The December 2017 edition of the WBA Compliance Journal has been published.

This month's Special Focus provides answers to frequently asked questions to the WBA Legal Call Program regarding Wisconsin Consumer Act and Marital Property Act.

Download the full issue here.

By, Ally Bates

The banking industry’s future is difficult to predict. Fintech, compliance, technology, branch strategy… The list of potential challenges and opportunities seems endless. Who will lead your bank through this shifting landscape of tomorrow?

Succession planning must be more than a list of names. It requires detailed planning and follow-through. “Our belief is that the purpose of long-term succession planning is to create an ideal plan for the future that takes into account all the things that are important to the bank, such as culture, philosophy, and goals,” said Executive Benefits Network (EBN) Managing Partner and Founder R. David Fritz, Jr. “The ultimate goal is to have a smooth and strong transition.” Integrated talent management and leadership development plans are essential for senior management to position key successors for success in their future roles—and to ensure they stay with the bank long enough to fill those shoes.

Common Challenges

Wisconsin banks—and the industry in general—face several challenges when it comes to successful succession planning. Foremost is the lack of young, incoming bankers. “The key challenge that banks face today is finding qualified, driven individuals that fit with the job and with the culture of the bank,” said Kevin Piette, COO at State Bank of Cross Plains and chair-elect of the 2017-2018 WBA BOLT Section Board. “You’re looking for a long-term fit so you can grow that talent.” According to Chief Operating Officer and Market President at Coulee Bank, La Crosse Mike Gargaro, current BOLT Chair, part of the solution to this problem is to do a better job of telling the story of community banking. “We need to get the stories of what community banking is about and what the jobs are like to our potential hires,” he said. “We need to be seen in the communities we serve.” This is especially important in rural parts of the state, where the pool of potential employees is much smaller. “It’s a challenge for community banks, especially in rural areas, to attract talent, but by continually advocating we can show how great our industry is,” said Piette.

Another challenge is the population differential in today’s workforce. “There’s a leadership gap, where you have Baby Boomers leaving the workforce and Millennials entering it,” explained AmyK Hutchens, founder of AmyK International, Inc. “Millennials are the fastest-promoted generation post-Industrial Revolution.” Not only are Millennials filling large shoes because there simply are not enough Gen X bankers to do so, but senior management often are unsure of how to manage these different generations in a way that encourages growth and retention.

Finally, effective succession and development planning must take place in tandem with exit strategy planning. “If the current CEO is not simultaneously preparing for his or her exit, then all the great planning and development you’ve done will get pushed down the line,” said Fritz. “The board needs to keep the CEO honest with the timeline that is agreed-upon.”

Identifying Candidates

The first step in integrating a development plan into the succession plan is to determine which key roles are likely to experience turnover in the near future (typically 3-5 years). Next, senior management must identify the individuals within the bank who may be tapped for a leadership role in the future. Note: this is different from having a “backup plan” in case of an emergency departure, though that is a useful exercise. “Know what would happen if one of your key people left suddenly,” Fritz advised. “That’s your immediate short-term succession plan. We call it the ‘lifeboat drill,’ and it’s different than the long-term plan.” A successful long-term plan requires identifying and developing key individuals.

The most fundamental quality to look for in future leaders is drive. “If you ask someone if they’re interested in leadership and they say ‘yes,’ you have to support their growth and possible advancement,” said Hutchens. “Give everyone who raises their hand to lead an opportunity to do so.” According to Piette, that “can-do attitude” is more important than trainable skills. “Most of the functional attributes you can train for, but it’s the proactivity and ability to communicate effectively that is the foundation of leadership,” he said. In some cases, proactive employees are also seen as risk-takers, says Gargaro. “Watch for someone who’s willing to step outside their norm and look at problems differently to try to come up with results that work in favor of the bank and the bank’s customers,” he advised.

An effective development plan also differentiates between necessary personality traits and trainable skills. “Good leadership is both innate and learned,” said Piette. “You need to have an inquisitive and positive personality which provides the foundation for the desire to learn and develop your leadership.” Some individuals will have a natural ability to lead, but that doesn’t mean employees who don’t exhibit that trait should not be considered for development. “There is a little bit of truth to the ‘born leader’ idea,” said Gargaro. “On the other hand, attending leadership training can bring out abilities within yourself that hadn’t been exposed previously.”

Finally, the development plan should identify the bank’s appetite for hiring outsiders versus promoting from within. Statistically, home-grown talent leads to better results. “One thing we find is that companies that promote from within often outperform those that recruit outsiders,” said Fritz. “The more you can bring people in and develop them, the better the outcome is.” In addition, a strategy centered around growing from within is more feasible for smaller and/or rural institutions. “Smaller community banks don’t always have the same opportunities,” said Gargaro. “When you can promote from within, strive to do that. They’re already in your culture and understand what your bank is about.”

However, banks should not adhere to a “grow from within” strategy if the talent just isn’t there. Sometimes recruiting outside talent is the best path forward. “I’m a firm believer that you look for the right person for a particular job,” said Piette. “Hiring from the outside can be an important opportunity for community banks because you bring in the experience and talent necessary to run your bank in the 21st century. You’re growing the people you have internally while infusing the bank with new talent to make the entire organization better.”

Development Plan Essentials

Every bank succession plan should incorporate a leadership development strategy, and that strategy should meet three essential criteria: strategic alignment, formalization, and retention. Of the three, the most critical is alignment with the bank’s overall strategic plan. “A well-designed strategic plan identifies where you want to go and what talent and skills you’ll need to get there,” Hutchens explained. “The key is alignment.” That said, no strategy should be set in stone. Allow for adjustments as circumstances change. "Adjust the plan when you have staff turnover," Gargaro advised. "You may hire someone who turns out to be a real high-performer, or maybe someone wants a career path change."

The second essential criteria for an effective leadership development plan is that it be formalized—that is, written down. “If you don’t have an organized development program, it becomes something you make a mental note of in the middle of the night,” said Fritz. “If you have it in writing and need to give monthly or quarterly reports to the board about it, you’re more likely to be actually following those plans.” The exact steps in each plan should be customized to the individual employee and their stated goals. “Find out what areas they’re interested in and create a leadership development pipeline for them,” Hutchens recommended. The goal is to close the gap between the skills they have and the skills they will need in order to be successful in a future role.

Finally, each leadership development plan must include a retention strategy, and it must be customized for each high-potential employee. “Most banks have Baby Boomers, Gen Xers, and Millennials all in the same bank, and they all have different ideas of what’s important from a compensation and retention standpoint,” said Fritz. For example, many institutions have traditional hierarchical structures where employees climb up the rungs of a ladder as they advance—this structure doesn’t appeal to every generation. “If you want to keep Millennials, turn the ladder horizontal,” Hutchens advised. “Each rung is no longer a raise and a new title, but a new project that tangibly shows them you’re investing in them.” One retention strategy that works for nearly every employee: communication. “Open and honest communication with the individual you see potential in is critical,” said Gargaro. “They need to know they’re being considered for a future leadership position.”

The need for generationally customized retention tactics directly correlates with the top challenge banks face with recruitment. “Many Millennials coming up are looking for professions other than banking,” said Piette. “We need to continually share the reasons why banking can be a fun and great, rewarding career opportunity for individuals coming out of college. That’s the heart of our industry moving forward: attracting and retaining that talent.”

When creating your bank’s leadership development plan, focus on the desired end result. “At the end of the day, leadership development and investment is about enhancing and supporting the way your people think, problem-solve, and influence others,” said Hutchens. “Change the thinking, and you’ll change the behavior and change the results.”

Seitz is WBA operations manager – senior writer.

EBN is a WBA Bronze Associate Member.

By, Ally Bates

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.”

-Bill Gates

“Disruption” is one of the biggest buzzwords in banking today. Many within the industry associate it with various technological developments and the fintech companies selling them. True disruption, however, goes much deeper. Even more importantly: traditional banks are not doomed to watch helplessly as the industry they know disappears. In fact, by focusing on their customers’ wants and needs—something Wisconsin’s banks have always excelled at—community banks can continue to thrive in a disruptive world.

Defining “Disruption”

According to JP Nicols, managing director of FinTech Forge, disruption in banking occurs on three layers. The first is the experiential layer, which includes everything that directly impacts consumers, such as mobile banking and P2P payments. Second is the tactical layer, which is the digital connective tissue between customer experience and the bank’s core operations. Disruption in this layer includes technologies like open API and process reengineering. Finally, the strategic layer of disruption is home to developments such as artificial intelligence and blockchain. “Most of the disruption we have experienced so far has been in the experience layer,” Nicols said, but noted that the other layers will have more impact in the future.

Despite its pervasiveness, disruption can be difficult to define. “It doesn’t mean something new is launched and all the current players disappear,” Nicols explained. “In this day and age, no industry is invulnerable to disruption,” he continued. “Our customers’ expectations are being reshaped by technology.” Ultimately, disruption can be defined as change driven by customer expectations.

Setting New Standards

Perhaps the biggest challenge disruption presents to the banking industry is that banks are no longer only competing against other financial institutions. Instead, non-bank retailers and fintech companies are transforming their customers’ expectations, particularly in mobile banking. “The digital products are the most discussed disruptors in the banking industry,” said Kyle Manny, CPA, CGMA, senior manager, financial services at Plante Moran. “Consumers are demanding well-developed mobile banking applications as a qualification for who they’re going to bank with.” Fintech companies have been quick to develop mobile applications to meet that demand, but while they are attractive to consumers, haven’t been able to achieve scale on their own in many cases. “Fintech companies are reimagining how banking should work in a mobile world,” said David DeFazio, partner at StrategyCorps. “When you pull back the curtain, among the most successful are the ones who have partnered with banks.” DeFazio will demonstrate some of that during his presentation at the upcoming WBA Bank Executives Conference.

Even more disruptive than the fintech companies that tend to attract the most attention from the industry, giant non-bank retailers are the true impetus behind rising standards for digital services. “Where we haven’t paid enough attention is to well-funded players from other industries, such as Amazon, Walmart, and Facebook,” said Nicols. “Financial services used to exist in a unique middle zone where all competitors looked the same, and we only competed with one another. Every single line on the balance sheet now has one or more non-bank competitors.” Again, this is particularly noticeable within consumers’ expectations for the mobile experience. “Companies like Facebook, Apple, Amazon, and Starbucks are changing the way that customers expect things to work in the mobile world,” DeFazio explained. “Looking outside of our industry to see how these non-bank retailers are setting new standards for mobile payments is very important.”

Disintermediation—another buzzword—is the ultimate side-effect of this non-bank disruption. “Banks have been a trusted third party in the middle of a value network for a long time, and if we don’t need that third party anymore, for example because Amazon now offers its own financing, that’s true disintermediation,” Nicols explained. In the days before mobile wallets, PayPal, Venmo, and other digital payments disruptors, banks could count on the fact that with every purchase, their customers would reach into their wallets and pull out a debit or credit card (or checkbook) with the bank’s name and logo on it. “We were always there,” said DeFazio. “Today, that is disappearing. Sometimes consumers even forget which credit cards are attached to their mobile wallets. These companies that are outside of banking are stealing the experience from banks.”

In today’s highly digital, interconnected world, consumers also cause disruption directly. “Customers these days are far more researched than they’ve ever been before,” Manny explained. “Even within small communities, they’re walking into a business having already done research. Many have made their purchase decision before they walk in.” That includes for financial products and services, such as mortgage loans, which reduces the banking industry’s monopoly on customer relationships. For example, rather than automatically going with the bank and product recommended by their realtor, a potential customer may shop around and get a lower rate with Rocket Mortgage from QuickenLoans.

Finally, today’s regulatory environment is also capable of disrupting bank operations. “People don’t think of the regulatory environment as being a disruptor,” said Manny, explaining that some banks have chosen to exit small lines of business because of the perception of the regulatory compliance risks they present. “People who specialize in compliance and consumer protection are very difficult to attract or retain,” he said. “Companies may need to invest significant resources in employees or consultants to ensure they remain compliant, and it might not be cost-beneficial to do it.”

Keeping Up

So, what can Wisconsin banks do to keep up with today’s rapid pace of change and adapt to disruption? The first thing is to shift your mindset; see disruption as an opportunity, rather than a threat. “The natural reaction is to see disruption as a problem,” said Manny. However, he pointed out that banks have more data on their customers’ purchase habits than any vendor out there, enabling them to hyper-personalize opportunities and options for their customers. “Even if the customer gets a loan through another entity, typically the bank can see those payment transactions,” Manny explained. “If banks can find ways to better target new products and services to their customers, they can take away some of the market share that’s going to nontraditional competitors whereby they can ensure consumers understand their value proposition that is likely very different.”

Creating and communicating value within the customer experience is key. “Be the keeper of the experience,” DeFazio advised. “Try to understand and exceed the expectations of your customers.” Bank staff also need to know how to communicate that value to current and potential customers. “You have customers who are more well-versed in the competitive landscape than your front-line employees,” said Manny. “That can be a challenge if your front-line employees don’t know how to effectively differentiate your products to your customers. Make sure you understand your service model so you can empower your front-line employees to be able to react to those issues.”

It is also important for bank management to understand that, for most community institutions, they will not be able to keep up on their own. “Be willing to partner,” Nicols advised. “Banks are used to building things in-house and testing them for years before releasing them. That’s not going to be sustainable.” For many institutions, the solution will be to rely on the bank’s core provider or current technology vendor. “Form strong relationships with your core providers and other vendors,” said DeFazio. “In some cases, you’ll need to challenge your vendors to close the gap.” Some banks may also find value in partnering with a non-bank company to offer digital products/services. “Identify partners and consider joint ventures or other arrangements where you can dip your toe in the water to provide products or services in new ways,” Manny suggested. “I would encourage banks to listen and be open to those opportunities as they arise.”

Finally, the key to successful adaptation in a disruptive world is for bank leaders to become more aware of the new reality. “Our biggest challenge is that bankers understand there are disruptions happening around us, but they’re not studying them,” said DeFazio. “I challenge bank leaders to be more aware.” Attending this year’s Bank Executives Conference is one way for bank management to expand their knowledge of industry disruptors. Another is to experiment with various mobile applications and products as a consumer. “Community bank leaders need a better understanding of the competitive landscape outside of their communities,” Manny advised. “Know who your competitors are.”

The one thing banks must not do if they are to survive: nothing. “The default is to keep doing what you’ve always done, since you’re good at it,” said Nicols. “But, your plan only works well until it doesn’t. Pay attention to what’s relevant to your customers so you can continue to deliver value. The way your customers perceive value is the most important thing that’s changing.” 

Seitz is WBA operations manager – senior writer.

Plante Moran is a WBA Silver Associate Member.

By, Ally Bates

(Madison) – Bankers are strongly optimistic and confident about Wisconsin’s current economy as well as what 2018 holds in store for the Badger State. That’s according to 100 Wisconsin bank CEOs and Presidents who contributed to the latest Wisconsin Bankers Association (WBA) Bank CEO Economic Conditions Survey. 

The Wisconsin economy’s current health is good according to 80% of the respondents. This is the highest rating by bankers in the last 10 years of this survey. Additionally, 9% believe the economy to be excellent. Equally encouraging is the fact that 53% believe Wisconsin’s economy will grow over the next six months.

Business loans seem to be fueling that optimism with 59% saying that current demand is good with another 3% stating it is “excellent.” Demand for business loans will also increase according to 53% of respondents.

“This is very encouraging news from our bankers on what 2018 holds for Wisconsin. Our bankers have a unique perspective on the economy. Their knowledge is fueled by their efforts in helping local businesses grow and families prosper,” explained Rose Oswald Poels, WBA president and CEO. “Bankers are the first to see and understand Wisconsin’s economic trends because of their customers’ activities and use that information to help their communities prosper.”

The survey was conducted over the first two weeks of December with 100 respondents. 

Below is a breakdown of the questions and responses.

How would you rate the current health of the Wisconsin economy…  
a) excellent 9%
b) good 80%
c) fair 11%
d) poor 0%
In the next six months, do you expect the Wisconsin economy to …   
a) grow 53%
b) weaken 2%
c) stay the same 45%
Rate the current demand in the following categories:  
Business loans  
Excellent 3%
Good 59%
Fair 37%
Poor 1%
Commercial real estate  
Excellent 15%
Good 48%
Fair 34%
Poor 3%
Residential real estate  
Excellent 15%
Good 53%
Fair 31%
Poor 1%
Excellent 0%
Good 25%
Fair 61%
Poor 14%
In the next six months, do you anticipate the demand for the following loan categories will…  
Business loans  
Grow 53%
Weaken 4%
Stay the same 43%
Commercial real estate  
Grow 41%
Weaken 6%
Stay the same 53%
Residential real estate  
Grow 38%
Weaken 6%
Stay the same 56%
Grow 13%
Weaken 23%
Stay the same 64%

By, Eric Skrum

Q: Must a UCC financing statement use the exact name of the debtor?

A: Yes. The Wisconsin Department of Financial Institutions (DFI) uses an exact match computer search logic for Uniform Commercial Code (UCC) 1 financing statements. If an exact name is not used, a search of DFI’s database for the debtor’s name may not result in finding the debtor’s name, deeming the bank’s UCC financing statement to be seriously misleading. 

Under Wisconsin’s UCC rules, a financing statement deemed seriously misleading is ineffective. Thus, for a UCC financing statement to be effective, it must provide the exact name of the debtor. Where the debtor is an organization, this means the UCC financing statement should provide the name that appears on the registered organization’s public record, filed with DFI. For an individual debtor, the UCC financing statement should provide the name of the individual as it appears on their operator’s license (driver’s license) or identification card. If the name does not match, it could fail to appear using DFI’s search logic, and leave bank unperfected on its security interest.

Wisconsin’s UCC does not require banks to keep a copy of the driver’s license. Banks may do so, however, if seeking to retain evidence that the filing was made as the name appears on the license. Note that in this case, WBA recommends keeping it in a different file than the loan file to avoid creating any potential fair lending issues. 

Be aware that a financial institution has four months after a debtor’s name change before a financing statement becomes “seriously misleading.” For this reason, WBA recommends establishing a system to check whether a debtor’s name has changed every few months. 

Because the sufficiency of a debtor’s name hinges upon DFI’s search logic, one of the easiest ways to ensure the name is sufficient is to check for the filing on DFI’s site yourself. 

As always, if you have any questions on UCC matters or other compliance-related concerns, call the WBA legal hotline at 608/441-1200 or contact us via email.

Birrenkott is WBA assistant director – legal. For legal questions, please email the WBA legal team.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance.

By, Admin