Use Portfolio Management to Help Your Clients

Use Portfolio Management to Help Your Clients

I’ve been thinking about portfolio management and the use of portfolio management information.  My thoughts have centered on the need for financial institutions to gain more value from existing data sources and how else this information could be used. 

When we talk about proactive portfolio management, we typically focus on three main areas: 

  • Preventing delinquencies/charge-offs 
  • Streamlined renewals and reviews 
  • Cross sell opportunities 

As a credit person, I always focus on the more “doom and gloom” triggers.  I look, first, at preventing delinquencies, shoring up loans that are struggling, and monitoring behaviors for the first sign of negativity.  Faster reviews/renewals or potential cross sell opportunities are also benefits of the credit risk picture.  It is easy to look at this and assume that is all portfolio management information can be used for. 

There is one area we seldom discuss, and that is how to use proactive portfolio management to help your clients in your role as a trusted advisor.  Credit risk is very important, lowering costs is crucial and cross sell opportunities build client profitability and “stickiness.” Now, though, let’s turn the conversation around and focus on what kind of information proactive portfolio management can give to help your clients. 

Your business clients are busy people.  They are often small business owners who wear many hats.  The typical small business owner is the salesperson, office manager, receptionist, maintenance person and collector-all rolled into one.  He or she has very little time to focus on financial trends, analyze their deposit accounts and forecast line of credit usage.  This is where you can add value to your trusted advisor relationship. 

The same portfolio triggers that I recommend for credit risk and streamlined reviews can also be used to inform and counsel small business owners.  For example: 

  • High line utilization: 
    • Discuss with the business owner the value of paying down on the line of credit to allow for future line advances.  Should some of the line be termed out to give the business set monthly payments?  What was the line used for?  What lines usage is coming up in the foreseeable future?  Help the business owner plan for the future. 
  • High deposit balances: 
    • Guide the business owner to use this money more effectively.  Is there a better deposit option?  How about paying down on the line of credit?  Help the business owner manage extra funds better. 
  • Low deposit balances and/or NSF issues: 
    • Are accounts receivable collections a problem?  Have the accounts payable terms tightened?  Are there other cash flow issues?  Are deposits not being made in a timely manner?  Help the business owner understand the cost and impact of these issues. 
  • Delinquencies-multiple times 30 days:    
    • Is the business owner aware what consistent late payments cost and how this affects his/her credit relationship within the bank?    Could a simple shift to a new payment date resolve this issue?  Is the business owner even aware the payments are being paid late?  (The bookkeeper may not keep the business owner apprised on these issues.)  Share the cost of late payments and show how that money could be used to pay down a line of credit or invested back into the business. 
  • Score changes-business and personal: 
    • Explain to the business owner the impact even one late payment does to his/her credit report.  If there are errors on the personal credit report or business report, guide the business owner on how to correct these items.   

These are just a few examples of ways to use the information you already have to add value to your client relationship.   You will probably think of many others.  While delinquencies are low, this is the time to leverage your information and use it to guide your existing clients to a better position.     

Remember, now is the time to understand your portfolio and all of its complexities!