplier of Kelly Coughlin, BankBosun or Equias Alliance.

Jan 25, 2017

Male Speaker:

Louis XI, the great Spider King of France, had a weakness for astrology. He kept a court astrologer whom he admired until one day the man predicted that a lady of the court would die within eight days. When the prophecy came true, Louis was terrified thinking that either the man had murdered the woman to prove his accuracy, or that he was so versed in his science that his powers threatened Louis himself. In either case, the man had to be killed. One evening, Louis summoned the astrologer to his room. Before the man arrived, the king told his servants that when he gave the signal, they were to pick the astrologer up, carry him to the window, and hurl him to the ground.

The astrologer soon arrived, but before giving the signal, Louis decided to ask him one last question. You claim to understand astrology and to know the fate of others. So, tell me what your fate will be and how long you have to live. The astrologer replied, I shall die just three days before you, Your Majesty. The king’s signal was never given. The man’s life was spared. The Spider King not only protected his astrologer for as long as he was alive, but he lavished him with gifts and had him tended by the finest court doctors. The astrologer survived Louis by several years, disproving his power of prophecy, but proving his mastery of power.


Kelly Coughlin, is CEO of BankBosun, a management consulting firm helping banks C-level offices, navigate risks, and discover reward. He’s the host of the syndicated audio podcast  Kelly brings over 25 years of experience with companies like PWC, Lloyd’s Bank, and Merrill Lynch.  On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C-suite offices risk management, technology, and investment ideas and solutions to help them navigate risks and discovery reward.  And now your host, Kelly Coughlin. 

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CEO of Bank Bosun, helping bank C-Suite executives with risk, regulation, and revenue creation in a sea of threats and opportunities. As we all know, other than funding the bank operations, banks do two things with their customer deposits. They invest in customers in the form of loans, and they invest in financial assets like U.S. Treasuries, mortgage backs, muni bonds, bank-owned life insurance. All banks do some combination of these investments that match their cash flow needs and their future liabilities. The common denominator of all these investments, whether it be loans or financial assets, is the competition for customer deposits, and these deposits can come in the form of checking and savings accounts, time deposits, CDs, or these “deposits”, and I'm doing air quotes here, they can come in the form of private client assets, wealth management assets, and/or trust account assets.

These types of deposits are a great source of other fee income a bank can generate to operate the bank, generate profits, and pay a return to its owners. The margins are typically higher than net interest income margins, and it's potentially a great source of revenues and profits to the bank. However, these assets are a great source of revenues and profits to many others participating in the financial services ecosystem. To paraphrase Tom Wolfe in Bonfire of the Vanities, as he's explaining to his daughter about what a bond was, he says, we don’t get the cake. We just fight for the crumbs, and there are many, many fighting for this cake that generates the crumbs. Other banks, big banks, small banks, brokers, small and large, independent financial planners, mutual fund companies, accounting firms. In fact, there are other one million individuals that fight for the crumbs as part of their business.

I was CEO of an investment and financial technology company that helped some of these banks compete for trust and wealth management assets. And I know this implicitly. Competition is fierce, and harnessing the right tools and talents is critical to ensuring a bank can effectively compete. Having the ability to efficiently and consistently identify customer needs, risk tolerance, and financial profile, is important for all of these one million-plus advisors. But banks have multiple departments that face the client. The teller, private client rep, maybe securities broker, maybe insurance agent, wealth management, trust department, and of course the credit group. And this multi-facing setting presents interesting challenges to a bank.

Today’s guest is the director of global marketing for a company that has one of the leading technology solutions that helps advisors, including banks, collect, compile, and present data related to customer needs, risk, and financial profiles. You might not recognize the company name Advicent, but you will probably recognize one of the flagship products, NaviPlan. Today’s guest is Tony Stich. Tony has experience with Bank Mutual in Milwaukee, and a number of other banks. I'll let him talk to you about that. He attended University of Wisconsin, and I'm very happy to have him today. And he's probably a dreaded Green Bay Packers fan, so I'm glad we're doing this before Super Bowl 51, because I'm fearful being a Minnesota Vikings fan, the Packers just might win the Super Bowl this year. Tony, are you there?

Tony Stich:

Kelly. Quite the introduction. Thank you so much. I am a Packer fan. I have to do full disclosure. In fact, my grandfather purchased original season tickets at Lambeau Field. He was one of the true attendees of the Ice Bowl. If you go by the stats, there was apparently about a quarter of a million attendees. My grandfather’s actually one of the real, authentic ones. We've had the same six tickets since they started selling season tickets, in fact. I attend myself the warmer games, and then the poor souls that like the December games, so be it.

I do want to begin by just providing a brief history of my time in banking. I think it's very applicable to this conversation. I, in fact, started my career at a company called Guarantee Bank. They provided banking services for about a dozen states in the Midwest, but also across the country, they provided wholesale mortgage, secondary lending, you name it, again, to 49 states to which I served those needs.

I also did some time first at AIG and then back to banking. And now, most recently, I was the director of marketing at Bank Mutual, third largest bank in Wisconsin. What we consider to be a community bank. We had 70 offices at the time. So, I have a great deal of understanding and awareness of the needs of banking. And in your introduction, and you talked a lot about the challenges a bank faces. I'd like to cover that today, ideally, but also how our technology can help bankers, especially at the C-Suite level in making sure they're saying relevant during this consumer revolution.

Kelly Coughlin:

I guess the, the thing that gets my attention first, Tony, there's been a lot of chatter about this robo advisor technology. My question to you is, where does the line between robo advisor and financial planning meet or differ? Or are they the same? Are you guys in the robo advisor space? Would you give us your definition of that and contrast it with a financial planning software?

Tony Stich:

Absolutely. Quite a hot topic. Let's define robo advice or robo advisor versus financial plan. Robo advisor is a technology that actually automates the entire process from obtaining the client through a website such as Betterment or WealthFront, and providing light advice based on data that is inputted from the user. A user could create a user profile, log into the system, provide a lot of data, both demographic data, but also financial data including in some cases goals, retirement age, and other objectives to meet retirement. And out from that robo advisor or technology, provides a lightweight plan. At no time is a human advisor involved with this planning process. It has to be done by the user establishing during the application process they want to be contacted by a financial advisor. What makes it even more interesting with robo advisors is oftentimes, you're not allowed to use a human advisor unless you have particular assets under manage, let's say $25,000 or greater. The unique difference between a robo advisor and a financial planning software is that in one situation, the advisor or financial professional’s inputting the data and then outputting the plan. In a robo advisor, it's simply websites, where the user inputs their own data, links their accounts, and then gets financial advice through that.

Kelly Coughlin:

It's kind of like they're the Uber of financial planning. They're trying to at least dis-intermediate the financial advisors and save the end customer anywhere from 50 basis points to 150 I suppose.

Tony Stich:

Right, and that's actually a really great point. We talked initially about the driving down of fees or money, a profitability an advisor can make, because a robo advisor on average charges 75 basis points less than a financial advisor. But what's interesting, Kelly, is much of our socioeconomic data that we have indicates that while millennials like the interaction with the robo advisor, they still want the expert advice of a financial advisor.

In the last couple of years, we witnessed a considerable amount of activity in that space, both enterprise companies engaging with robo advisor technology, robo advisors working directly with consumers, but also look at the venture capital, companies infusing money into robo advice. A prediction that we have for 2017 includes robo advice in how we believe it is now a race to the bottom. Robo advice is becoming a commodity. It's driving down fees to manage assets; driving down the cost of doing business. In fairness, it is drawing a concern for bankers, wealth managers, registered investment advisors. However, we feel, have no concern. In fact, we're seeing a lot of the opposite in terms of millennials’ expectations for retirement advice. We look at robo advisors as a lead generation tool. It's really shedding light on what is necessary in today’s environment. That is the value of a financial plan.

When you look at robo advice, the fiduciary rule set forth by the Department of Labor, and you couple that with a consumer revolution, millennials are beginning to want, if not expect or demand, a financial plan. To stay competitive against robo advisors; to stay competitive against other institutions, what can banks do to provide that level of service?

I think that's a great segue into kind of explaining our technology stack at Advicent to better provide your listeners with an understanding of what we can offer to the banking space. First of all, a little bit of background about Advicent. The name comes from the word, of course advice. We have been in this industry for 50 years. In fact, Gus Hansch was the founder of our company. He was what they called the godfather of financial planning. He developed the technology that we use today. One of our financial planning engines, in fact, Financial Profiles. As you mentioned before, we also have NaviPlan. Those are the two banner products underneath our flagship financial planning engines. NaviPlan, of course, is the more sophisticated, comprehensive financial planning software. Financial Profiles is more of a down-and-dirty forecaster. It provides goal-based advice. It's designed more for helping institutions sell particular products using forecasting technology. Let's focus, of course, on the United States. So, let's focus on NaviPlan for today’s conversation.

Our software is the calculation engine that a wealth manager, financial advisor, or another financial professional uses to generate advice through a financial plan. This advice can include things like estate planning, tax planning, asset allocation, retirement planning. What's very important here is, we believe firmly that an advisor must be at the core of this relationship with the client.

Kelly Coughlin:

I have some experience using NaviPlan. Would it be a fair statement to say that you guys were kind of the first generation of robo advisor, before that term was even around back in 2000, 2003?

Tony Stich:

Even back early 2003, we were talking about client portal technology, the ability to have a client access data digitally. We did talk about that at that time, but it wasn’t on our road map. Let's tie this back to banking for a minute. We looked in the mortgage process. There were some reports that we put together that when a person walked into a bank to meet with a loan officer to apply for a loan, they have already done eight hours of research online. Yet, they still chose to walk into an institution prior to making that life changing decision. We are finding the same holds true for financial planning.

While robo advisors are attracting millennials, they're attracting more investors than ever before. At the end of the day, millennials, Generation X, baby boomers, we all still seek out expert advice from a human. We talk at length about the fact that robo advice cannot empathize with the loss of a child. We talk about how robo advice can never empathize with the loss of a job. While a financial advisor, which is now becoming a life coach for financing can come to your house, can talk to about your options, can truly understand the dynamic you have with your spouse or with your children, which can never be replaced by robo advice or the next thing, artificial intelligence.

Kelly Coughlin:

All right. Let's talk about how this type of technology can work with all of the different potential departments that can face the client. The teller, the private client rep, the securities broker, insurance agent, wealth management, trust, credit, all of these groups that can potentially have a relationship with the client. Is it your vision that the bank will get all of these groups to buy into the technology platform that you have and kind of force the trust people, who are a completely different animal than the securities brokers, for instance, who are completely different than the tellers?

Tony Stich:

And that is our vision, in fact. Let me talk a little bit about NaviPlan and why it's the number one financial planning technology across the globe. And that's because it is sophisticated, yet it's also simple. So, it's a repeatable process, as well, which we talk about all the time. Simple and repeatable, but also sophisticated. So, when you talked about that internal architecture, you mentioned bankers, tellers first, of course, personal bankers, maybe your investment team. Let's just go up to your trust services. Our technology allows those advisors to help manage people’s money through the financial planning technology. The buy-in question, that's simple. If you provide a technology that's easy to use, that shows the benefits of a product or service, it will certainly be adopted by that whole group. One more unique characteristic about Advicent is that we are the only provider of financial planning software that has end-to-end solutions.

We offer a technology called Advisor Briefcase. Advisor Briefcase is a marketing communications tool that has over 600 pieces of FINRA reviewed content. This content is customizable to the bank or the financial advisor, and can be distributed to different groups of customers. Now, what's beautiful about the system is that the content is relative in nature to that person’s financial place in life based on groupings of the names that the financial advisor sets for them. Secondly, that data is again all FINRA reviewed. Our marketing communications tool, everything is looked at by FINRA. No one else can say that. So, every document that you use within AB, the Advisor Briefcase, actually has a letter from FINRA saying that they've acknowledged receipt and review of this documentation. That is the beginning part of the process. Attracting that prospect into the bank’s product offering set. Then, you go into the leads technology or the financial planning engine, where the wealth manager or the advisor engages with the client, after being attracted, of course, by the marketing communications, and then we put together a plan.

We also offer technology, our Narrator technology, which is a stack of technology that surrounds of financial planning engines that includes a client portal; that includes API technology and that also includes a dashboard for business intelligence and metrics. I'm going to focus on the client portal for just a moment. Many community banks have a core processor, but they don’t have a lot of money to invest in PFM tools; account aggregation tools; things like that. I understand. I've actually been in banking. I've seen what they charge, core processors charge, for PFM technology. We actually offer that, too, at a much lower rate. It's not a usage rate. It's not a transaction rate. It's a flat rate.

Kelly Coughlin:

Tell us what PFM is.

Tony Stich:

Personal financial management. It's the ability for someone to manage all of their accounts in one roof. The benefit, of course, this to a bank is that you then get to see all the accounts. You get to see the whole wallet, and you get to see where you can help. Where you can reduce a car payment; where you can invest the money into an annuity; where you can do x, y, or z. This is actually called Narrator Client. It's our client portal technology.

Kelly Coughlin:

Does Narrator have the ability to pull in “held-away” assets as well?

Tony Stich:

Yes, so that's the account ag features. We have account aggregation technology, which allows you to see all the other banks that they're with. You can bring all that in to this one PFM technology, this one personal financial manager. You can put your car loan in. You can put your 401K in.

Kelly Coughlin:

Of those “held-away” assets, are they static or are they market to market?

Tony Stich:

Nightly update. Every night, that's updated. So, as we go along this client journey, we're back in this client portal. The advisor, the wealth manager, the trust team can actually review this data with the individual. What's unique about our client portal is that we don’t just account ag. We overlay your financial plan on top of that. So the end user can actually see their financial plan. See if they're drifting from a goal. See if they're on track for retirement so that can make a course correction. This is where we get into this BI, business intelligence. The ability to kind of aggregate all of the data of your customers under one roof within a dashboard, which allows your audit team to review it to make sure there's no anomalies, but also to make sure your wealth managers are reviewing it to make sure you are not losing AUM. Your demographics are normalized, anything you can imagine for the BI.

And we will close that client journey with Advisor Briefcase again, that marketing communications tool. Now that you have these customers under your roof, you can actually use again that marketing communications to further educate your new clients on trends, more important data, newsletters, things like that. Community banks oftentimes don’t have a dedicated marketing department. In fact, many times, marketing person might be the administrative assistant or someone in operations. Perhaps a personal banker that does two roles. Advisor Briefcase, a very inexpensive tool, will help provide that content, that extra little lift that a bank needs to kind of stay above and beyond and keep that relevant data going to their customers. That's what sets us apart, is that we provide a technology stack that spans the client journey.

Kelly Coughlin:

And all of that is allegedly simple and repeatable.

Tony Stich:

Simple and repeatable, and we promise you that. It's simple and repeatable. Of course, technology requires a bit of adoption. There certainly is a learning curve. However, we make it as seamless as possible, especially for these community banks. We will again come in, we'll educate through the procurement process, through the implementation stage, and then we have account managers dedicated to you going forward. After the technology’s implemented, we check back. We make sure everything’s going well. If it's going really, really, really well, we're going to write a case study on you. We're going to brag about you. We're going to show our friends about you, because we know NaviPlan and our other technologies are going to help the banks stave off robo advice. They're going to help these community banks stave off the bigger competitors. They're going to keep you relevant during this consumer revolution. They're going to keep you relevant during this generational wealth transfer of $30 trillion in North America alone. We're going to help keep you relevant so that you are maintaining that AUM, maintaining those bank accounts, but also growing your business through digital technology.

Kelly Coughlin:

Yes. That’s good. If a bank wants to explore this further, should I just have them give you a call, then you can get them routed to the right person? Would that be fair enough?

Tony Stich:

You know what? That's probably the best approach. Our 800-number is 855-885-7526. If you want to shoot us an email, it's simply, but I want to encourage your listeners to visit Advicent,, because we have a great deal of thought leadership content, blogs, videos, and you know what's really important for these C-Suite guys? They should be reading our white papers and downloads. We have some really intelligent stuff on client journey mapping; on staying relevant in the year 2020. This kind of, this is the kind of documents that these guys and gals want to read, because it's going to help them craft their one, three, and five year strategies and help them relay that message both vertically to their counterparts, and of course, horizontally.

Kelly Coughlin:

Tony, that's good stuff. Okay, thanks a lot for your time. I appreciate it.

Tony Stich:

Thank you, Kelly. We'll talk soon.

Kelly Coughlin:

Well that concludes Part One of my interview with Tony Stich, Director of Global Marketing for Advicent. In part one we spent quite a bit of time on robo-advisory technology and the difference between that and financial planning technology. And as I see it, the difference really is you have a system…a robot…with all its behind the scenes algorithims and logic creating a financial plan as opposed to Advicent’s advisor-driven technology, where you have a human wealth advisor utilizing some pretty cool technology with algorithims and logic that are simple and repeatable…I think you heard Tony say that a few times. In part two, we will focus on how Advicent integrates with a bank’s platform. How the technology passes bank procurement and vendor management standards and how Advicent’s technology can help a bank compete against non-bank brokers and advisors. Thanks for listening.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, market domination with the help of Kevin Boyle. Video content is produced by the Guildmaster Studio, Keenan Bobson Boyle. Voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The view expressed here are solely those of Kelly Coughlin and his guests in their private capacity, and do not in any way represent the views of any other agent, principal, employer, employee, vendor, or supplier.

Jan 25, 2017

Kelly Coughlin

This is part two of my interview with Tony Stich, Director of Global Marketing at Advicent. In part one of my interview with Tony Stich, we focused on the definitions and differences between financial planning technology versus robo-advisory technology; and we spent some time on their technology solution, Naviplan which is designed to enable a bank financial advisor and other representatives of the bank collect, compile and review relevant customer financial planning information in a simple and repeatable way…simple and repeatable are Tony’s words and seem to be the enterprise-wide mantra of Advicent.

We will start part two with some of the unique and special procurement and vendor management needs of banks and how Tony thinks Advicent is uniquely prepared versus all other of his competitors, when dealing with the integration of this technology with the banks platform. And also, how this technology can help banks better compete against non-bank brokers and advisors.

Part two, Tony Stich, Advicent. We’ll start talking about procurement.


Kelly Coughlin, is CEO of BankBosun, a management consulting firm helping banks C-level offices, navigate risks, and discover reward. He’s the host of the syndicated audio podcast  Kelly brings over 25 years of experience with companies like PWC, Lloyd’s Bank, and Merrill Lynch.  On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C-suite offices risk management, technology, and investment ideas and solutions to help them navigate risks and discovery reward.  And now your host, Kelly Coughlin. 

Kelly Coughlin

You said you wanted to talk about procurement. Is that procurement of data?

Tony Stich:

Technology procurement…the challenges the bank based due to Dodd-Frank legislation, when it wanted to add any new vendor into the fold. This regulation makes it very cumbersome and challenging to add new vendors. Now, this was all done in the efforts to minimize cyber security, privacy risks, but also the jeopardizing anyone’s accounts, deposits, things of that nature. So, when I mentioned procurement, Advicent keenly understands the challenges a bank faces when it attempts to adopt a new technology. First and foremost, we understand that that decision is not made lightly. When you consider a new, in this case, financial technology product, such as NaviPlan, you want to consider the alternatives. You want to look at our competitors. You want to look at what your core processor might offer. You want to look at all those decisions.

Then, you want to talk with IT. You want to talk with auditing. You want to talk with the executive team. Advicent knows this, in fact, and we go through a step-by-step process that our competitors do not to make sure that procurement goes smoothly and all of the boxes are checked. So we know with a great deal of certainty the time it’ll take for us to implement our technology with your existing banking ecosystem. Our competitors simply don’t do that. And that comes from nearly 50 years of our experience in implementing enterprise wide technology. We have over 4,000 customers globally. We service their needs with our technologies. We are uniquely qualified to go through that procurement process; to show you our financials; to show you our ISO certification; to show you how we are going to tie back to your core processor, your legacy back office systems. I would argue that that is probably the largest inhibitor to making a decision, is the core processor, that back office solution. We know how to work with those individuals. We know how to work with that technology. We have the APIs. We have the integration. We are uniquely qualified to do that through the procurement process all the way through delivery.

Kelly Coughlin:

You understand the financial situation that community banks are in. They can't afford a $100,000 installation. Do you guys have an offering that recognizes the financial statement of these banks that gives them a solution they can afford?

Tony Stich:

Great question, Kelly, and absolutely. We have installed the large enterprise companies in the world. We have provided installations at the smallest community banks in the world. One thing remains the same. We understand this implementation process, and we have different levels of service; which includes onsite visits; which includes training the trainers; which includes implementation. That all can cost a variety of different levels that will meet those needs. But what's important is, we'll help you go through ROI calculations. We can actually go through the procurement process with you. We're going to show you the cost to both implement and stand up the program, but then we'll show you the recovery time.

For the sake of this discussion, let's just walk into a community bank. There's your tellers, your loan officers, and in some cases, you will have a wealth manager or trust team on demand right there at the office. The point of our technology is, we can make it readily available. Simple, easy to use, right at your teller line.

I think the biggest thing a bank wants to do is increase the share of wallet. I think we'd all agree. What better way to do that is at the teller line? Making sure the teller’s asking the correct questions. Making sure the teller’s offering the opportunity to answer a quick questionnaire on this iPad or tablet, where a bank visit can turn into a conversion. I remember back in the days when the financial advisor at a bank would say to the teller, hey, do me a favor. Next time you see someone with a larger savings account, that should still happen today. That seamless communication between tellers, personal bankers, and your trust teams, that should still happen, and we allow that to happen with our technology. Unless they opt in, a bank cannot share with a wealth manager the data of that customer, because they're two separate entities, correct?

Kelly Coughlin:


Tony Stich:

A wealth management company, which is not FDIC insured, of course, and the bank. So, how do you get past that? How do you get that wallet share? You use our technology. Let me explain. When the individual’s waiting in line for the teller. If you have, for instance, tablets set up with the nice leads tools, just sitting there waiting to be touched or waiting to be engaged with while the teller’s transacting, that's a great time for that individual perhaps to key in some data. Once that data’s keyed in, then the tellers picks up on that cue. I don’t want to go into too much detail on that whole buying or selling process, but what I'm suggesting is, technology bridges the gap between the teller and the wealth manager or financial advisor, and then of course, the customer kind of goes through that process more seamlessly.

Kelly Coughlin:

I'm sure that all banks have some sort of financial planning process going. It may not be very efficient and simple and repeatable, but they have something. Aside from kind of a home-grown bunch of Excel spreadsheets connected together, linked with a word processing document type thing, aside from that, are you guys tending to replace existing technology solutions? Or are these all pretty much new installations that are kind of replacing, upgrading a home-grown process?

Tony Stich:

We will come in, and it's just you with taking out your existing process and implementing our technology. And I want to be very clear, Kelly. Our technology replaces your process in a good way. We show you how to best provide financial advice. We're not going to tell you to do your jobs. What we're going to do is say, hey, you want to follow fiduciary standard? Do you want to make sure you're providing the right advice? Our technology will do so. I cringe at the idea of financial advice being provided through Microsoft Excel. Nothing wrong with Microsoft, but the very idea that calculations through Microsoft Excel are providing financial advice, I'm just not sure that that is the right thing to do for yourself clients.

Our technology replaces all of that. It makes it easy to do. And finally, if you do have existing technology, possibly through your core processor, oftentimes we win those deals because our calculations are better. Our processes are simpler. And quite frankly, we are the best at providing financial plans through our technology. We usually replace but I'll tell you one thing. You won't miss a beat. We will integrate your back-office technology. We'll make sure your processes still follow the same course, and with our work flow technology, with our compliance frameworks, we're going to help make sure that the plans are going the right way. Auditing sees them. Your trust team might see them. If a personal banker’s getting involved, making sure the financial advisor’s always seeing it as well. This will help replace processes that are quite frankly, probably antiquated in nature. This will help make sure that you are competing against robo advice, because you are now providing a technological solution that provides good advice, good reporting, and if you choose to do so, a client portal that exceeds the expectations of the modern-day investor.

Kelly Coughlin:

Banks are competing against brokers and financial advisors that are using a Schwab platform, Fidelity platform, Pershing, and TD Ameritrade. I think between those four custodian brokers, it's probably about 75% to 85% of the market. When you look at the offering Schwab, Ameritrade, Fidelity, Pershing have what competitive edge do you think banks would have by using your technology? What are you seeing those four are using in terms of technology that these banks would compete against?

Tony Stich:

This is one of our value props. This is our value proposition. We will tell you any bank of any size that we can give you technology that will enable your advisors to provide the same experience as the Fidelitys and the Schwabs of the world. Now, to be completely fair and on the record, we integrate very deeply with all those brokers. We have great relationships with all of them. However, it's very important—Pershing, for instance, Schwab, Fidelity, they all offer client portals. They all offer simplified financial planning technology. They let advisors use our technology. So, the bank has to compete. How do you compete? By offering the same service.

Now, I'm going to tell you in my opinion, what the gamma is. Let's lay it on the table. You have a bank. Let's say a community bank, and you adopt or implement NaviPlan technology in a client portal. It's beautifully designed. It's well branded. It offers the same level of service that you're going to get from Pershing’s client portal with their technology. Here's the gamma. It's the community banker. That’s the value add. The person I believe is going to naturally gravitate to that community banker, to that trusted source.

We offer technology better than those four custodians, and what we'll do differently is, we'll help your advisors, your wealth managers, become that gamma, become that value proposition that you can say, hey, you should be investing with us. You should be getting your advice from us. In short, we provide you the technology to stay competitive and to be valuable to your customers and prospects. You're on par with technology. You have evened the playing field, and now it goes to the bread and butter. It goes to the community relationships. It goes to your charitable efforts. We talk about that. That, again, that's the value prop. That's why community banks are going to win, is because, keep it equal in technology, you're going to win everywhere else.

Kelly Coughlin:

Yes. Right.

Tony Stich:

You know, we have a mission here at Advicent, and that's for everyone to understand and impact their financial future, and we really believe that people ought to have a financial plan. If we can help one bank or 1,000 banks provide financial advice to the customers, that makes us happy. I think it's important that people understand that there are options out there that you can beat the robos. You can beat the custodians. You just need to know that the technologies available to you, and you need to embrace that change.

Kelly Coughlin:

Great, okay. I think I've got all my questions. Anything else you wanted to add to this?

Tony Stich:

Banks are slow to adopt. They are, they're hesitant for change, and we just hope we can be the catalyst, because the reality is, they do need to change. I don’t think the branch infrastructure’s going to go away. I think it's going to iterate. It's going to, it's going to, like, look different. The banks really need to embrace technology.

We were over in London back in March, and we actually wrote a white paper on how incumbent banks need to start thinking like startups, and I'll get you that white paper, because it's really fascinating how what we lay out in a few steps of how to change the culture of your bank or your large enterprise institution and how you can start thinking like a startup so you can start adopting the technology to be successful, especially in, in, in today’s day and age.

I want to encourage your listeners to visit Advicent, because we have a great deal of thought leadership content, blogs, videos, and you know what's really important for these C-Suite guys? They should be reading our white papers and downloads. We have some really intelligent stuff on client journey mapping, on staying relevant in the year 2020.

Thank you so much for having me, Kelly

Kelly Coughlin:

Okay, thanks for your time. I appreciate it.

That concludes my two part interview series with Tony Stitch at Advicent. Tony can be reached at 855-885-7526 or you can shoot him an email a, That’s it for me. Kelly Coughlin at BankBosun. Thanks for listening.


We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, market domination with the help of Kevin Boyle. Video content is produced by the Guildmaster Studio, Keenan Bobson Boyle. Voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin. If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers. Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The view expressed here are solely those of Kelly Coughlin and his guests in their private capacity, and do not in any way represent the views of any other agent, principal, employer, employee, vendor, or supplier.

Dec 29, 2016

Kelly Coughlin:

The Chinese have a phrase. If you want to kill the tiger, masquerade yourself as a swine. He who poses as a fool is not a fool. The best way to be well received by all is to clothe yourself in the skin of the dumbest of brutes.


Kelly Coughlin, CEO of BankBosun, a management consulting firm helping banks C-level offices, navigate risks, and discover reward. He’s the host of the syndicated audio podcast  Kelly brings over 25 years of experience with companies like PWC, Lloyd’s Bank, and Merrill Lynch.  On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C-suite offices risk management, technology, and investment ideas and solutions to help them navigate risks and discovery reward.  Now your host, Kelly Coughlin. 

Greetings. This is Kelly Coughlin, CEO and program host of Bank Bosun, helping banks C-Suite executives manage risk, regulation, and revenue in a sea of threats and opportunities. You know, 100 years ago the risk environment of the banking world was much different than it is today. The Federal Reserve System was established only a little over 100 years ago in 1913. There were about 26,000 banks back then compared to about 7,000 today. In fact, Citibank only had about $1 billion in assets back then compared to $2.6 trillion today. And the risk profile of bad guys – criminals - was much different, too. Charles Ponzi was launching his famous scheme to turn a profit by manipulating international reply coupon systems in which he'd buy stamps in one country, and then sell them for profit in another. He defrauded investors of about $20 million, $220 million in today’s funds, and destroyed six banks in the process. And then in 1925, the famous Victor Lustig convinced a bunch of investors to give him funds to purchase the Eiffel Tower for scrap metal. He even convinced Al Capone to invest $50,000 in another bogus scheme. Lustig returned the funds to Capone, who was so impressed with him that he let him keep $5,000 of the original $50,000. Of course, that was Lustig’s plan all along. That's all he was looking for.

Today’s criminals, however, are different. Yes, we still have bank robbers. The FBI reports that U.S. has about 5,000 per year. But the bigger risk today is in the cyber security and social engineering area. Cyber security, of course, is new. We didn't have computers or Internet 100 years ago. Technically, though, social engineering is not new. The definition of social engineering is the clever manipulation of the natural human tendency to trust, but the tactics and methods used today are much different than in the days of Ponzi and Lustig and Jessie James. These methods involve strange names like dumpster diving, email phishing, vishing, pretexting, baiting, and piggybacking, just to name a few.

My guest today is a recognized expert in today’s version of social engineering. His name is Kyle Konopasek, and he works in the Business and Technology Risk Services Group of CBIZ MHM.

The stated mission of CBIZ is to help clients prosper by providing them with professional business and individual services to better manage their finances and employees. To accomplish that, CBIZ has three operating practice groups, one of which is Business Services, and that's where Kyle operates out of, in their Kansas City office. The specific mission of Kyle, however, is to assist clients in the internal control areas related to information security, cyber security, vendor management, and of course social engineering. Kyle has a BS in accounting at Rockhurst. He is a certified internal auditor. He lives in the great city of Kansas City, home of some of the best barbeque in the country. So, I want to start off with the most important thing and get that out of the way. Kyle, what is your favorite barbeque restaurant in Kansas City?

Kyle Konopasek:

That's kind of a loaded question, Kelly. I actually had Joe’s KC Barbeque today for lunch. Used to be known as Oklahoma Joe’s. Don’t understand why they changed that iconic name to Joe’s KC, but it's still pretty darn good. But you know what? There's a smaller, a little bit lesser-known barbeque restaurant in town called Smokehouse Barbeque, and that's actually my favorite.

Kelly Coughlin:

Smokehouse Barbeque? Where is that located?

Kyle Konopasek:

Well, they've got just a few locations around town. They've got one up in Gladstone, Missouri, one out in Independence, Missouri, and then there's another one over in South Overland Park, Kansas.

Kelly Coughlin:

Okay. I'll have to give that a go. Well, now that we've got the important things out of the way, let's get down to business here. First of all, did I get your bio correct, and was there anything that I said in my introduction that was either wrong or you disagreed with?

Kyle Konopasek:

Not at all, Kelly.

Kelly Coughlin:

Why don’t you tell me what your definition of social engineering is? I think I took my definition frankly from a Power Point that you had, but is there anything you wanted to elaborate on in terms of the definition of social engineering? Especially related to the cyber security world.

Kyle Konopasek:

Yeah. Kelly, you did mention the technical definition of social engineering earlier. However, we can elaborate on what social engineering is and what that means a little bit further. In some of the speaking engagements that I have with some of my clients and various organizations around the country, we usually talk about what our children do to us. If you think about it, even just a small child, a toddler, a three- or four-year-old, take them to the grocery store, you push them in the cart through the grocery store. Oh, Mommy, Daddy, I want this. Mommy, Daddy, I want that. Well, you tell them no a few times, and then they begin to find other ways to try and manipulate Mom and Dad into how to get that item that they want. We start performing acts of social engineering, every one of us, very early on in life without really understanding what it is. And I think that's very important to distinguish, because social engineering, as you stated, is not new at all.

In fact, we all do it without really understanding or comprehending that it is social engineering that we're doing. We may not necessarily be trying to manipulate one another for bad intent, but we often use different shades of social engineering, if you will, to try and get certain things that we want. And quite frankly, social engineering is ancient in its methodologies. The Trojan, with the whole Trojan horse scenario, that's really social engineering. Hollywood loves to depict examples of social engineering in its movies. Just to name a couple of better-known social engineering oriented movies, Catch Me If You Can, with Leonardo DiCaprio, about the story of Frank Abagnale. Sneakers, with Robert Redford. Those are both excellent movies that depict in every facet, different types of social engineering.

Now, when we talk about social engineering, sometimes, people get confused as to how that relates to cyber security. Cyber security and social engineering are very tightly linked together. However, we like to take it up one more level when we think about the two. We think of this large bubble called information security, and within that large bubble of information security, there are other bubbles floating around inside, one of which is social engineering. Another one is cyber security. Another one is vendor management, and you can continue to break it down into subsets of bubbles within the information security bubble. So, that's important to point out, that they are related, but they're not one and the same. For example, email phishing is one type of social engineering that is widely understood, but many people still describe that actively as a cyber security breech or a cyber security issue. You can definitely blur the lines between those two, and there is a gray space there. But email phishing at its heart belongs to social engineering.

Kelly Coughlin:

What are the main motivations for social engineering attacks? Is it always financial gain? Or on the other side of is it harm? Or is it a competitive advantage? Or do we get personal vendettas or that part of it, too?

Kyle Konopasek:

In the business world, Kelly, really all of those are examples that you mentioned of motivators for performing an act of social engineering. Social engineering is essentially a grouping of attack vectors that an attacker can use to attempt to not necessarily defraud an organization, but start to build a dossier of information about that organization for the purpose of executing a much larger attack. And when I say a larger attack, it can be in terms of dollars or it can simply be in terms of volume of information obtained. For an example, email phishing might be a starter for a social engineering attack to build that larger dossier of information. The attacker would be hoping that perhaps yourself of myself would be willing to click on a link in an email to take us to a website that was built to mock a website that maybe we're familiar with or maybe that we would typically trust. In reality, they're wanting to get one piece of information from us. The attacker wants to have login credential information to our networks, our systems, within the workplace.

They don’t really care what other information we provide, but sometimes we provide additional information that they don’t really ask for but help them to build that case. For instance, if I then provide them with a user name and a password or other types of login credentials to a network or a system, they obviously can then use that information to assist them in hacking into that system. The word hacking from an information security perspective or cyber security perspective is somewhat clouded by the fact that social engineering methods and techniques are many times one of the leading methods used to get to a “cyber attack” to “hack” into a system. There aren't that many individuals that are literally sitting there in front of their laptop computer, trying to brute force hack their way into a network. Social engineering is a much easier way, because what we're looking to do is just very easily and inconspicuously have the victim, or one of the victims, provide us the information that we need to do our bad work, to do the attack. And from that perspective, social engineering is very useful to a more intelligent attacker. And that's quite honestly, why so many foreign entities are using social engineering to get sensitive information.

Kelly Coughlin:

Give me some examples of that. Keep in mind, the audience is community and regional banks. What are some of the techniques? What are some examples that you've seen where this manipulation occurs successfully?

Kyle Konopasek:

Well, email phishing is the low-hanging fruit in terms of an example for a social engineering attack. Many of us have seen that on a personal level as well. But yes, vishing, starting with the letter V, vishing is a legitimate social engineering attack method. And vishing is the telephone equivalent of email phishing. It's simply picking up the phone and perhaps pretending to be someone with a help desk or with, perhaps it's an outsourced company that the financial institution has engaged with, that caller is hoping that the person that picks up that phone is going to feel pressure to provide them an answer that they're asking for. It might be that they're going to try and elicit an attack based on patch management, for example. Maybe I work for a third-party data management company and I call XYZ Community Bank and I call Sally. And Sally answers and I tell her, Hi, I'm Kyle with ABC Data Management Services. We see that your desktop computer didn't have the patches updated on it last week. All the other terminals did. We can take care of that patch for you right now if you just provide us with your user name and password for your desktop computer. That way, you don’t have to mess with it and you’ll be able to continue doing your work.

Kelly, it's something as simple as that. While the broader population might scoff at that scenario and think that it's not possible, the social engineering attackers needs one person, and you'd be surprised that many, many times, people fall for those attacks because a, again remember the true definition of social engineering, the natural tendency, the manipulation of the natural tendency to trust one another. They don’t want to inconvenience another human being from doing their job, or what's perceived to be them just doing their job. They want to do something that's helpful to them. So, therefore, the pressure is enough to where they just provide the information and hope that their day can go on without any further interruption, and that that person that in perception, is on the other end of the phone, trying to get information is truly trying to help them out. That's one example.

Kelly Coughlin:

Well, I've never had that kind of luck, because if I get a bounced email from like a CFO or a CEO and I try to call secretary and say, hey, what's Joe’s email? I got a bounced one. And they won't even give that to me. So, I'm not a very good hacker, I suppose. I'm going to do a quiz for you, Kyle, since you started showing off on some of these terms. We're going to play Jeopardy! with Kyle. Dumpster diving.

Kyle Konopasek:

Dumpster diving is literally me and/or my crew, our staff, getting into the large metal dumpster out in the parking lot behind the financial institution, in the middle of the night, usually. This is one of the more intriguing services that we provide. And again, keep in mind as I describe, social engineering is about getting tidbits of information through different attack vectors and building that dossier of information. In a dumpster dive, going out in the middle of the night with the rubber gloves on—yes, Kelly, I carry latex gloves with me at all times, and I travel a lot. The TSA hasn’t said anything yet, but one day they will.

Kelly Coughlin:

What are you diving into the dumpsters for?

Kyle Konopasek:

We're actually getting in the dumpsters and looking for things like social security numbers, bank account numbers, anything like that. And you might say, well, what financial institution’s putting that kind of information in the trash? A lot of them. We have had so many clients over the years where this is the first test that they fail. When they ask us to come in and perform social engineering testing, this is the first one they fail. And many of them fail it miserably.

Kelly Coughlin:

You're diving in as your internal audit function.

Kyle Konopasek:

Absolutely. Kelly, you know, one of the things that, from a dumpster diving perspective that I think is really important to stress is that documentation as simple as a phone listing for the organization or an email listing for an organization, because they have a whole listing of people they can call to try and perform vishing on. Or even a vacation schedule for an executive or senior management person, because then they know that person’s gone for that period of time. In addition to that obvious personally identifiable information like social security number, account number, it's that other often overlooked information that becomes valuable. And let me tell you, just shredding that information and then putting it in a trash bag and putting it in the dumpster’s not good enough. We have taken shredded material from a dumpster, laid it out on our conference room table and taped it back together, and we have found full listings of user names and passwords that employees have kept over the years for access to not only their own systems and networks, but for some of their customers’ trust accounts. We've tested those, and they've been active. The amount of information that's out there is absolutely astonishing to me, and how easy it is to come across in a dumpster is even more terrifying to me, just as a human being.

Kelly Coughlin:

That's amazing. All right. So, next question. What is phishing?

Kyle Konopasek:

Phishing with a P. Kelly, that generally, when it's mentioned by itself, refers to email phishing, and that is essentially, you're receiving that unknown email or that unexpected email in your inbox that looks like it might be from someone that you would expect, but upon further inspection, if you really look, like if you hover your cursor over the link to the website that it wants to take you to, if you look at the URL address, it's actually going to take you somewhere else, which would be typically a website that was built specifically to look like XYZ Community Bank’s website. Vishing is the telephone equivalent of email phishing. Same thing, except that I'm picking up the phone and I'm calling you, trying to extract as much information out of you as I can. Maybe it's just to find out if Kelly’s out of town for the next two weeks.

Kelly Coughlin:

What is pretexting?

Kyle Konopasek:

Pretexting, that's the Hollywood that we like. The Hollywood version of social engineering is where we are basically disguising ourselves to walk in face-to-face and try and gain access to a secured area of a financial institution, whether it be the vault or the telephone closet or the server closet or the surveillance system. You would amazed at how easy it is to gain access to secured areas of financial institutions through pretexting.

Kelly Coughlin:

What is baiting, B-A-I-T-I-N-G?

Kyle Konopasek:

Baiting is when you would take a USB thumb drive or a CD, and you would pretend to put information on that media. If you're a true attacker, what you would put on that media would be some type of a virus or malware, but the key behind the baiting piece is that you write on the cover of the CD, it says, Bank Bosun 2016 annual bonuses. Or maybe you put the USB thumb drive in an envelope and you write something conspicuous on the outside that might get someone’s attention, and then you leave that item in a conspicuous place, in a hallway or on the corner of a desk or a conference room table, because what you're hoping is that a curious eye is going to catch that and say, oh, I want to know what so-and-so’s making. Well, that put that item in their CD drive or their USB port, and once they open up that file, bang. That virus has been installed, and they don’t know it. But in reality, there's nothing on there. So, that's all we're trying to do with baiting, is get that virus on there so they can then phone home and tell us all the information. Maybe it's a keystroke logger so we can user names and passwords that are put into that terminal.

Kelly Coughlin:

Wow. What is piggybacking?

Kyle Konopasek:

Today would be a good day to do piggybacking, Kelly. It's about 18 degrees here in Kansas City. Maybe I want to go piggyback into a multi-tenant building. Smaller organizations with a few employees are not as easy to perform this test with, but if there are more than 50 or so employees, it's generally possible. Basically, take a cold day like today, have a heavy backpack over one arm and maybe have a box of donuts or something or a coffee in the other hand. And then, you're trying to watch for someone to come in through a secured exterior door, as an example. What you're wanting them to do is just hold that door open for you, because your hands are full. It's cold. They don’t want to leave you out in the cold and make you get our your keycard to badge your way in. This can happen inside, as well. Again, the more employees, the better, because they don’t necessarily know all the faces, and they're more willing to trust strangers.

Kelly Coughlin:

Okay. Now, the trick question. What’s the difference between phone phishing and vishing?

Kyle Konopasek:

No difference whatsoever, Kelly.

Kelly Coughlin:

That was the trick question. Good job. All right. I give you 100% on that. Where are the biggest human vulnerabilities? Is it new employees? Is it the older employees that, presumably are less tech savvy? Or are they the younger, heavy tech users that are certainly more tech savvy, but because they use it more? Or is it kind of the third-party consultants that are working inside a bank? Do they create more vulnerabilities?

Kyle Konopasek:

Based on statistics that we know of, anyway, new employees are the number one weakness for falling for social engineering attack. The reason why they don’t want to do anything to disrupt the culture of their brand-new employer. They don’t necessarily know everyone. They don’t necessarily know if the person sitting next to them is a person of importance or not. May or may not be. They're more likely to both fall for email phishing, vishing, and occasionally face-to-face social engineering attacks, just from the perspective of not understanding the culture, not being completely versed to all of the policies. And also just wanting to please everyone. As a new employee, you want to be a pleaser. You want to come across as positive and liked and all those good things. From that perspective, new employees are the number one threat. After that, it's third-party service providers. It might not necessarily be your auditor that's coming in once a year, but think about all the other vendors that are engaged to do business with the financial institution. It's not necessarily just IT vendors, either.

That's the other issue that we run across is that so many organizations want to focus on all of the vendors that they use to outsource IT to. It might be a data center, but it could also be a payroll company. Payroll companies have access to a lot of information. Let's not forget about the sensitive information of our own employees. It's not just our customers, but also our employees. So, we need to be cognizant to that as well. New employees and third-party service providers are the top two most likely to fall for a social engineering attack. The way that someone outside the organization would find out that there's new employees that have been hired on? Dumpster diving. There might be some on boarding information that got in the trash and shouldn't have been. You can kind of start to see how all of these different types of social engineering attacks work together to build that bigger dossier of information for a larger type of attack. I think it's important for all employers of all sizes to have some form of consistent and periodic information security training. If those employers are providing that training, then it is appropriate to test those employees. And when we do social engineering testing, we have to be very clear, because we are not testing to identify the bad eggs within the employee group. That is not the point. Social engineering testing, or any types of test on information security, is designed to identify weaknesses in the culture, in the policies, the procedures that are performed. The employees are just the vessels by which those items are implemented and executed.

Email phishing tests. Those are an easy one, fairly expensive for an organization. They can even be done internally by the organization. Spending $25 on a domain name, a website domain name that looks similar to a financial institution’s actual domain name and then setting up a fake website. An example of a good fake website to use in an email phishing campaign would be from HR, or if there's some type of HR function. Send out an email to a group of employees that says, good afternoon. We have just implemented a new human resource information system, and we want to make sure that all of our vacation accrual balances are up to date. Why would we choose vacation accrual balances? Well, because it's something that is impactful to the employee as an individual. They want to make sure they get their vacation time.

That email phish is going to go out with a link to that fake website, and what we're trying to see is if those employees actually click that link and then, do they actually go to that website and enter in their user name and password that we've requested so they can get to that fake website. Well, they're doing it in the hopes that they can make sure their vacation accrual’s correct. We just want to see if they're following policy. And again, if they fail, and nine times out of 10, they do fail, it's not a poor reflection on that individual unless they fail that same test 15 times. It's more a reflection on the level of effort and quality of the information security training that management has provided to those employees.

Kelly Coughlin:

Now, I assume that you guys at CBIZ MHM have engagements where you’ll do training, testing there, too, if that's called for?

Kyle Konopasek:

Yes, absolutely. From the training perspective, we actually partner with a company in Minneapolis named InteProIQ. They do a lot of online information security training for organizations of all sizes. Then, we come in and test how employees react after having that training. Sometimes, it's valuable to do a test before the training and after so that you can then compare to see if there's been improvement in the employee base in terms of how they handled those types of attacks, breach efforts. Then, kind of the third leg of that is cyber security insurance. CBIZ Property and Casualty does provide cyber security insurance, and that's also a key component. If an organization performs social engineering testing and jumps through other certain hoops, many times, they can get a discount on their cyber security insurance if they've demonstrated that they have gone through tests of controls and that they have validation that controls work.

Kelly Coughlin:

Why don’t we wrap it up? What's your favorite dumpster diving story? Where you were in a dumpster and you're thinking, what the heck have I done with my career? What am I doing in a dumpster?

Kyle Konopasek:

Well, Kelly, honestly, our CBIZ office here in Kansas City has about 400 people that work in our office space. In our financial service division where I am, there's about 150 to 200 people, so, I think that just to kind of give scope to the workplace. Now, most of the people on our financial services division are traditional audit and traditional tax CPAs. I am not, obviously. From this phone conversation, you've learned that. However, when we talk to our internal management about some of the services we offer and we mention dumpster diving, we just get these cold, blank stares, because they're wondering how in the world is a CPA firm paying us to go out and get in our clients’ dumpsters? And do our clients actually value that? Well, they absolutely do, and the reason why is because we're in harm’s way, Kelly.

We've found ourselves in large dumpsters that, come to find out, are actually big trash compactors. And then once we learn that, we do everything we can to scramble out of that dumpster as quickly as possible. We've been in that situation before. Fortunately, those trash compactors have not turned on, but those are the types of stories and little details that sometimes we don’t tell management about. Another dumpster diving story that we've kind of run across is that in speaking with local law enforcement, they actually encourage us to carry handguns, because some of the different areas, not just Kansas City, but all across the country that we do this work, they're not in the best areas. And we're also doing it late at night. Do we carry handguns? Absolutely not.

Kelly Coughlin:

Well, you haven’t seen any dead bodies in the dumpster, have you?

Kyle Konopasek:

No. We have not seen any dead bodies in the dumpster. We found some deer parts during hunting season.

Kelly Coughlin:

All right. That's just, that's terrific. I really appreciate your time on this. How can people get ahold of you? CBIZ has got, I don't know, 1,000 offices, I can't remember the number, all over the country. Are they best just to contact one of the local offices and then they get directed to you? Or do you want them to call you?

Kyle Konopasek:

You know, it's best if they just call me directly, because our Kansas City office is the primary location for this particular type of service. My direct number is (816) 945-5512, and I can certainly be reached by email. My CBIZ email address is my first initial K, and my full last name spelled out, Konopasek, which is K-O-N-O-P-A-S-E-K at

Kelly Coughlin:

That's excellent. All right, Kyle. You're the man. I really enjoyed it. Thank you for your time.

Kyle Konopasek:

Kelly, thank you very much.


We want to thank you for listening to the syndicated audio program  The audio content is produced and syndicated by Seth Green, Market Domination with the help of Kevin Boyle.  Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle.  Voice introduction is me, Karim Kronfil. The program is hosted by Kelly Coughlin.  If you like this program, please tell us. If you don’t, please tell us how we can improve it.  Now, some disclaimers.  Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant.  The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way, represent the views of any other agent, principal, employer, employee, lender, or supplier.

Dec 24, 2016

Kelly Coughlin:

Two horses were carrying two loads. The front horse went well, but the rear horse was lazy. The men began to pile the rear horse's load on the front horse. When they had transferred it all, the rear horse found it easygoing and he said to the front horse, "Toil and sweat. The more you try, the more you have to suffer." When they reached the tavern, the owner said, "Why should I feed two horses when one horse carries all? I'd better give the one all the food it wants and cut the throat of the other." And so he did.

Fables - Leo Tolstoy.


Kelly Coughlin is CEO of BankBosun, a management consultant firm, helping banks see level offices, navigate risk, and discover reward. He's the host of this indicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyd's Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem; provides banks' C-Suite officers, risk management, technology, and investment ideas, and solutions to help them navigate risks and discover reward. Now your host, Kelly Coughlin.

 Kelly Coughlin:

Good morning, everybody. This is Kelly Coughlin, CEO of BankBosun. Helping bank C-Suite executives navigate risk and discover reward. Competing for and retaining high quality executive and senior management talent, requires a combination of a good fit between a company and the people in the following three areas. I call them the Three C's: Culture, Capabilities, and Compensation. Today is related to compensation.

Certainly, base cash salary, cash incentive compensations are the easy components. When you get into additional forms of compensation that begin to address the unique needs of both the company and the individual - and these needs could be tax planning from both the employer and employee perspective; cash management - again, from both perspectives in terms of cash disbursement needs and cash receipt needs, and long-term legacy in the state needs. You begin to get into a more complex world that requires the expertise of professionals to help create structure and implement suitable plans.

Frequently, these are referred to as non-qualified benefit plans and they address the needs of both the employers and the employees. In the previous podcast, I interviewed David Shoemaker, President of Equias Alliance, who talked about how banks can create non-qualified benefit plans to help the bank recruit and retain executives. And then they fund these plans with bank owned life insurers. Today I'm going to interview Greg Ochalek Greg is the National Director of Non-qualified Benefits Consulting at CBIZ Retirement Plan Services. He has over 25 years' of experience in the consulting expertise with Fortune 1000 companies.

The mission of CBIZ is to help the clients prosper by providing them with the professional business and individual services, products, and solutions to better manage their finances and employees. And to accomplish this, CBIZ has three operating practice groups. One of which is employee services and that's where Greg operates out of. Greg has got a degree in economics. He used to work at Arthur Andersen. I'm going to let Greg pick it up from there. Greg, are you on the line?

Greg Ochalek:

Yes I am, Kelly. Good morning.

Kelly Coughlin:

You're up in Cleveland. How's the weather today?

Greg Ochalek:

Well, that's another story. We're having some big storms up here, but it's pretty typical being this close to Lake Erie. Getting all that lake effect weather. We've actually had some huge car pileups on our shore way and that's something we're dealing with now.

Kelly Coughlin:

Greg, anything else you want to add to the short bio I presented there?

Greg Ochalek:

Sure. To correct it, I've been specializing in non-qualified executive benefits for over 25 years. I got my start and training at Arthur Andersen in their Los Angeles office, when I was asked to be a member of the Charter Executive Financial Planning team. Part of the Executive Financial Planning led me into dealing with the non-qualified benefits that were made available to the executive group. It was during that time at Arthur Andersen that I really started to focus on it and actually became the west coast specialist for Arthur Andersen for a number of years while I was there.

We helped clients in the design of non-qualified plans. We consulted with them on accounting issues, tax issues. We helped our clients in analyzing different funding strategies to consider what would be best for a particular company. The administration of non-qualified plans is a lot different than administration for qualified plans, so we had to become familiar with the different types of administrators who are in the marketplace, so that we could recommend the best type of administration for our clients based on their need.

For the past few years I've been working with CBIZ for two years, as an outside resource to them for their plan and for plans of their clients. It was just in April of this year that I was asked to come inside of CBIZ, be part of the team and I accepted the position as National Director of their Non-Qualified Benefits Consulting firms. That's where I am today and it's been a lot of fun.

Kelly Coughlin:

Great. Well, let's get right into it here. Is there a typical company profile, bank profile, that you think they should begin to look at some sort of non-qualified benefit plan? Is there a profile based on assets, or business lines, or revenue size? Is there anything that strikes you as being kind of a trigger point that a bank would look at?

Greg Ochalek:

I think it's a very good question. The answer really is, that a bank is still a corporation or a business that has similar needs as companies in other industries. As it applies to non-qualified benefit plans, specifically volunteering deferral plans and supplemental executive retirement plans, banks really are not any different than other companies and other industries. These types of plans are really suited for mostly public companies or at least companies that are for-profit companies, that are paying taxes, because the benefits of the non-qualified plans really is heavily weighted for tax benefits.

If you're a company that's not paying taxes, then a lot of these qualified plans may not be as suitable for those types of companies. We like to deal with banks and companies that have at least ten to 15 highly compensated or management people that would be considered participants for the plan.

Kelly Coughlin:

Okay. Why public companies?

Greg Ochalek:

Because public companies are owned by a wide variety of shareholders. The corporation really is an entity that stands on its own. When you have companies that are privately owned, you may have only one or two owners of those companies and a lot of times, those companies are set up as pass-through entities so, all the tax benefits, the deferred tax savings, would end up flowing into individual tax returns. And it's a heavier burden for companies that are private, that are owned by a few people, to carry those deferred tax savings over a period of time. As opposed to a corporation that have a long life ahead and can carry the burden of deferring their tax savings.

Kelly Coughlin:

Okay. So I'm going to summarize what I heard you say. No, there's no typical bank in terms of assets, business revenues, but ideally, profitable. Ideally, it's not a sub S bank, but a C corporation that's held by more than the executive management of the company.

Greg Ochalek:

Yeah, that's correct. Let me clarify one point on non-qualified plans. That is that when a non-qualified plan is put together and participants are deferring dollars into the plan, or if the company is promising to pay a benefit in the future, that benefit or those monies that are being deferred, are not taxed currently to the planned participant. At the same time, the company does not get a tax deduction like it does with a qualified plan.

An example is, a 401(k) plan, people can defer money into it but the company gets a tax deduction in the current year. In a non-qualified plan, the company does not get that tax deduction, it defers that tax savings into the future and that's what I was referring to.

Kelly Coughlin:

What is your business model there at CBIZ? What's your business process? How does it work?

Greg Ochalek:

Well, first of all, I'd like to discuss the events that would trigger a reason why people would create these plans for their bank and for their company. That usually is when you have a company or a bank that you may be losing some of your key people to your competitors, or if you are going to be increasing your executive talent internally and you're trying to attract key talent into your company. These types of plans are very good for doing that because there are benefits that could help them personally, financially. It's just a way of helping them manage their compensation to benefit their families and them personally.

Also, there are companies that have discrimination testing issues with their qualified plan. Where a plan participant may not be able to put in the full amount into the qualified plans because of the discrimination testing issues, or you may have executives that are putting the maximum they can into their 401(k) plans and they have other dollars that they'd like to put away on a deferred basis. It's these reasons that are the main triggers for putting these plans in.

Now, when companies identify these events and are looking for solutions, that's when we can step in and help them. The way that we're set up as a company and what our platform is, is that we really try to have an unbiased approach to designing these plans and recommending things for our clients. We have what we call an open architecture platform. The open architecture performs on two levels. The first level is with the plan administrator of the non-qualified plan we have eight, nine, maybe ten different administrators that we work with across the country.

Now, each of those administrators have designed their platforms for certain markets. Depending on the size of the bank; where it is in the country; what it's trying to achieve one administrator might be better than another. We actually help our clients select a plan administrator and going through an interviewing process to determine which would be the best plan administrator.

Kelly Coughlin:

In the interest of full disclosure, the company I do work with, Equias Alliance, could potentially be one of those administrators.

Greg Ochalek:

Yes, absolutely. Especially in certain areas more than others. Equias has a great reputation in the BOLI market and accessing those types of investing products. We would work with Equias for those types of situations. Part of our platform is to help banks and companies go through an investment analysis, so that they would have the information, be able to make a decision on whether they should even fund these plans at all. Some companies have these plans and they go unfunded. Most companies will actually fund the plans, but they have to make a decision what they're going to fund using managed funds or using a tax advantaged vehicle like a bank owned, or a corporate owned life insurance policy to provide benefits for the company or the bank.

We help them with that process. And with that process there's various insurance companies that provide these types of polices or managed investments. We're very agnostic as to which company they use, but we have access to all of them and can help a bank or a company decide which of those products may be the best to help fund in on a qualified plan.

Kelly Coughlin:

Right. To summarize that, you helped the company fine-tune their needs requirements and then secondly, you helped them fulfill that need with - you say you're agnostic, but you have your open architecture, that is limited to high quality providers. You don’t open it to everybody, but you've done some due diligence and vetting of the providers that you will recommend to fulfill that need. Correct?

Greg Ochalek:

Yeah, that's absolutely correct. But I also want to just make a point that before we do those two things, is that we do a lot of consulting in the design of plan with the different features that are available, so that the planned design meets the objectives of the company. This whole thing starts with clarifying: What is the company trying to accomplish? Who are they trying to attract? Who are they trying to retain… or other objectives that the company may have by offering these benefits to their select group of management or highly compensated people? So that's where it starts. Then part of the process is the administration and then part of it is the funding and security, and that's what we had just talked about.

Kelly Coughlin:

Right. If I use the metaphor of building a house. You help them design the blueprint for the house, the architectural part of it, so you're like, what do you need? You want granite counter-tops, do you want this type of wood? Windows? You help them on the design and then you create the blueprint based on what they told you they need. Then you get the OK on that, and then you go out and get it fulfilled with subs and that sort of thing. Is that how you look at it?

Greg Ochalek:

I've never heard that analogy. It's a good analogy. I like that. I think to understand the power of non-qualified plans, why they attract key talent and attain key talent – and that goes all the way back to the beginning of studying non-qualified plans and how they work within corporations or banks.

Kelly Coughlin:

Greg, why don’t you talk for just a couple minutes about the difference between corporate owned life insurance and bank owned life insurance.

Greg Ochalek:

There's a funding vehicle the banks use called bank owned life insurance or BOLI. I think that it's fair to define really what BOLI is and I think there's a couple definitions. You've got bank owned life insurance that most banks are very familiar with, that they use to fund a wide variety of employee benefits. The bank owned life insurance by OCC regulations, they really have to be put in place to help the bank finance these benefits. You're really talking about benefits that would include post-retirement benefits, perhaps financial planning, maybe legal benefits, disability, other group benefits.

The typical BOLI type of product that banks are familiar with, they'll invest in that type of a product in addition to other things in their investment portfolio, to help pay for those benefits. They usually purchase it in single blocks of premium and it's designed as a modified endowment contract, which is a variation of a life insurance contract according to the Internal Revenue Regulations on Life Insurance. But then there is a different type of BOLI that is sometimes referred to as COLI, which stands for Corporate Owned Life Insurance, which is designed differently and would be more specific of a funding vehicle for the types of plans I discussed today.

Those are actually non-modified endowment contracts and the banks would be funding those with deferrals that they're getting from executives, or money that's coming from their operations that they're contributing to individual executives. Those premium payments into that type of a funding vehicle are paid on an annual basis. And the tax advantages are different between a modified endowment contract or what something would be referred to as a MEC compared to a non-MEC In most of the work that we do to fund non-qualified plans, we use the non-MEC approach.

Part of our business is working with companies like Equias to help place the other type of BOLI that I originally discussed, which would be the modified endowment contracts. We work very closely with a company like Equias and yourself, Kelly. But I do want to make the distinction that the funding vehicle for the types of non-qualified plans that I'm talking about and that we've talked about today are different. And it takes a different type of expertise and CBIZ provides that expertise to help companies make the right decision on how to fund these types of plans.

One of my very first clients was a cornerstone client of Arthur Andersen and as the person in charge of all the financial planning for the executives, I had to go in and understand all the non-qualified plans. Then when it came to retire, I got to see the benefits that the non-qualified plans provided for these executives. The one thing that just was startling, that jumped out, was that the participants were the executives that utilized the non-qualified plans to the maximum were actually retiring on incredible sums of money and in this case it was about $1.2 to $1.4 million a year for 15 years. I was struck to see how these non-qualified benefits were able to provide such a large amount of supplemental income in their retirement, in addition to the other benefits that the companies had.

Now, I compared that with those executives that did not participate in the non-qualified plans and those executives were retiring on $240,000 a year for 15 years. So you can see that the huge difference in how the non-qualified benefit plans affected the lives of the executives that took advantage of it. It helped them financially. They were able to help their children buy homes; set up education trusts for their grandchildren. It helped them socially with things that they wanted to do for their community. I saw them be philanthropic to the community and participating, things like their church, museums, other charities that they wanted to participate in.

That's really where I got sold and why I dedicated my whole career to non-qualified plans because of the difference that participating in these plans can affect peoples' lives. It was a good thing to see. That's one of my favorite stories to tell because it's very meaningful. Just another quick story. We had a bank in the Midwest that has been having some of their people being taken away by other banks in the area, just through competition. And this particular bank not only needed to keep their executives, but they were trying to add to them. They came to us, CBIZ, and talked to us about looking at their compensation package and the one thing that we did talk about was to add a non-qualified deferred compensation plan and possibly a supplemental executive retirement plan.

Then we helped them design a plan to keep it within their budgets, but to give their executives a way to defer dollars in addition to the monies that they were putting into the qualified plan. Then we helped promote that plan with their executives, so that they knew that their company was concerned about them personally and not just professionally. And then there was a group of people that they really wanted to keep around, so we created a plan through a supplemental executive retirement approach. That really was a way to put golden handcuffs on these people, so the bank had set aside funds into an account. The account could be managed by the executive. The executive could go online and see the value of that account.

But then that account would vest at certain points in their career. They saw that if they stayed with a bank, that they had this huge benefit that was waiting for them. If they left the bank, they would leave it on the table and have to walk away from it.

Kelly Coughlin:

That's great. You've been doing this a long time. You must like your job. What is it about your job that you like? Why do you like it? What gets you up in the morning? What makes you smile when you work?

Greg Ochalek:

Well, Kelly, I am very fortunate that I am able to deal with different types of companies and different industries, different sizes. I get to work with some incredibly talented people that are clients. I work with people in the C-Suite. Get a chance to observe CEOs to see how their minds work and how they take a look at these things. The CFOs who look at the economics of these plans, to be able to wrap their minds around it very quickly. That's fascinating to me. I've worked with some creative human resource people that really see the benefits of these plans. And that's all stimulating as far as working with all these people and learning about different industries and different companies.

I think that even beyond that, when I see executives that have worked in their career and are getting ready to unwind, and take things a little bit slower, the benefits that these non-qualified plans provide to them and their families really takes them up a notch or two, as to where they are and what they can do with their families and retirement. And that's just very satisfying for me. Those are the reasons why this has just been a lot of fun for 25 years.

Kelly Coughlin:

That's true. I like to hear people who like their job. How do people get a hold of you? I know that CBIZ has over 100 offices and 4,400 associates or so. If a company wants to explore this, should they talk to one of these associates or offices, or can they just get on the phone and call you?

Greg Ochalek:

Probably the best thing to do would be to contact me directly. We have offices all around the country. I actually travel quite a bit to our clients. My email is GOCHALEK @CBIZ, which is My direct line is area code (440) 591-8581.

Kelly Coughlin:

Okay, that's great. We'll post up your notes, so listeners can access that and get the written form of that as well. I want to finish with either one of your favorite quotes, or sayings, or a funny thing you've done in your career to add some levity to a very exciting interview on non-qualified plans.

Greg Ochalek:

In light of the political season we just went through, I think the first thing that comes to my mind is that, “We're here to help your bank be great again.”

Kelly Coughlin:

Oh, good one. All right, we'll leave it at that. Thanks for your time, Greg. I appreciate it. We'll be in touch soon.

Greg Ochalek:

Thanks, Kelly. It's been a pleasure. Thank you very much.


We want to thank you for listening to this indicated audio program, The audio content is produced and syndicated by Seth Greene, market domination with the help of Kevin Boyle. Video content is produced by the The Guildmaster Studio, Keenan Bobson Boyle. Voice introduction is me, Karim Kronfil. We want to thank you for listening to the syndicated audio program  The audio content is produced and syndicated by Seth Green, market domination with the help of Kevin Boyle.  Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle.  Voice introduction is me, Karim Kronfil. The program is hosted by Kelly Coughlin.  If you like this program, please tell us. If you don’t, please tell us how we can improve it.  Now, some disclaimers.  Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant.  The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way, represent the views of any other agent, principal, employer, employee, vendor, or supplier.

Dec 24, 2016

Kelly: My next guest lives in a town that was originally called "Mudsock" in Indiana because people would get off the train, step in a watery mess, and end up with a mud-covered sock.

Greetings! This is Kelly Coughlin.

Voiceover:      Kelly Coughlin is CEO of BankBosun, a management consulting firm helping bank C-Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast, Kelly interviews key executives in the banking ecosystem to provide bank C-Suite officers risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now, your host, Kelly Coughlin.

Kelly:             Greetings, this is Kelly Coughlin. I'm the CEO of BankBosun and program host. Today, I'm going to interview Todd Andritsch, a very smart and successful former bank executive, who’s working in the bank-owned life insurance and nonqualified benefit plans industry. He's a board member and principal at Equias Alliance.

Todd brings over 12 years of experience in designing customized benefit and BOLI programs. His prior experience includes 17 years in the banking industry. He earned his undergraduate degree from Drake University. And an MBA from DePaul University. I think that means he lived in Des Moines and Chicago. Todd lives in the Fishers, Indiana which is, I believe, a suburb of Indianapolis, Indiana.

We're going to start out with "Let's Play Fishers, Indiana Trivia". I haven't rehearsed these with Todd, so I'm going to throw him a couple curveballs. Todd, are you on the line there?

Todd:              I'm here and ready.

Kelly:             Now, you can confirm we did not rehearse this, correct?

Todd:              Absolutely. I'm interested here what you come up with them and see what these questions are.

Kelly:             Okay. What was the previous name of Fishers?

Todd:              Could be one of two answers. I think the real answer is Fishers Switch, which was named after the switching station in Fishers at the train line. But it's also known as Mudsocks. It's one of the areas because the horses in the area had mudlines about a foot up their feet because it was just muddy and is known as the Mudsocks area. So I'm not sure what answer, but those are two common answers.

Kelly:             Fishers Switch is what I had in mind. Okay, here's question number 2. What do you Todd think the population of Fishers was in 1963, about 50 years ago?

Todd:              Since the first neighborhood had not been platted in any, at all Fishers, it was all country, I would say less than probably 500.

Kelly:             Good one. It was 350.

Todd:              The neighborhood that I live in was the first platted neighborhood and that was platted in 1970 so you were well before that.

Kelly:             That's great. Now it’s 65,000. That's a pretty affluent suburb, isn't it?

Todd:              I don't know about affluent, but it's been rated as one of the best places to live in the country by numerous organizations over the years just based on income levels, affordable housing, high quality education, education levels…. So it's a good place to live and raise a family.

Kelly:             Yeah, that's great. So I covered little bit on your education. Do you want to pick up your business background a little bit and maybe talk about some family, living, married, number of kids, that kind of stuff.

Todd:              Sure. Yeah, well you mentioned 17 years in banking in Chicago on the commercial lending side, both as a business development person as well as a manager of commercial lending unit and then went to actually work for a company, that was a friend of mine was their lead banker called Clark Consulting. So that kind of got me into the industry and that Clark Consulting was also based in Barrington, Illinois, which is where I lived at that time. So I was familiar with the company. Just made a change and got out of banking. For number of reasons it was a good move for me. Five kids today and been raising them here in Fishers and ages range from 22 down to about 10. So it’s kind of spread across age ranges there.

Kelly:             Yeah that’s great. So that's how you went from banking directly into Clark, which was in the BOLI business, correct?

Todd:              Correct. It was almost a predecessor company to Equias Alliance now. BOLI, nonqualified benefit plans, so always working with banks across the country. My emphasis was really in the Midwest; Midwestern banks and just developing relationships with those banks and bankers and trying to help them achieve their objectives. 

Kelly:             Alright. That's great. Now one thing we did talk about is kind of getting into the difference between general account, separate account, and hybrid portfolios. There was a conference that you and I were at and you gave a brief talk on the hybrid portfolio and I was kind of focusing more on just the general account and you said to me, “ Well, Kelly, you’ve got to keep your eyes open, because the hybrid is something to look out for.” So I’m wondering if you could just talk for a couple of minutes on what’s the general account portfolio; what’s separate account portfolio; but then give a little more attention to the uniqueness of the hybrid portfolio. Some of the features of it, and some of the benefits, and in which markets they are most beneficial and which markets they're not so attractive.

Todd:              Sure. As you mentioned, there’s three different general types of bank owned life insurance. I think of it as a three-column chart. On the left side of the chart is the oldest type of product, the General Account Product. The General Account Product means that you’re an unsecured creditor of the insurance carrier when you give them the bank’s money. In return, you get some basic guarantees. The guarantees include, a guaranteed minimum interest rate, interest default protection and no mark-to-market asset which is a book value guarantee by the carrier. General Account is simple, safe and weighted 100% from risk based capital purposes. But the down side is that you’re an unsecured creditor of that carrier, so the carrier’s credit rating and financial strength is very important. That was the left chart on the column, now let’s describe the right chart of that column. It’s a BOLI product kown as Variable Separate Account. Variable Separate Account is typically a bigger bank product and as such is more complex than the other products. The reason it’s a “bigger bank” product, and I’m putting that in quotes “bigger bank” and that has some variants in it, there’s no set hard line as to what “bigger bank” means. But it’s a bigger bank product because the minimum purchase amounts are typically much larger, as well as the complexity of the product.

It’s a literal security, so that product is a security, it’s covered by securities law, in addition to insurance laws. So, you end up getting into much more documentation and complexity, as I said. It can be a good product for bigger banks, but you also have to have a staff that’s willing to and capable of administering it. So, just having more moving parts makes it more complex.

Kelly:             So, with that in mind, what are some of the advantages of the separate accounts?

Todd:              Well the advantages of Variable Separate Accounts, include separate asset protection, which is off the carrier’s balance sheet and often time lower expenses due to the bigger dollar amounts. There’s also possibly a lower risk based capital rating. These products are more flexible, allowing the bank to change investment philosophies over time, but there’s no guarantees. And again, it’s much more complex than the other forms.

Kelly:             When you use the term a big bank product what do you mean by that…a big bank product?

Todd:              Well, that's a good question. And I would put it not to necessarily on asset size but more of a complexity of the institution. But typically, I don't see that variable separate account product in a bank that’s less than billion and a half to two billion dollars. At that point, they're typically getting enough accounting staff and financial management staff to monitor and manage that type of asset. So, that's a general rule but it's really based more on complexity in institution that it is on size of institution.

Kelly:             And now the Hybrid Account, how does that fit into this chart?

Todd:              So far, what we’ve described is the left and the right columns of that chart. Those two columns. But what’s left is the combination of the two in the middle, which is the hybrid. Which makes sense, a hybrid between the General Account and the Variable Separate Account. This product is called a Hybrid Separate Account, thus the hybrid name. It’s what falls between the two and brings the best of both of those other products to the middle and together. What it does is it brings the simplicity and guarantees of the General Account from the left-hand product into the hybrid, which includes the guarantees such as the guaranteed minimum crediting rate, investment default protection and book value guarantees and it is 100% risk rated. But, the hybrid also has many and most of the advantages of the Variable Separate Account in this middle column on the chart and that’s the separate asset protection and much of the flexibility to investment philosophies and changes in investments over time.

The advantages here are you are getting the guarantees of the general account, you're getting the much of the flexibility and the separate account collateral effectively…it’s not collateral but it’s effectively what it is, backing you up from the separate account side. And you do get the opportunity to move between funds and pick the right fund and investment management philosophy to fit the bank's balance sheet needs overtime. But as I said, it’s because of the guarantees from the carrier backing it up it still is a 100% risk weighted. But it does provide much more flexibility with the simplicity like a general account. 

Kelly:             And who assumes the balance sheet risk on those assets?

Todd:              It’s part of the carriers guarantees and part of what they’re bringing similar to the general account. If market interest rates change, which obviously we continue to see quite a bit in the market and the interest rates are a big deal today and will continue to be. But if rates rise, what happens to value of those bonds on that carriers balance sheet? Well they’ll decline a bit. But that’s not the bank's issue. The guaranteed book value that the carrier is guaranteeing, that investment risk in that mark to market risk, is the carrier's risk, not the individual bank owner of this hybrid separate account BOLI policy. 

Kelly:             From what I’m hearing from you, there are advantages in the general account, and there are advantages for big banks in the separate account. So this is kind of right in between there. Is that what I'm hearing you say?

Todd:              Yes, it’s bringing advantages on both sides into the middle in that chart description I had before. A typical hybrid will have at least two, maybe three or four, different investment philosophies you can choose from and again you can have that flex with the needs of the bank’s balance sheet over time. Do you want only a government fund, where you want absolute credit protection and have a very conservative portfolio or would you rather get more aggressive and move into more of a Lehmann aggregate type of approach; or even further maybe even a small equity upside within that BOLI portfolio. All of those are available within hybrid type of products. It just depends on what you are trying to look for in terms of your risk profile and appetite on the bank’s balance sheet, and you got the opportunity to move in and out of those over time.

Kelly:             Okay. Well, there must be a cost of having that kind of flexibility. Would it be safe in assuming that the expense ratios are a little higher in the hybrid vs. the general account?

Todd:              In general, they are very similar. There is a cost difference

between the hybrid and the general account. One of the major differences is the carriers have to have some type of payment to the other general account that’s the best way to put it up to pay for the guarantee they’re providing to the hybrid fund. And often times, it’s about a 10 basis point cost. There’s a couple of carriers actually have it literally at 10 basis point. But that's the payment from that hybrid account to the actual carrier for those guarantees backing it up. But really the yield differences over time are more driven by less the costs there than it is kind of what the market rates are; and what’s being invested in; and where new money is flowing in. It’s driving more kind of the yields that are obtained. But the cost of insurance, cost of investment management, really there's no difference there at all between those different types of funds.

Kelly:             Aren't the underlying assets or securities that the insurance investment team invest in...aren’t they going to be pretty much the same?

Todd:              Pretty much. All the funds are going to be bank eligible BOLI assets because they’re investing for banks in this bank-owned life insurance policies. They're very much similar. But does the general account products necessarily have as much governments in it? In dollar amount it might, but the hybrid fund could have a government only fund, where that’s all that the banks want to be and that’s a very conservative government fund. So it could have a particular fund may have a higher emphasis on one thing or another, depending on what the investment objectives are of that fund. And therefore, that’s why it fits the balance sheet and the risk management profile of the bank depeding on what the needs are over time in the hybrid a little bit differently and you could just match that a little bit closer to what the bank’s needs are. If your investment portfolio really doesn’t have much governments, but you want to have that in the BOLI fund, you can manage the risk profile, the bank's balance sheet overall differently and use that as a piece of the puzzle.

Kelly:             What's going on now in the market? Is hybrid an attractive alternative now? Is general account where all the money's going or is hybrid still an attractive investment for banks these days?

Todd:              It’s a good question. And the answer to that really depends on market timing and kind of when you're looking. Today, you're right, there’s really, in the last year there’s been very little variable separate account, the big bank products as I described it earlier, really kind of new purchases being done.

General account has been getting a majority of new business, about twice that of the hybrid separate accounts today. And that’s really just based on yield. As the hybrid separate accounts are smaller portfolios, new money going in is being bought at new money rates. So there isn’t as much as a block of an existing insurance and cash value out there to kind of leverage off of older investments as there is in general account.

So general account as of June of 2016 had almost $70 billion in cash value and to put that in perspective in terms of the hybrid separate account, there’s about $17 billion as of the end of June in hybrid separate accounts. So new money going in is going to dilute an existing portfolio less in a larger portfolio, which is the general account.

So, the bulk of the growth has been in general accounts over the last year or two, but there's still is a good amount of money going into the hybrid separate accounts and really the reasons that I went through before: collateral protection, diversification, and diversifying carriers as well product types is still putting a lot of money into hybrid separate account.

As a rate environment changes and long term rates increase, I think you’ll see that flip back to what it was a couple of years ago and probably more going into hybrid separate account than into general account. I think it’s just an issue of what the rate environment is doing right now and kind of where most money is going today. But I think that will change with new money rates over time.

Kelly:             Okay. You had mentioned early on in the podcast that separate accounts tended to be kind of big bank product. Is there a certain type of bank profile that you think is appropriate for the hybrid or is it mainly the internal culture of the bank and the appetite for control that you think influences that?

Todd:              Yeah, I'm not sure it’s an asset size, or charter type or anything like that...that's going to dictate a hybrid separate account purchase versus another type. I think it’s going to get to what are yields, that credit protection or lack thereof, offset buy an enhanced yield. I think it’s going to get to that risk reward trade-off that bankers are used to making every single day as banks aren’t in the risk avoidance business; they’re in a risk mitigation business.

Are we taking on a risk and are we getting paid for it? That’s a risk mitigation business in trying to figure out how to get their money back in a safe and sound way. That's the same thing in BOLI. There is advantages and disadvantages to the different structures, having assets backing you up and having flexibility on a product with carrier guarantees is better than not having those things. But what is the return trade off?

In today's environment, as I mentioned many banks are saying that return trade off isn't worthwhile. I’m better off going with general account and giving up some of those additional protections. But as rates rise, I think we'll start seeing a different mix in the market. So it's about whether those things are helping mitigate risks internally. Is flexibility good and important? Is the asset protection backing up off-balance sheet of that carrier important? Those things, if the answer to those is yes, hybrid product is absolutely the way to go and depending on market timing, it’s going to be a little below, at, or higher than that general account equivalent.

Kelly:             Great. Based on your background, you are at your core primarily a banker and secondarily you are an insurance guy. When you look at BOLI, do you think banks allocate assets  to BOLI for investment reasons or insurance reasons? Or some look at it as it’s a loan to insurance company. What's your perspective on that and when you work with a bank, do you emphasize one or the other, or do you stick with…it’s an insurance product? 

Todd:              Banks are allowed to own or have an assignment of life insurance for three reasons and three reasons only: First is key man coverage on key officers and executives and that’s a temporary need. The executive or the officer leaves the bank, you have to get rid of the policy.

Second is an assignment of a policy for a loan. Got a loan; it doesn’t have enough collateral, not good enough, something's going to happen when you're relying on the individual in terms of repayment you're going to have an assignment, a policy pays off or it moves to another bank, you let go of that assignment.

The third and only other reason that a bank can own or hold a life insurance policy is to offset and recover benefit liabilities it’s all per the regulators. So what banks do is they buy life insurance on a group of executives or directors. The enhanced yields on those policies that's available is really recovering existing benefit expense. It could be pension costs. It could be 401(k) match. It could be health care costs. It could be other nonqualified type plans. It’s for recovering those benefit liabilities and expense.

So while we're talking about some investment aspects here, the reason their bank buys is to offset and recover those benefit liabilities. That is the business purpose. That’s why it’s there. And it’s the only, effectively permanent need. If you and I are both insured at a bank and we leave, our seats and positions are replaced by somebody else. Those benefit expenses continue. So that’s the only effectively permanent need that the bank has and reason to keep that life insurance on the book is to support those benefit liabilities.

And that's really what it revolves around with these banks and again it’s a risk mitigation tool. Benefit expenses are rising. Banks want to keep key employees and have benefit programs that do that. So in order to do that they have to pay for it. One way to mitigate those expenses and keep them down is to have bank-owned life insurance on the books to help pay for those things, because the only difference between Bank A and Bank B isn’t the color of their green money. It’s no different. The difference is the people and how they’re serving their clients. There’s obviously other marketing differences. But it really gets down to the people. Keeping, attracting, retaining, rewarding your key people is important. So then how do you pay for those programs? Bank-owned life insurance is a way to help support those. Because they’re really the only permanent need, and the reason you can own it is to offset and recover those benefit liabilities.

Kelly:             You seem pretty passionate about this business. Was that your reason to get into it, to help these banks better compete?

Todd:              Yeah, that's the tool. My motivation for getting into this business and anything I do, it's just working with people and continue to develop relationships. Having strong relationships with people you like working with, and developing that bond and trust over time. Whether that would have been in my commercial lending days, or today in this arena, it's about helping people achieve their objectives and then building those relationships. So helping someone with their retirement programs and be able to live comfortably in retirement; helping a bank maintain its profitability by keeping key people; growing the institution by adding new people; that all gets down to compensation and keeping people and the way they pay for it. So bank-owned life insurance and nonqualified benefits are just tools to help build and maintain relationships and help the organization have the tools to grow internally and grow itself and that's just the tool I’m bringing to the table that I can help them with.

Kelly:             Great. What type of banks should contact you? I know you’ve got a geographical focus clearly in Indiana, what other states do you work? What profile do you look for? Do you want to help banks that have BOLI on the books from other providers, and then you enhance their reporting or servicing? Who do you want to work with? Who should be contacting you?

Todd:              Primarily focus: Indiana, Michigan, Ohio, Kentucky, are my cores states and I got a couple people helping me with that, that are employed by me but again, building those relationships. But again, size of the bank, the charter type, irrelevant. We work with banks from $30 million in assets to over $15 billion, a wide range. And what we do for those different institutions varies, but really, any and all of the above.

Look, we’d love to help banks that have BOLI right now, maintain those portfolios and become a little more efficient with that, maybe enhance yields slightly, if they’ve got it already. We help with M&A activities in terms of reviewing a target’s nonqualified plans and BOLI portfolio and how it can be rolled into existing client. It could be a bank that’s never had any of the above, but it wants to explore it and understand how to retain a key employee and to grow their business and/or just to become more profitable. Any or all of those, again these are just tools to help banks achieve their objectives.

Each bank's objectives are a little bit different and vary. There is no one size fits all. It’s about getting in and understanding the people, understanding the board, understanding what makes the institution tick, what their objectives are, and then structuring something around that.

Just like bankers know that a loan is not a loan is not a loan. A line of credit is not the same as a term loan is not the same as mortgage. They have different needs. They have different objectives, and different ways to structure to make sure that it achieves their clients' objectives. That's the same thing with BOLI and nonqualified benefit plans. And that’s why we talked about hybrid vs. general account. We can go and structure around the particular needs to help the individual bank regardless of size or geographic location achieve their objectives and to help them drive down that course they want to go on.

Kelly:             That's great. Sounds like you like what you do.

Todd:              I do. It's fun helping people. And no matter what business you're in, and that's what I do and that's what I enjoy.

Kelly:             That's great. All right. Now, I gave you a heads up. I was going to ask you either your favorite quote or the dumbest thing you’ve done or said in your career. And I’ll let you know that your business partner, Glenn, answered the dumbest thing by giving a summary of a presentation he made with his zipper down. So, that was pretty dumb, so you might be able to top that.

Todd:              Mine isn’t necessarily what I’ve done in my career, but probably the dumbest thing I ever said was "Sure, I'll go skydiving with you.” As I'm holding on to the strut of the plane thinking, I can hold on to this thing and land, but then letting go and having a whole different type of reaction. So dumbest thing I ever said was "Sure, I'll go skydiving with you". Favorite quote? Yeah, I thought about that one a little bit and yeah, it varies and shifts over time, but I think right now it would probably be a quote from the Bible. Proverbs 27:17. “As iron sharpens iron, so one man sharpens another.” I've been thinking about that one a lot recently and I think it applies to not only our faith but all our personal relationships as well as business.

Kelly:             That's a good one. Read it again.

Todd:              Proverbs 27:17. “As iron sharpens iron, so one man sharpens another.”

Kelly:             That's quite good. I’ve never heard that. Very good.

Todd:              As we deal with other people, and challenge each other and question each other. And the more we challenge each other, the sharper we get and the better we get. So, I really like that one.

Kelly:             Well, that's all I have, Todd. Is there anything else you want to sign off with or shall we conclude this?

Todd:              No, thank you. That was great, appreciate the time.

Kelly:             Thank you very much. Keep sharpening your iron. We'll be in touch soon. Thank you.

Voiceover:      We want to thank you for listening to the syndicated audio program, The audio content is produced and syndicated by Seth Greene, Market Domination, with the help of Kevin Boyle.

Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin.

If you like this program, please tell us. If you don’t, please tell us how we can improve it. And now, some disclaimers.

Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant.  The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any way represent the views of any other agent, principal, employer, employee, vendor or supplier.

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