THE CORPORATE FINANCE GROUP THINKING ABOUT BANKING

The Corporate Finance Group, Inc. 2 Bradbury Street Warren, RI 02885 USA Phone: 401-247-9971 www.corfingroup.com

© 2010, The Corporate Finance Group, Inc. Page 1 of 2

What Do Relationship Managers Need to Know? By Bob Newton

Over the eighteen years I’ve been training bankers, the question of what knowledge and skills relationship managers need still has not been resolved consistently across our industry. The requirements are driven by what the RM does; they enable the RM to do his job at the highest professional standard. What does a relationship manager do? There are two essential roles in the job:

1. Consultative selling to clients. To be most effective, the RM must be viewed by the client as an expert on finance and his “trusted adviser”. In banking more than most other products, the client doesn’t first decide what he needs and then go out for bids. Deals are created from dialogue about the client’s opportunities and needs, and possible solutions that best fit the client’s situation. The RM must be a full participant in and add value to that dialogue.

2. Leading the bank’s team. The RM must be a credible team leader, or quarter-back, to translate the client’s needs for the specialists, select the best among competing product solutions, and manage the team through the sales/execution process. Within the team, the RM is the “client specialist.”

Both roles have a common success factor: credibility. The banker whose knowledge, analysis, judgment and actions are trusted is a leader. What must the RM know in order to fulfill these roles? There are four areas: Know the Client Excellent financial analysis is obvious. Know enough about business models, competitive strategy and value creation to advise the client on what financial strategy and capital structure best support the business strategy and shareholder goals. Analyze how asset intensity, product life cycles, business risks, and dependence on the capital markets for capital and liquidity affect the capital structure. Understand the company from both the lender’s and the shareholder’s perspectives. Understand the client’s financial policies and risk tolerance, and be able to explain how different financial solutions meet the quantitative, qualitative and subjective factors used in the client’s decision process. For private companies, understand the owner’s objectives and personal finance issues, as they are integrally linked to the business strategy and capital structure. The banker must be able to ask, “What are your long-term goals for the business?” and then give high-quality advice on how to use finance to accomplish them.

THE CORPORATE FINANCE GROUP THINKING ABOUT BANKING

The Corporate Finance Group, Inc. 2 Bradbury Street Warren, RI 02885 USA Phone: 401-247-9971 www.corfingroup.com

© 2010, The Corporate Finance Group, Inc. Page 2 of 2

Know the Products Deep enough knowledge about all financial products relevant to his clients (whether the bank can do them all or not). Be able to advise the client about the relative advantages of each including the structures, issuance or execution process, pricing parameters, and disclosure/regulatory issues. This need not be the most current pricing details or fine nuances of customized structures – those are for product specialists. But the RM has to be able to credibly advise the client on the strategic implications of possible solutions. Understand whether a product is suitable for the client, and whether the client is suitable for that product, and why. For example, an entrepreneur may dream of “going public” but his $50 million market cap is unsuitable for an IPO. A client who aspires to issue investment-grade debt needs an accurate rating analysis and advice on what it must to do achieve its target rating. Know the Markets Be aware of market conditions; not only current prices and trends but the level and types of deal activity in relevant markets. Know what deals the client’s peers have done and how they fared. Be able to explain market indicators for interest rates, FX, credit spreads and equities, and how they create or constrain opportunities for the client. Collect investor feedback from the sales and trading desks and interpret it to the client. Again, the fine details of pricing and the most current market reads are for product specialists; but the RM needs to be prepared to advise the client on the timeliness, as well as suitability, of deal opportunities. Know How What we know only gets us so far – it’s what we do that counts. To earn the client’s confidence, the RM must handle the consultative selling/advisory process skillfully; consultative selling is an art. He must also be able to “deliver the bank” after winning a mandate. Failing to get credit approval after a proposal is accepted is unforgivable in the client’s eyes. To earn the team’s confidence, he must know how to manage the bank’s internal process, from analysis through approval, sales and documentation. In addition to financial skills, the RM must excel at presentation, negotiation, and project management.

The Bottom Line: Deals are not so much found as they are created. When the client believes that the time he spends with a banker is itself valuable, he is willing to give both time and mindshare to that banker. Opportunities are created from that high-quality dialogue between a client and his “trusted adviser”. And to be that adviser requires much broader and deeper knowledge and professional ability than many banks’ organizational models provide.

This is one in a series of articles on banking and training published by The Corporate Finance Group. For more information or to give comments on this article please email: info@corfingroup.com