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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, BankBosun.com. 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 bankbosun.com and their name: Robin Kermode, Chris Carlson, Joanne Black and Paul Smith. Most bank executives have to make presentation all the time..to 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, BankBosun.com 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.

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, BankBosun.com. 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’s...to 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, @nomorecoldcalling.com 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, nomorecoldcalling.com.  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, BankBosun.com 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.

Date: August 16, 2017 Attendee and Guest:  Kelly Coughlin, CEO, BankBosun; Mike Lindell, CEO, MyPillow.com 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, BankBosun.com. 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 MyPillow.com, Mike Lindell, CEO of MyPillow.com. 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 MyPillow.com 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 aired...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 MyPillow.com. 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, BankBosun.com 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.

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 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, BankBosun.com. 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, 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 but...so 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. Outro: We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

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, 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, BankBosun.com. 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: Absolutely. 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. Outro: We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

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. Announcer: 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, BankBosun.com. 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. Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

Announcer: 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, BankBosun.com. 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 LeadWithAStory.com, 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. Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

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.” Announcer: 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, BankBosun.com. 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: Okay. 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 LeadWithAStory.com, 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. Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

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, BankBosun.com. 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 BankBosun.com 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, BankBosun.com 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.

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, BankBosun.com. 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. Boo 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. Cheers 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 Kellycoughlin@bankbosun.com Thank you for listening. We want to thank you for listening to the syndicated audio program, BankBosun.com 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

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, BankBosun.com. 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 Kellycoughlin@bankbosun.com  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, BankBosun.com 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.

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. Announcer: 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 bankbosun.com.  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 sales@AdvicentSolutions.com, but I want to encourage your listeners to visit Advicent, A-D-V-I-C-E-N-T.com, 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. Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com. 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.

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. Announcer: 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 bankbosun.com.  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: Yeah. 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 sales@AdvicentSolutions.com, A-D-V-I-C-E-N-T.com That’s it for me. Kelly Coughlin at BankBosun. Thanks for listening. Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com. 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.

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. Announcer: 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 bankbosun.com.  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 CBIZ.com 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. Announcer: We want to thank you for listening to the syndicated audio program bankbosun.com.  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.

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. Narrator: 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, BankBosun.com. 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 C-B-I-Z.com. 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. Narrator: We want to thank you for listening to this indicated audio program, BankBosun.com. 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 bankbosun.com.  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.

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, BankBosun.com. 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, BankBosun.com 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.

Kelly: This is Part 2 of my interview with Glenn Blackwood, who was a member of the “Killer Bees”. This wasn’t the much feared Africanized bees, rather it was the equally feared defense of the Miami Dolphins in the early 80s.  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, BankBosun.com. 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:             Hello! This is Kelly Coughlin, CEO of BankBosun and program host. This is the second in a two-part interview series with Glenn Blackwood, a former NFL safety for 10 years with the Miami Dolphins and a current 25-year executive, board member and principal in the bank-owned life insurance industry with Equias Alliance. In Part 1, I talked with Glenn about some of his experiences in the NFL and how his ability to face competition, sometimes quiet fearfully enabled him to have quite a successful career in the NFL and with the Dolphins and ultimately in business. Glenn was coached by Don Shula, who instilled two things in his players: competition and integrity. Glenn said that Shula instilled in them the concept that winning wasn’t the only thing but winning with integrity was the only thing. And because of this, Glenn has become a very successful businessman. I think Lombardi said, “Winning isn’t everything. It’s the only thing.” Well, that might work well on the gridiron but in the boardroom, integrity is equally important and as fierce a competitor as Glenn was and is now; he is equally fierce in his adherence to good business ethics and a high level of integrity. In Part 2, we will talk about how Glenn works in the bank-owned life insurance business and why he is so successful with his clients and why his clients truly like working with him. So Glenn, what’s your approach to helping community banks compete and succeed in this environment where risk, regulation and revenue creation can be so challenging? Glenn:            Glad to be visiting with you. So the community bank has a niche that it fills in the ecosystem of banking, and I think the biggest battle with community banks is the regulatory environment they are having to deal with. They don’t have the scale that the big guys have to absorb it and it is a very difficult task for a community bank and this is just listening to all of my clients. And as you mentioned, I’ve worked probably 150 community banks in the southeast. And I stay in very, very close touch with those banks and it’s a common thing that their biggest battle right now is the regulatory burden that’s on them and the cost that it hits on them on an ongoing basis. And it’s very hard to get return to the shareholders, and I think that’s the biggest challenge they face. Our goal and the way I’ve looked at it is I want to be an ally to them in helping them be able to be as successful as they can and one of the ways we do that – there are two primary ways. One is helping them manage benefit expense. That’s the BOLI asset. And then, understanding when you put that on your balance sheet, there’s a lot more that goes into that than just sticking an asset on your balance sheet, which most bankers fully understand because there’s a regulatory issue, an accounting issue, a legal issue, etc. And the other piece of it is helping them to put in programs that allows them to retain, reward and ultimately retire their key executives. They’re called top hat or deferred compensation SERP plans, things like that. And they’re there for a reason. A lot of people say, “Oh that’s just another perk for these highly paid executives.” But the reality is, it’s not another perk. It’s getting them to a level playing field due to the restrictions that are imposed upon what’s deemed to be highly compensated, which is anybody making over, basically $120,000. They can’t put enough aside in their retirement plans due to these ERISA and IRS limitations on both social security and qualified plans. So allowing them to have a meaningful retirement benefit that’s commensurate with what they’re doing for everybody else in the rank and file. One banker called it, it’s good parenting. And then the other piece of it is that you use those programs to retain those executives. Because they’re non-qualified, you can structure the vesting in a way that allows you to say, “Look, if you stay here Mr. or Mrs. Executive until a certain date, then you get this benefit, but if you leave, you leave it behind.” So now, you’re doing something that’s balancing the playing field for them in benefits, but you’re also hooking them to the bank so that if they walk away, then they’re going to walk away from that benefit then there is economic pain for that. And that usually provides the deterrent for them going to greener pastures. Kelly:             Curious about in a bank-owned life insurance business, you mentioned there’s a lot of moving parts there, and that’s what you liked about it. You’ve got the legal part; you’ve got the accounting part; you got the insurance part; you got the investment part; you got all sorts of components there. But simplifying the message in a sales process has got to be critical to any sort of complex financial sale. What’s your approach to simplifying the sales message? Not trying to be the smartest guy in the room, but trying to be the guy that simplifies the message, because I know you’re good at it. I’ve heard you. I’ve heard you talk, so I know you’re quite good at that. Glenn:            I think the main thing for me is I want to be honest, especially if I’m working with a board. I want to be honest about what I’m laying out for them and I want to, I call it bringing all the skeletons out of the closet. I want to bring all the bones out. I want to lay it out there so they can understand their risk and understand the benefits that come with it as well. And then also understand what does it entail on an ongoing basis with these programs and whether you’re just putting BOLI in or whether you’re putting  BOLI and benefits in. There’s a lot of hair that comes on that stuff and you got to identify what that is and show them how those risks can be managed. I try to condense it down at the end of the day, if I’m speaking with a comp committee or board, what’s the benefit to the bank; what’s the benefit to the executive team and then what are the risks that they’re going to need to address as they put these programs in place. Understanding that we are going to shepherd them through this process. We’re going to work with their accounting firm. We’re going to work with their legal counsel. We’re going to help them document it all from a regulatory standpoint. Which by the way is very important, the words that I used there “help them,” document it. There’s a lot a people out there that says, “Look, we’ll do all your regulatory documentation for you.” And that’s not a good answer. The good answer is, We’ll “assist you” through that process. We’re good at it. We know what you need to have answered. But their bank needs to have their fingerprint all over that documentation. The regulators don’t want to know that we know what you did. They want to know that the bank knows what it did. And so, it’s really critical to let them know, we’re going to shepherd them through that process and make sure it’s done in a way that they’re not going to have criticism from their examiners. And I can tell you that one of the things when you look back at our company, we’ve operated under the endorsement of the American Bankers Association and a number of states banking associations down in – Florida, South Carolina, Virginia, Texas, Tennessee and so on and so forth, California. But with all of that and part of the reason that we’ve able to get those endorsements is that we are extremely thorough in what we do from a documentation and expertise standpoint. And I always look back, I had a bank that I was working with and they basically said, “Why should we work with you?” I looked at this man and I said, “I’m going to give you four numbers and I’m going to tell you here’s why you should work with me.” And I said, “Number one is 26, number two is 150, number three is 99.9 and number four is 46. And here is what those numbers mean.” I said, “The first one is 26 and that’s the number of years I’ve worked in this industry in the region that you’re in… in the South East; 26 years I’ve worked down here. Number two is 150. That’s the number of banks that I’ve worked with. You don’t work with that number of banks and have done a shoddy job; there’s consistency there. Number three, 99.9; that’s the persistency I’ve had with the clients that I’ve had. We don’t lose clients. We don’t lose them because we’re very good at what we do and we pay attention to details. And then, the least and the last thing, the number 46. That was the number BOLI consultants that I’ve watched over my 26 years come and go out of this business. And that’s the reality. That’s not to be a knock on anybody else. It’s just the reality that you look for people that are committed long-term, to being able to not only take care of you but that long-term track record speaks to consistency and the knowledge of the market and knowledge of the product. So that’s kind of what I communicate with our banks. Let you understand what the benefit is to you, what your risks are and what we’re going to do to walk alongside you to make sure we manage those so that you don’t have a headache on an ongoing basis. And I think our track records speaks for itself and we engage the CPA’s. We engage the attorneys, because we know what we’re doing is valuable and we know that working with them in partnership as advisors to the bank is going to make it a seamless process. So that’s basically what I do.   Kelly:             You guys won a few games down in Miami. I did a rough count before this interview. You won about 114 games and lost 58. You were 11 times in the playoffs, and went to the Super Bowl twice. So guys you knew how to win. How did that help you in this business? Glenn:            One of the things that we were talking about earlier and I look back, I think why did you all win a lot down in Miami. And one of the things was that we were prepared. We were very well-prepared for the game. That speaks to our overall organization and primarily Don Shula preparing us. We were very well-prepared for the game. And then once you got past that team-wise, I had to look at it individually and I had to know what my responsibility was in the process. But for me, I also had to know the responsibilities of others. As I talked about earlier, I had to know about the linebackers and linemen and the cornerbacks were doing and then coordinate all of that. And it’s the same process working with a bank. I’ve got to understand what the challenges are that the accounting firms have in working with their bank clients and the legal counsel; and the CFO having to do the regulatory documentation and the board, making sure they’ve asked all the right questions. And that’s another thing, we try to ask questions for them. We want to turn over every rock so that they don’t have anything exposed. And then do what you say you’ll do. If you tell somebody you’re going to do something, then do it. And that’s the way our whole operation runs. We’re going to do what we say we’re going to do. And if we can’t get there because sometimes glitches come up, communicate with the bank immediately, let them know the time frame. And then the last thing, and this was Coach Shula’s mantra, was you operate with integrity. I remember for almost nine years in a row and we were the least penalized team in the NFL, and we were the least penalized because Coach Shula said, “You don’t just do it. You do it right, and you do it the right way. And winning isn’t the only thing. Winning with integrity is what matters.” And I believe that’s the same way that we’ve operated as a company and certainly in my operation down here in the Southeast. I’ve always told my kids, “You never go wrong by doing right. And that’s the way we try and operate.” Kelly:             Glenn, what type of bank should contact you? What do you look for? Where is your sweet spot with banks? I know you’ve got a geographic focus down in Florida. Glenn:            Kind of that southeast quadrant.. typically, that bank that’s got a regional focus and has some programs in place that either retain or reward their key executives or that they want to make sure that they’re putting BOLI assets on their balance sheet in a way that’s not going to be a headache for them on a go-forward basis. Kelly:             I then asked Glenn, what was the dumbest thing he’s ever done in his business career, recall in Part 1 he talked about his worst play…whiffed on tight end who went in for the score. So I asked him in his business career what was the dumbest thing he’s ever done and we’re going to finish with that. Glenn:            This was kind of stupid. I was doing a board meeting for a bank and I was doing the presentation and it was back on a projector back then because we didn’t have the equipment, the technology we have now. And I had a chair right there, I put my foot up on the chair, and I got finished with the presentation. I walked out and there was a rest room right to the left and I needed to use the restroom so I went in the rest room. And as I was preparing to go to the rest room, I realized I didn’t have to unzip my zipper and I thought, “Oh my gosh! It must have been down during the whole board presentation.” And so, the head of the comp. committee came out, which was a lady, a very nice lady, very pleasant, and she said, “Great job on everything! You answered our questions, blah-blah-blah, and I said, “Nancy, can I ask you a question? Was my zipper down during that presentation?” She said, “The whole embarrassing moment,” but we still got the deal done. Kelly:             Very good job! Well that is terrific! I think with that, we’ll sign off. Glenn, I want to thank you again for your time and I look forward to talking to you again. Glenn:            It is my pleasure. Thank you. Kelly:             Okay. Great. Voiceover:     We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

Hello, this is Kelly Coughlin, CEO and Program of BankBosun. Oysters open completely when the moon is full and when the crab sees one, it throws a piece of stone or seaweed into it and the oyster cannot close again so that it serves the crab for meat. Such is the fate of him, who opens his mouth too much and thereby puts himself at the mercy of the listener.   Announcer: 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 bankbosun.com.  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: This podcast is a continuation of a series of interviews of key executives from community and regional banks throughout the US. Community banks play a key and critical role in ensuring that a community has a healthy social and economic ecosystem. This podcast series is being produced to help celebrate and encourage community banking throughout the US.   I grew up in the great state of Kansas. My great-grandfather ran a coal mine in Osage, Kansas and was one of the first employers of former slaves who moved to Kansas after emancipation. So, even though I spent most of my adult years out of Kansas, I raised my four daughters in Minnesota, I have a fondness for the state of Kansas.   In addition to Business, County and Finance, I studied the classics in college; Greek and Roman history and the language the Roman’s spoke, Latin. I always had an infinity for Latin, even in high school. And, I think it might have something to do with coming from Kansas. No, we didn’t speak Latin in Kansas, but our state motto is a great Latin phrase that in my mind captures the real spirit of the Midwest and perhaps all of us living in America. Facing adversity, challenge and the opportunity that doesn’t come easy, but through hard work. The motto is: Ad astra per aspera – To the stars with adversity.   I remember hearing this motto as a very young kid. This motto has always stuck with me and in many ways, has defined me. So, what does this have to do with this podcast? Well, my guest today is the CEO of a bank located in the heart of Kansas, actually about two hours from the dead center of the Country, with a Latin name that comes from the state motto. I’m taking to Kyle Campbell, CEO of Astra Bank in Abilene, Kansas. Kyle, did get all of that right?   Kyle Campbell: You did, and thanks for having me.   Kelly Coughlin: So, let’s talk about the bank name. Does it come from the State motto, or was that just coincidental?   Kyle Campbell: Well, it does from the state motto and you’re exactly correct in the background on that. Where that came from is where our charter located, we’re actuallyabout ten miles south of the Kansas/Nebraska border. And, while there are a lot of similarities that mid-western residents share, they’re also intensely loyal to the state in which they reside. So, we knew any sort of name that was blatantly attributable to the state of Kansas may not be well-received if we ever had an expansion opportunity in Nebraska. So, we looked at the state motto, which you talked about, and thought that Astra Bank would be a great nod to being a Kansas chartered bank. But also, would not preclude us from having opportunity to go into the state of Nebraska, which turned out to be a great move because we actually had an opportunity to move into the state of Nebraska and we do have a location there.   Kelly Coughlin: Excellent. Tell me a little bit more about the founders, early history, etc.   Kyle Campbell: Well, the interesting part about Astra Bank is that we actually started in a community that we no longer serve. It started as Peoples State Bank in Courtland, Kansas, in north central Kansas. And the integration of my family into that, was my grandfather went to work for Peoples State Bank which was chartered in 1911. He went to work for them shortly after that and he started work in May of 1929. As a student of history, you know he picked a great time to enter banking. As he puts it, he made it in time just for the big bank holiday that happened later in 1929. That really influenced a lot of his early views on banking. What came out of that was, throughout Kansas and a lot of the country there were a lot of bank failures that happened in 1929, and one of the neighboring communities was left without a bank. But the two banks that were in Courtland, Kansas both survived the great depression and what happened in 1929.   So, the city father of Scandia, Kansas, which was a community just seven miles to the east of Courtland, Kansas came over and a made a pitch to both banks trying to get one of the two of them to move over to Scandia. Well, Peoples State Bank decided they would move and they moved in 1939 to Scandia and renamed them Scandia State Bank. We’ve grown from there, through that point in time. My grandfather, over the course of the 50s, 60s and early 70s, gradually came to acquire ownership of the Scandia State Bank. My father, my grandfather’s son-in-law went to work in the bank in the 1970s and started there and is still active in our bank today. And then, we’ve grown by acquisition, we acquired a bank in Belleville, Kansas which was ten miles to the east of Scandia. And then we’ve grown by acquisitions since then and we now have locations from central Kansas, north central Kansas, all the way up into south central Nebraska and now have eight locations overall.   Kelly Coughlin: And you are running the show?   Kyle Campbell: I am running the show.   Kelly Coughlin: So, your grandfather passed and your father is still involved?   Kyle Campbell: My father is still involved and still comes in on a regular basis. One of the things that he enjoys working with, is he enjoys managing a securities portfolio, which in this rate environment, trying to find somebody who enjoys that is a challenge. So, if I’ve got somebody who’s got an interest in it and enjoys doing that, it’s a good fit for us.   Kelly Coughlin: Let’s talk about your background. You grew up in the Midwest where you’re raising your family?   Kyle Campbell: I was raised in Scandia, Kansas. So, I spent most of my life actually living in a house in Scandia right next to the bank, so it was a really short commute for my dad. He just essentially walked next door and was at work. I grew up and had what I call a delayed childhood rebellion. In college, I decided I was going to major in Engineering and made the statement that I was never going to work in the family bank. You can see how well that proclamation worked for me.   Kelly Coughlin: You went to school in Kansas? Did you say K State, is that where you went?   Kyle Campbell: Yes, I went to school at Kansas State and majored in Chemical Engineering. After K State, then I went to Kansas City and I worked for Procter and Gamble and their manufacturing plant there for five and a half years as a Process and Project Engineer for them. And then, at that point in time, had some opportunities that came available to me in the company, took advantage of those and used it to get my MBA through Rockhurst University in Kansas City. Then came back into banking in 2002 and I’ve been working in the bank and in banking ever since.       Kelly Coughlin: Right. That’s terrific. Let’s talk about your early customer market and the current customer market that the bank has. In the early years, what was the primary market for the bank during the first 50 years of operation?   Kyle Campbell: Well, I think that in the first 50 years of operation, really the customer base was not a whole lot different that it was today. We have always been in a very agricultural oriented area in the state of Kansas. Our focus has been very much oriented towards agriculture, since our founding and also serving our community needs, which meant that in our case, our commercial credits looked like providing credit to Main Street merchants in our communities. Which, very often for us, were very small mom and pop shops that the types of services and stores that were needed in small communities to keep them growing and thriving.   Kelly Coughlin: That has been pretty consistent throughout your entire operating history, correct?   Kyle Campbell: That has been very consistent throughout our entire operation. In fact, if you look at the information that’s available on us today, you’ll still find that about 50 - 55% of our loan portfolio is still in either ag production or ag real estate credit.   Kelly Coughlin: I read a book a while back, about five years ago, it was called The Worst Hard Time. It was the story of those who survived the American Dust Bowl. Was your bank around during that period?   Kyle Campbell: Well, the bank started in 1911 and really our family history started with it in 1929.   Kelly Coughlin: I think this was in ’35 though, so it would have been around during the Dust Bowl period then.   Kyle Campbell: Right, right. So, I think realistically it was a very challenging time back then. As I mentioned earlier, a lot of that type of situation really was what influenced my grandfather’s view on banking and it’s still something that we keep very much mind with our DNA as to who we are at Astra Bank in that he wanted to run a bank that never went broke. He saw far too many go broke and he saw the impact that it had on the banks customers and on the communities that the bank served and he never wanted to subject his customers or his communities to that.   Kelly Coughlin: Right. That does that mean that he was very, very cautious and careful about the loans that he did or patient about collection on the loans?   Kyle Campbell: It meant both of those. He was very cautious about that because he didn’t want to, if he could avoid it, getting into collection situations. At the same point in time, what he also wanted to do, was to make sure that if he got into a situation where collection was needed, it meant that he had exhausted all opportunities and avenues to provide the customer a way to work through that difficult challenge.   Kelly Coughlin: Yeah, because those were terrible times and I would imagine being a banker at that time, where you were close and integral to the community, it would have been very tough to kind of start squeezing people, squeezing your friends and people you go to church with, during those times.   Kyle Campbell: Yes, and it’s one of those things that Mark Twain, I believe it was said, that history doesn’t repeat itself, but it very often rhymes. My dad was faced with a similar situation in the 1980s when agriculture faced another challenging set of years. I think it was a lot of the example that my grandfather set in place, that my father followed which was really prudent and conservative lending into that, that helped them avoid some really serious credit challenges. Also, looking at the example of patience and allowing the customers all of the opportunities that we could afford them to work through the challenges that the economic times presented.   Kelly Coughlin: Yeah, right great. All right. Looking forward and what you’re faced with today as the third generation managing the bank, what do you see the biggest opportunities and then, consistent with that, would be what are the biggest threats that your bank faces or community or regional banking in Kansas is facing?   Kyle Campbell: Well, I think the biggest opportunity that really faces a bank like Astra Bank and really banks that operate in some less densely populated areas of this country, is there is going to be a drive for consolidation, because of the scope and scale of services that banking customers expect today. That drives a certain inherent level of cost structure with it, which does require some scale.   So, I think that is an opportunity that is presented to banks like Astra Bank. Now, that situation may be a challenge for some banks that have found themselves in a position where they don’t know if they have the capacity to actually grow through that, but I think there are some interesting opportunities that I hear bankers looking at in terms of being cooperative with other banks that are facing similar situations. So, I think consolidation is a big opportunity that's out there. It may appear to be a threat to some.   Kelly Coughlin: Well, are you guys on the acquiring side?   Kyle Campbell: Yes. That's one of our strategies because we can see, as we look forward, there is the potential that we need to continue to grow the scale of our bank, just to continue to be able to serve the communities that we serve in an economical manner.   Kelly Coughlin: Give me a brief profile of, what are you looking for?   Kyle Campbell: There's some geographical constraints, because obviously, one of the things we know very well is, we know rural communities well. So, generally, we're looking in smaller communities. Not that there's anything wrong with larger communities, but generally, there's a different style of banking that’s present there. We've seen far too many banks that have thought that there isn't really any significant difference between banking in a rural area and banking in an urban area, and they've gone to urban areas and basically had it handed to them by banks that were already in those markets. Really, what we've come to realize is that the ag concentration that we talked about earlier, we certainly have that concentration, but part of what we feel like we know is, we know how to manage that risk that comes along with that concentration. There are other types of businesses that may be presented within less rural markets that we may as not be as well positioned to handle. We're comfortable with who we are, and so that's where we look to as we look to expand. Then, we're also looking to make sure that we're in communities that are significant in the areas that we're targeting, and also making sure that we've got acquisition targets that are of a certain size because really, when you go to acquire an institution, there's a certain base level of work that's required regardless of the size of the institution.   Kelly Coughlin: Yes. Along with that opportunity goes the need to have adequate professional staff to help run the bank, whether it be the finance, operation side, executive management. That is a problem that plagues community banks in general, but when you're in the middle of western Kansas, it could be an even more significant challenge. How have you been able to deal with that? How do you get that done?   Kyle Campbell: That is one of the areas that I have always kept an eye open for is, we're always looking for good quality staff. And if we find good quality people, we're looking for ways that we can integrate them into the team here at Astra Bank. We as bankers spend a lot of time looking at things that we can easily see on a piece of paper in terms of looking at an institution’s deposit portfolio or looking at its loan portfolio, securities portfolio, etc. But I have a spent a significant amount of time in each of the acquisitions that we've done looking at the people portfolio that comes along with it, and we've had some very excellent people who are in key positions of leadership with Astra Bank, who have come to us through the acquisition process.     Kelly Coughlin: I would imagine, in this environment, where living in big cities comes with an element of risk that it really didn't have 15 years ago, living in a nice, quiet community in Kansas may appeal to many families just to get to a safer, quieter area. Have you observed that at all?   Kyle Campbell: We have observed that, and we see that there is more of an interest, especially, I think technology is helping rural areas because there are a lot of career opportunities where you had to locate in a major metropolitan area to be physically present to do the job. Whereas today, with the advances of technology, it doesn't matter where you are as long as you can get access through the Internet to your employer and whatever source of work it is that they have for you. You can do your job from almost anywhere in the world. So, we have quite a few people in the communities that we serve, even though they live in rural parts of Kansas and Nebraska. They're actually working for employers in some of the country’s most major metropolitan areas.   Kelly Coughlin: Well, for those of you who have never been to Abilene, Kansas, where Kyle is, I'm here to tell you, it's a very cool city. Kyle, why don’t you describe a little bit what you've got going on in Abilene from historical, cultural perspective?   Kyle Campbell: Well, I would be obviously remiss if we were talking about the historical and cultural part of Abilene, if we didn't start with the most famous person to come from Abilene, Kansas. And that would be the 34th President of the United States, Dwight David Eisenhower. We are very fortunate here in that we have one of the Presidential libraries and boyhood homes of a United States President. So, that is a very big draw to what we have here, and it's very neat to have something from that scope and scale of a historical significance in our country here in the community of Abilene.   Kelly Coughlin: Yeah, and I've been to that library. It's very cool. So, any of you listeners, I would encourage you to pay a visit to Abilene. Kyle, I'm curious, did your father or grandfather ever meet Eisenhower, or was he born and raised there and exited?       Kyle Campbell: He was born and raised here, and then exited. There are a lot of people here still in Abilene that knew Eisenhower when he was alive, but I was from more of the north central part of the state. So, where I grew up is about an hour and 15 minutes away now. So, we were more out of the area, and even though my grandfather fought in WWII, he was under a different general, because he was over in the Pacific instead of being in the European theater.   Kelly Coughlin: All right, that's terrific. Kyle, it sounds like you like what you're doing. You enjoy it?   Kyle Campbell: It's great. I really enjoy it. In fact, I tell folks all the time that I think banking is about one of the best careers you could have, because where else do you get the opportunity to work with people on an individual basis and help them achieve their dreams?   Kelly Coughlin: Yeah, and you guys are doing a terrific job there. I know that. Well, that's all I have, but I wanted to finish with one of your favorite quotes. Or the other option would be to tell us one of the stupidest things you've ever said or done in your career, but I'll give you the choice on that.   Kyle Campbell: Well, I think I could actually share a brief story on both. As I tell folks since I have the opportunity to teach a couple of classes in banking from time to time and telling the students that I'm teaching there is no such thing as a dumb question. I remember my first bank meeting that I went to, and I sat down in the room with a bunch of people who were obviously much more experienced in banking than I was at the time. I was looking down through the agenda and there was an item later in the agenda that caught my attention, and actually, I was kind of excited to see what was going to happen there. I was really in for a big surprise, when we got to that part of the meeting, and I learned for the first time that in banking, OREO does not refer to a sandwich cookie. So, I was very disappointed to learn that we were talking about real estate that the bank had taken back on the liquidation because I thought we were getting close to a break time where we were going to have treats that were brought in. So, I thought we were going to have Oreos for snacks and really, we were talking about other real estate owned. So, that was kind of my first indoctrination. So, I always tell folks, don’t feel foolish if there's ever anything that you ask, because I've probably done maybe even worse assumptions.   Kelly Coughlin: Yeah. Different sweet spot, right?   Kyle Campbell: Yeah. I was going to say, I thought we were going to have a sweet spot and then we were talking about something that wasn’t nearly pleasant at all for anybody. One of the quotes that I often use in talking with folks, and I think it also works for banking, because part of what we need to do in our roles as bankers is really keeping a level head in how we assess situations and making sure that we're doing the best for our customers. When I was at Kansas State, I had the opportunity to be in a presentation that was made by the person, who at that point in time was the athletics director at the university, and his name was Max Urick. He made a statement that has stuck with me still to this day. His statement was, “Things are neither as bad as they seem nor as good as they seem. The truth is usually somewhere in between.” I found that statement to be very applicable in life, because there is times within the human emotions that we can get too high on the highs and too low on the lows, and realistically, we need to step back and take a very balanced view of the situations we're in. And I think that's one of the tremendous services that we can offer our customers as community bankers.   Kelly Coughlin: Yeah, that's a great quote. I've heard derivations of that, but that's succinctly phrased. I like that. Thank you for sharing that. I appreciate that. Well, that's all I have. Anything else you wanted to add? Or should we sign off right now? I really appreciate your time.   Kyle Campbell: Well, I want to thank you for inviting me as a guest. I've really enjoyed our time talking.   Kelly Coughlin: Thanks a lot.   Announcer: We want to thank you for listening to the syndicated audio program, BankBosun.com. 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.

Kelly Coughlin: Greetings, this is Kelly Coughlin. The Blind Hen. A Hen who had lost her sight and was accustomed to scratching up the earth in search of food, although blind, still continued to scratch away most diligently.  Another sharp-sighted hen who spared her tender feet, never moved from her side and enjoyed, without scratching, the fruit of the other’s labor.  For as often as the blind hen scratched up a barley corn, her watchful companion devoured it.    Announcer: 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 bankbosun.com.  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.    Kelly Coughlin: Greetings.  This is part two of my interview with Kris St. Martin, a bank cyber security expert at CBIZ.  In part two, we will talk more about what drives premium costs and once a bank experiences a cyber intrusion, then what are the actual types of costs the bank can insure and how to make sure these costs are recoverable in an insurance claim.  I finished part one by asking Kris about how a bank should go about determining the maximum claim liability.  Is it based on records, revenues, business lines, and ultimately, what can a bank do to manage and reduce the premium costs with good internal cyber risk management controls implemented and utilized at the bank.  Here is what Kris had to say about that in part two.   Kris St. Martin: Because of the number of records, you can fairly well quantify the physical costs to deal with a breach. Those types of costs, if you’re hit with a breach, time really is of the essence.  You want to be able to get as much good, accurate information as to what happened, did it trigger your state data breach law as quickly as possible because if you go back to Target again, one of the things that they learned in the litigation and heavily criticized for reputation.  In fact, my family, we all have debit cards at our local bank and we have a Target about three blocks away.  So I always remember these dates, because it affected us.  They really came out public and our bank had offered debit cards two days before this special breach happened and they identified it because in early November.  So they took well over a month to month-and-a-half, to actually notify the world that there was a breach.  Looking at the costs, the cost part of a breach is going to be the initial forensics, legal consultation, so if initial forensics say this was indeed a breach, then you go to your legal representation, did this breach trigger the state’s data breach laws?  Everybody’s a little bit different.  They’re all state driven, but more similar than different.   The second part is you go to your attorney and you say here’s our data, here’s what happened, did that trigger the breach?  Well, these are expenses that are accumulating.  Then, if it does, you need to notify in writing and send compliance letter for all the people involved.  Then, you need to handle their calls and inquiries along the way.  They’re going to call in from that letter and either you do it in house or you set up a data center for that, train the people in the data center for those phones or your own employees, and then you need to offer one year of credit monitoring, and there’s a cost for that.  That’s kind of all your costs that are generally, somewhere, at least $30 per record and often times I’ve seen other studies saying going up to $100 per record.  That’s fairly quantifiable, based on how many records you have.  What’s much more tough on the limits is going to be, based on the data that’s been breach, who’s going to sue you and why, and what harm are they going to say you have caused. That becomes more much difficult to quantify.  Along those lines we deal with banks all over the country and as we’ve been renewing cyber policies, this has now become a regulator/board-driven type of thing.    We’re routinely having banks come to us at renewal time and saying we want more liability just because of the unknowns out there.  So, what’ a good number?  It’s really hard to say.  There’s peer numbers that different services put out including Travelers puts out peer numbers for cyber liability.  We’ll throw our customers a couple of what their peers for the different pricings will be as a point of reference and then try to have a discussion on what type of information do you hold in the bank and how is it held, and start talking through kind of worse cast scenarios, if they lost some of that information, and who would be armed the most.  You try to massage the peer numbers from there, but like I think anything in risk and insurance, you really—you can’t necessarily observe for the absolute worst scenario, but you try and pick a number that will largely cover most of the occurrences along the way on a probability basis.   Kelly Coughlin: Kris, you mentioned earlier that theft of funds gets covered by another type of risk mitigation tool and then you also mentioned that business interruption for a bank isn’t very high, because it’s not like there’s a bunch of transactions that come in if there’s interruption of service.  So what are the main costs drivers a bank can look at in determining how much coverage they need?   Kris St. Martin: That’s a very good question and on the cyber side, certainly the number of records.  That’s going to be the biggest driver to look at on the cyber side.  We have banks that are also involved with card programs.  There can be other services that they provide very actively that involves the flow of personal information and vendor partner information.  That can provide another element of risk there versus the standard just checking and savings accounts and loans, and CDs type of business.  It could be a smaller bank that do very large wire transactions.  Another thing to look at is the size of transactions that you’re doing electronically.  There’s other banks that might be bigger that just do a series of very small transactions.  They may not need as big of a theft limit.  Those are things that underwriters as far as pricing a policy, are going to be looking at too; size of transactions, third-party vendors that you might be associated with, with special programs with the added element of risk of other people holding your data.   Kelly Coughlin: When a bank experiences a breach, what are the costs that the bank has to absorb?  You mentioned the theft of funds, that’s covered by a bond.  There’s probably no business interruption costs or very minimal.  What costs normally accompany a cyber breach?   Kris St. Martin: Well, in a cyber breach, let me kind of walk through what happens.  Somebody in IT is going to come to a CFO or some C-level executive and say, “Hey, something happened, we’re not quite sure what it is, but we’re concerned and we need to dig into this thing.”  The first thing you would do is try to go with an outside forensic partner who specializes in this type of thing and start digging it in with your IT group, and say, “Okay, exactly what was breached and is there a pretty high probability that all or some of our records are involved with that?  There’s a cost for that, for your forensics.  Once you get through that, you would bring that information to an attorney and I would highly recommend somebody who specializes in data breach law.  Say here’s the facts of what happened and how does that relate to our state’s data breach law, did it trigger that law, do we now have to go down the steps of notification and all the remedies that are built into that law.  There’s legal fees there.  Then, if the attorney says you did breach the law then you’re going to have to do a letter or a series of letters, emails, so on, out to your clients notifying them of a breach and then in there is going to be an offer of call us for more information.  Many times, it’s a separate call center service used.  There are those that specialize in data breach call centers and there’s an expense for that.  Also, most states, if not all, are going to require, if you did trigger a data breach law, that all of the people affected are going to be offered credit monitoring for one year and there’s a cost to the credit monitoring.    This type of expense can be around $30 to $100 per record.  Banks may choose to do some sort of PR campaign, which often times happens with breaches in many industries.  There’s expenses of hey, we need to do some local newspaper advertisement.  We need to do some more letters to our clients.  We need to get on local TV or advertisements.  Basically, they put a message out there that this happened, we’re sorry, we’re on top of it, and we’re going to be better because of it.  Whatever your PR message is that you’re going to want to try and mitigate the damage under your brand.  Those are additional expenses that can come along the way before you even get to the liability side of who’s going to sue us.    Kelly Coughlin: Okay.  I’m going to list those again.  You’ve got: 1. A forensic partner; 2. Attorney costs; 3. Notification costs, notification of customers; 4. Maybe a call center; 5. Credit monitoring; 6. Reputation remediation. Are all of those insurable?   Kris St. Martin: Yes and that’s part of making sure your insurance policy contains all that on the front side.  There’s really kind of a couple of ways that the breach expenses can be handled.  One that’s just more common is you’ve got a million dollar limit to handle A, B, C and D, and you’ve got to go out and find your partners, and you’re on your own, and we’ll reimburse you.  What we’re seeing is more and more of these insurance carriers providing some sort of data breach service as part of the policy and that’s been very well received in the banking world.  Now, you have to kind of wind through scenario again.  Instead of calling an outside forensics person, your first call under one of the policies that’s very common out there, is to call the insurance underwriter data breach manager and he assigns a case manager to it, and they start—that case manager stays with you through the whole time of the process.  They either have in-house services or they have third-party partners that they can immediately get you to.   The value of that versus a limit, one of the things, going back to the regulators, the regulators are all over the concept of what’s your—they’ve always been good on disaster recovery, the regulators, or at least asking what your disaster overall recovery plan for the bank. Now they’re getting all over where is your disaster recovery plan in the event of a data breach.  Again, you want to make quick access decisions and mitigate the reputational risks that you sat on this information, and get through it quickly and well-organized.  The regulators really like if you just do all those services under your limit then you better show them who your contracted third-party providers are going to be for those services, they’re lined up, they’re ready to go, they can work quickly, and you’ve thought through that whole process of who’s going to do that for you.  There are other policies that you call them and they start walking you through that, and provide a forensic person, they provide an attorney, they can help with the PR, all of that kind of built into the policy itself.    Kelly Coughlin: What advice would you give policy holders when completing their applications for cyber insurance?  Any unique tips, any special tips you’d give them?   Kris St. Martin: Yeah, one very important is to be accurate.  Sometimes these things are onerous and they’re many pages long, but take the time to be very accurate, because if you put a number down, if they’re asking for a number or you answer something that you think, where that could come back to haunt you is at claim time.  They can pull up that application and say you answered it this way, we may not have even given you a policy.  What they’re going to do at claim time, they’re going to look and see if there’s anything, any speedbumps, that would take you out of getting the claim paid.  I’d also say be aware of warranty statements.  This is true, very true for cyber policies as well as all policies.  You need to be aware, often times in the applications themselves, they will say some statement like is there anybody in your organization aware of any circumstances that could lead to a claim under our coverage? If you have 500 employees, there’s no way you can say yes to that with any assurances and again, it could come back and haunt you at the claim investigation time.  So pay attention to warranty statements.  There are ways to modify those statements or eliminate them.  Then again, I mentioned this before, but pay attention to the thought behind the question on the application.  There are good reasons for asking for them and use that as maybe an excuse to go back and review your own procedures.   Kelly Coughlin: Okay. I know you’ve been in this business a long time and you have a terrific reputation, so congratulations on that.  Is it fair to say that your objective is to help your bank clients get the coverage and not trying to help the insurance carrier avoid a claim?   Kris St. Martin: Right.  Right.  What I always tell my clients is we’re going to sell the best, but accurate story to the insurance underwriter.  We’re not going to hide anything.  We’re going to give them accurate information and then they make their decision whether to insure or not.  From that point, when it comes to claim time, there’s two parts on the claim.  One is on the front end of it, when we give all the information to the insurance underwriter, they’re going to come back and say here’s our offer.  A good insurance agent, a producer out there, and there’s lots of great ones, you’re going to dive into that.  For example, we’ve developed a 40-point checklist with cyber over years of working with this.  We start, you know, producers should check a number of things in the offer so that when you do come to claim time, you don’t have these speedbumps.  Then there’s just a number of things that you can modify in the wording with the negotiation with the underwriter.  When it comes to claim time, whoever you’re working with for an agency, can be a great advocate for you on claim time.  You’re going to initially put the claim in as a customer copy or agent, but the agent should be in the loop the whole time, and aware of any objections that the claims adjuster is going to have, when it comes to the client. The agent has a really usual business dual role. They have a legal obligation both to the carrier and to the client, but they’re different obligations to each.  Claims is one where we really work with the client just to make sure they’re well advised on whether or not that’s a reasonable denial, if it’s a denial, or it might be something that they should talk to their attorney about and do a little bit more legal research on.   Kelly Coughlin: Let’s talk about pricing a bit.  How flexible and negotiable are the terms of a cyber policy?   Kris St. Martin: Like any policy, there are certain things that are just absolutely industry things.  But there are a number of things that are different and negotiable in a cyber contract.  Just a couple of quick examples, data breach on loss of information in one policy can be defined, for example, as electronic information loss.  What you want in the contract is paper information or electronic.  These things are negotiable with the carrier, often times.  A number of fine-print type of things.  Another example is some policies will pay on a ransom letter, for example, and then the definition will say we’ll pay out in US dollars.  Most ransom letters are requesting bitcoins.  Another dot that’s on our checklist is going to be make sure that the wording says US dollars or bitcoins that they can be paid out in.  Most of these types of things, the carriers are fairly flexible, but some cases, they’re not going to proactively do that.  They give you often times, the standard type of contract form and approval.  There’s room to be negotiating a premium.  We’re talking maybe 10% latitude, if it’s a good agent can build a case for the risk.  There’s some room in premiums, but a lot of room in the terms and conditions.    Kelly Coughlin: Back to that internal control continuum of one being nothing, five being great internal controls, is there negotiable room if the bank can build the case saying hey, look, our internal controls are four and five, you shouldn’t be pricing this at a three. Is that an area that’s negotiable?   Kris St. Martin: Absolutely.  Absolutely.  It’s all claims related.  Example is like worker’s comp insurance, there’s a lot of loss prevention that carriers very proactively get involved with, with certain industries if there’s a lot of injuries.  If there’s a lot of claims in the cyber area, you can count on the carrier getting much more proactive in not only just asking the questions, but it might dig a whole lot deeper.   Kelly Coughlin: One final question I have is, any tips, tricks, or traps when making a claim that we should be aware of?   Kris St. Martin: Well, I’d say first when you’re looking at how claims are going to be handled, you want to do as much work as you can before you have a claim. We’re big proponents of things we’ve talked about here with procedures and all the preventive types of things.  In the insurance world, the preventive type of thing is one, make sure you pick a carrier that has a great reputation in the area of insurance that you’re talking about. That’s important because they’ve been there for a while and have a good claims paying history, and just a general reputation.  Secondarily in the prevention on the insurance side is make sure your policy is looked at by somebody who writes a lot of cyber insurance in this particular case, and knows the speedbumps that you’ve got to address, that are going to give you a problem at claims history.  Some of the wording, the definition, those types of things.  Lastly, you want to make sure that you have your agents intimately involved with that, because they’re going to be a strong advocate of you when it does come to claims time.   Kelly Coughlin: Great.  That’s perfect. I will say, this podcast isn’t designed to be an infomercial for you or for CBIZ, but I am going to put a plug in, because I have some experience with you guys and some of your carriers, and I’ve been so impressed with how you are working with the community banking and regional banking market that I think the service is terrific.  I’m totally committed to helping banks manage this cyber risk because as I started it out, I think it’s a problem.  Community banks are in the crosshairs of these bad-guy cyber pirates and they need all the help they can get in preventing attacks and breaches. I applaud you for your great work.  I think I’ve finished the questions that I had, Kris.  Is there anything else you wanted to add that we didn’t get?   Kris St. Martin: You know, only that another big topic out there is this third-party vendor. That’s probably a subject for a whole different thing that the regulators and just good business practice is really pushing hard down the road of okay, so your data processor is Fiserv, what do you really know about them?  Or your IT guy is XYZ, what do you really know about them, their procedures, their insurance?  It’s a whole other kind of layer to this that’s opening up as a third-party vendor that you as a business or bank are using.  Besides that, no, I just wanted to thank you a lot of the opportunity.  It was fun to do and really honored that you thought enough of us to pull us into one of your podcasts.    Kelly Coughlin: Well, yeah, I appreciate it.  I would like to follow up with another podcast on third-party vendors and the due diligence required.  Let’s put that on the calendar.  Kris, I really enjoyed it.  I wish you the best.  Keep up the good work.  Enjoyed talking to you.   Kris St. Martin: Thanks, Kelly.  Thanks so much.  Talk to you soon.   Announcer: We want to thank you for listening to the syndicated audio program bankbosun.com.  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.

Kelly Coughlin: Greetings, this is Kelly Coughlin. A pack of wolves lurked near the sheep at pasture, but the dogs kept them all at a respectful distance and the sheep grazed in perfect safety. But now, the wolves thought of a plan to trick the sheep.  “Why is there always this hostility between us,” they said.  “If it were not for those dogs who are always stirring up trouble, I’m sure we should get along beautifully.  Send them away and you will see what good friends we shall become.”  The sheep were easily fooled.  They persuaded the dogs to go away and that very evening, the wolves had the grandest feast of their lives.    Announcer: 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 bankbosun.com.  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.    Kelly Coughlin: Hello everybody, this is Kelly Coughlin, CEO of BankBosun, helping C-suite bank executives navigate risks and discover reward.  Today is the first in a series of five podcasts on the subject of cyber security and banking.  Cyber hackers today rob banks much more sophisticated than the days of say Jesse James.  And certainly, they’re much more intelligent than Isaac Davis who committed the very first bank robbery in the US in the year 1798.  Davis robbed the Bank of Pennsylvania at Carpenters Hall in Philadelphia, PA.  He was apparently so stupid that he robbed the bank of over $162,000 and then deposited the funds in his own account at the same bank.  Not very smart. He got busted.    Today’s cyber pirates aren’t that stupid.  They attack the bank’s web application.  They shut down their site for ransom with denial of service attacks. They skim credit and debit cards. They engage in privilege misuse, crime ware, just to name a few.  It’s a huge threat to banks. And the reason I’m putting so much attention and focus to it at BankBosun is the expectation is that more bad guy resources will be directed to community and regional banks in the future for two primary reasons.  Number one, the Willie Sutton factor.  When he was asked by the FBI, “Hey Willie, why do you rob banks?”  He replied, “Because that’s where the money is.”  Then, a second reason, insufficient resources to prevent and detect.  If lower net interest margins and higher regulatory burden weren’t enough, then the additional expense required for cyber security risk management is enough to put you over the top.    So that leads me to my guest for today.  His name is Kris St. Martin.  He’s vice president bank services program direction for CBIZ with over 100 offices and 4,000 associates in most of the major metropolitan and suburban areas throughout the US.  CBIZ delivers financial and employee business services to many organizations of all sizes as well as individual clients by providing national expertise combined with highly personalized services.  CBIZ is a leader in cyber risk including cyber insurance, IT audit, penetration testing, mobile application assessment, digital forensics, cyber risk management, and Kris is a cyber insurance expert, and is a member of the CBIZ national cyber risk management team.  He has more than 23 years of direct bank experience and he’s held many positions in banking.  He’s been providing risk mitigation services since 2009.  So, with that introduction, Kris, are you on the line there?   Kris St. Martin: I am.  Thank you very much for that introduction, Kelly.    Kelly Coughlin: Did I cover all the relevant points in your bio, Kris?   Kris St. Martin: You were very, very thorough.   Kelly Coughlin: Excellent, I like being thorough.  Now, I didn’t include any personal background in there.  Do you want to start off with telling us who you are, family, where you live, that sort of thing?   Kris St. Martin: Sure, absolutely.  As you mentioned, I was in banking for over 20 years.  I live in Plymouth, Minnesota, a suburb just west of Minneapolis.  In my banking days, I was involved in community banking in Plymouth for 20 plus years.  I worked First Bank Systems, which later became US Bank.  I was very familiar with a regional bank becoming a large national bank.  Went to a very small community bank, worked there for four years in my hometown, opened up a branch for them for a couple of years, and then became part of the de novo bank experience in 1999.  We opened up the bank in 2000.  Lived in the same community, Plymouth, for 20 plus years.  Wife of almost 26 years.  Three kids, one is a wildland firefighter; one’s a senior at the University of Minnesota going on to the law school next year; and my daughter has graduated with a marketing degree recently, and works for a hotel chain in the twin city.   Kelly Coughlin: That’s terrific.  Let’s dig right into it, Kris.  Subject today is cyber risk, cyber risk management in the banking ecosystem.  Let me just start out with a very general question here.  From your perspective, what are the cyber risks facing banks today?  What are the key risks that you see they face today?   Kris St. Martin: Well, Kelly, you mentioned a number of them in your introduction and they include probably the largest frequency risk today is the ransomware by cyber extortion.  For the last few years, that was not as prevalent in the financial institution world, because financial institutions were deemed as a little better at backup than other industries such as retail and medical.  The very nature of those are locking up your information and if you haven’t backed up for a few days, that could be very, very costly. So they paused on the banking world for a couple of years, and now it’s getting hit very, very hard.  The other industries have tightened up on their backup procedures.  They tend to be smaller amounts; anywhere from $500 to $50,000.  They can be larger.  They tend to be quick hits, lock up your system.  Data breach is obviously a big one in the banking world, because obviously banks hold a great deal of data. Theft of money is always a big one.    We’ve seen several cases recently where there was some type of hack leading up to obtaining passwords and wiring money out.  In addition to the types of things that are happening, banks are having to deal with, as you mentioned, the regulatory aspect of that.  The regulators are all over this topic and have great expectations when they’re coming in for exams.  Cyber insurance is part of that, where they really didn’t look at that too much in the last couple of years before that.  Now, they’re wanting to know what type of cyber coverage and all your cyber procedures are so it’s put a great deal of burden on them.  The reputation risk for having your information active is enormous to both your reputation, your brand, and litigation from a number of sources if you could have your data breached can be from clients who’ve had their data breached and it could be as more of like a class action if you had 50,000 records breached.  They could all ban together and sue, but it could also be if you’ve lost one really critical piece of data.    Let’s say it was a critical business plan of one of your clients that you obtained in conjunction with a loan request.  Who knows what kind of harm that could cause, if that got in the hand of a competitor?  There’s also some litigation based on what is showing on social media.  Banks often encourage their employees to be on LinkedIn and other social medias to increase the bank’s presence.  There are other things that bankers are on that are not necessarily done with bank approval like Facebook.  So, somebody could be on Facebook and note on there, they’re an employee of XYZ bank and put something disparaging about one of the competitors on there.  It wasn’t necessarily a bank approved type of a thing, but they can be pulled into the litigation because of the reference to the bank.  So there’s a wide variety of cyber risk and financial risk for banks out there right now.   Kelly Coughlin: Now that social media example, that isn’t part of cyber security risk. That’s more reputational risk, other financial risk, but a bank’s employee participating in Facebook for instance, that doesn’t open up risks for cyber-attack, correct?   Kris St. Martin: Not from a cyber-attack, but it can be part of your cyber risk management program.  There’s great expectations from regulators that you are training your employees because there’s a financial risk that can come back to the bank.  So it’s part of your cyber risk management program at the bank not necessarily directly from a hacker.          Kelly Coughlin: Okay.  You guys are in the business of helping banks insure the risk.  In the event of a cyber-attack, they buy an insurance policy that covers their financial risk in the event of some sort of cyber-attack, correct?   Kris St. Martin: Yeah.    Kelly Coughlin: Now, is it fair to say that four years ago cyber risk management was more or less a footnote of a P&C policy or an E&O, D&O type policy?   Kris St. Martin: Right and there’s just only a few remnants of that.  So, for example, in your general liability policy there were many areas in there that could have provided coverage 10 years ago under what’s happening in today’s environment.  Over the years, the carriers have been excluding on your D&O policies, directors and officers liability policies, your professional services policies as well as your general liability policies, anything that’s related to cyber risk.  So today, most directors and officers policies and general liabilities policies exclude anything related to cyber risk.  They push everything towards a cyber policy with only a few exceptions.  The exception to that is in their directors and officers policy, if you look at what happened to Target, the Target breach about three or four years ago, after the smoke cleared the directors and officers were sued for lack of oversight of the cyber risk management program.  That’s where kind of a cyber-related type of thing can still be pulled into a D&O policy, but specifically if officers and directors are named based on decisions made by those directors and officers.  The D&O policy is not going to pay for anything that’s related to your expenses associated with the breach.  In the case of theft of money through hackers, where there is a theft of money, that’s treated under a crime bond policy. So the other exception is if you had a hacker come in, obtain codes to malware or whatever they use, eventually wire money out that’s not retrievable, that actual cash loss, whether it’s the bank or your client, is treated and handled under the bond.  So those are kind of the two remaining policies where there is some related coverage.    Kelly Coughlin: Okay, but business interruption, for instance, let’s say it’s denial of service, which is business interruption, would that be specifically excluded from the other P&C policy that would cover interruption from fire or water, that sort of thing?  Is that specifically excluded?    Kris St. Martin: Yes and with other causes of business interruption, that is included in your traditional package policies.  That has historically been part of those policies, but with a cyber interruption, again, those policies now exclude the business interruption reimbursement and pushed it back to the cyber policy.  If you’re a retailer selling products online and your website goes down for three weeks, it’s very easy to document the lost sales based on a history there.  In the banking world, your primary revenue is going to be your net interest margin, so your loan income is still coming in regardless if your system is down or not.  So the classic business interruption policy is going to pay for the lost income. It’s good to have it in your policy because you never know, but there’s not a lot of claims in there in the banking world because it’s difficult to demonstrate you actually lost income.   Kelly Coughlin: Yeah, I suppose it’s mainly reputational damage, if people go to the site and they can’t access it, and the media gets wind of it, then that’s more harmful than loss of any sales on any given day, correct?   Kris St. Martin: Yes, that is correct.   Kelly Coughlin: So this is a whole new policy that banks now have to include in their portfolio of insurance policies.  That’s good for you in that it’s another policy that you can earn fees on.  Bad for them, it’s another policy that they have to pay fees on, but that’s the brave new world.  Is it fair to say that regulators today are looking for and demanding specific policies related to cyber insurance?    Kris St. Martin: Yeah, it’s interesting from the regulators.  They will come in and they will look at your insurance policies, but there’s very little that they absolutely require on insurance.  The way the regulations are written under there is you don’t necessarily have to have insurance, but you’ve got to convince us that you have a way of self-insuring, or what your plan is.  A bank that’s extremely well capitalized can go in without any insurance policies if they want and say we’re going to self-insure for those.  That’s not very common. So the regulators would come in, they don’t require it, but they will look through the insurance policies and it could be a critical comment, if you didn’t have insurance.  When the regulators come in and look at the cyber program and IT in general right now, the insurances went from low business access loss to a very important part of your cyber risk management and how your IT exam is going to come out.  Again, it’s not a requirement, but it’s going to fall into how you’re rated and the components of the rating for that whole area.  They know that if you do have a cyber breach and you’re making decisions, and you need to make fairly timely decisions, because the harm for not acting quickly exponentially get worse.  Not only financially and reputation wise, so it’s good to know that you would have an insurance available to help you make good, accurate, quick, timely decisions and not make bad decisions based on we don’t have a funding mechanism outside of our own capital.  It’s a very distinct part of that exam, but not required.   Kelly Coughlin: Okay.  If I go back to my consulting days of internal controls, you’ve got three categories of controls; prevention, detection, and correction.  Insurance has been more or less in the correction category.  It’s a way to make people whole, make the company whole.  It really doesn’t prevent and detect things.  Those are internal controls that the company has to adopt and use insurance on the correction side.  As part of the insurance underwriting process, is there any sort of work or effort being done by insurance carriers that helps banks on the prevention and detection side in terms of adopting best practices among the industry?  Do they give discounts in premiums if they have best practices, or not?   Kris St. Martin: I think it’s fairly early on in that world with carriers right now, but if you look at an application from a carrier and try to say okay, why are they asking that, a lot of it gets at the best practices that they’re asking.  They’re going down that path and by the way Kelly, the cyber policies today are not viably priced as of yet in the banking industry.  If you’re a community bank under let’s say a half billion, you can probably get a $3 million limit cyber policy.  Now, there’s going to be different bells and whistles there, but you can probably get something in that range for $8 to $12,000 in that range, for $3 million.  We’ve got small little banks that they’re buying them for million dollar coverage for $3,000.  They’re a pretty good robust policy.  Where underwriters are looking at pricing, they can fairly quantify, if a data breach happens based on a number of records, personal data records that you have, there’s different published amounts of somewhere around $30 per record is going to be what your cost is out of pocket.  They can fairly well quantify the costs to immediately get through the data breach part of it and the carriers are fairly comfortable with the pricing on that.  Where it really gets difficult, is more on the liability side; who’s going to end up suing you; what regulatory body is going to put a fine on you; and that is a really ever-evolving market.    As an example, going back to the critical piece of data, if you lost somebody’s business plan, it gets into the wrong hands, that’s hard to quantify.  It all depends on the circumstances.  It could be a half-million dollar lawsuit, it can be a $10 million lawsuit.  So that’s evolving.  Getting back to kind of your question on the underwriting, the first two things that a cyber underwriter will look at in the big picture of things is number of records that you have.  Records are generally defined on the consumer side, if there’s a social security number associated with a name of loss, that’s automatically going to qualify as triggering a data breach for that particular record.  So you look at the number of records both personal and business, that you hold, and that will be on the application and that will be probably the biggest thing that will set the pricing.  A bank may have 100,000 accounts, either accounts that are closed or current ones, but they may have 25,000 individual individuals who opened all of those accounts.  So the number of records would be the individuals with their social security number and how many of those do you have at the bank.  Historically, if you are retaining that information in current accounts, that’s the primary driver with the cost of cyber insurance right now.    They’re going to look at the annual revenue of the company just to give them a scope of the size and breadth of the company.  It’s not perfect, but it gives them an idea of obviously a bigger company versus a smaller organization, because it’s got more things going.  They have more contracts.  They have more data.  In general, more stuff going on that could potentially fall into the cyber world.  Then, you look at a typical application and look at some of the questions that they’re asking.  Some of them would be maybe a complete take out of hey, we don’t want to write this policy.  Some of them are going to be a little much less alarming, if you had answered no. But if you look at it, there’s a reason they’re asking those questions.  It’s the overall risk to the insurance company.  Same thing for the bank.    For example, one question that’s on many applications and I’ll read one, “Does the applicant restrict employee access to personally identify information on a business need to know basis?”  That’s a pretty general question and most banks are going to say, yes, we make sure, we try to make sure that people can have access to different areas on the computer network based on what they need it for, kind of a need to know type.  That question, I think most banks are going to say yes to that.  Who wouldn’t say that?  But they always want you to kind of think that through and really go back and review that.  Hopefully, if I’m looking at that, not only am I going to say well yeah, but hopefully that causes you to go back and really review that because they’re asking that for a very good reason.  There’s claims history behind those questions.   Kelly Coughlin: Back to my prevention, detection, correction internal control model. On the prevention and detection internal controls, what I think I hear you say, let’s say we have a continuum of one being no internal controls and five being terrific internal controls.  In the underwriting process, if the bank comes in at a one or a two, they’re going to get rejected.  If the bank comes in at a four or a five, they’ll get accepted, but they’re not going to get any discounts. They’re not going to get rewarded for their superior internal control structure, but they’ll get accepted.  So if they’re a 3, 4, 5, then they get lumped in terms of the same pricing, but they won’t get rejected.   Kris St. Martin: Yeah, I think that’s a fair statement.  What will happen over time as there is more and more claims history with these carriers, they’re going to be able to get even more defined on that type of thought process.  If they know that, in my example that I talked about under being able to restrict your employees to only certain applications within your system. If that became more and more of a claim problem for carriers, they’re probably going to dig deeper into that and actually ask more and more questions beyond that and have you document that and also base the pricing on that more and more.  So yes, there is definitely some underwriting based on your current procedures in place.  I think just based on where claims are going, there’s going to be more and more of that.   Kelly Coughlin: What’s your expectation in terms of likelihood on the pricing part?  Do you think they’re going to increase or decrease, or stay the same over the next 12 months and then even farther out from that?   Kris St. Martin: Yeah, I think it’s going to be a little bit like the hurricane effect in general P&C insurance.  Whenever there’s a big hurricane, that’s going to affect everybody’s homeowner policy for a couple of years.  Everybody will see the cost of premiums will spread out a little bit.  I think you’re going to see that in cyber.  Right now, there are a number of claims out there, but it’s not to the point where I don’t think that the premiums the carriers are changing isn’t supporting it.  The carriers are a profit business like anybody else. They try not to pay out more than 50% of what they charge in premiums on claims, kind of a rule of thumb and then the other 50% is profit and paying for the rest of your operation. When you see that pay out starting to exceed that kind of industry percentage, that’s when you start seeing the premiums go up. That would just take enormous breaches or volume of community bank breaches, then it’s going to be all claims related.    So, as of right now, based on what the pattern of claims are, it should be pretty steady, but with a caveat that it wouldn’t take much if there’s a couple of alarge financial institutions or a bunch of smaller ones, you’re starting to get into hundreds of millions of dollars of claims, that could push prices up in a hurry.  The other part to that is there’s also a future expectation of risk of what’s going on, they can push it up also.  Even if the claims haven’t quite hit yet, if there is a more and more devious way to harm banks than before and that comes out, and there’s a fear of that, you may see some underwriters starting to push the premiums up in anticipation of that.  They don’t have any reason to believe right now, based on what’s been happening, that we’re going to see premiums drastically increase in 12 months.   Kelly Coughlin: Well, that’s it for part one of my interview with Kris St. Martin, a bank cyber security expert at CBIZ.  In part two, we’ll talk more about what drives premium costs and once a bank experiences a cyber intrusion then what are the actual types of costs the bank can insure, and how to make sure that these costs are recoverable in an insurance claim.    Announcer: We want to thank you for listening to the syndicated audio program bankbosun.com.  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. 

Kelly: My next guest worked with his brother, and was so fierce and mean in his first career that some journalists called him and his brother the “Bruise Brothers”. He wasn't in the mafia. He was an NFL safety for the Miami Dolphins. 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, BankBosun.com. 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:             Hello! This is Kelly Coughlin. I am the CEO of BankBosun and program host. This is the first in a two-part interview series with a guest that I think is fascinating, interesting and frankly, he’s simply an enjoyable guy.   His name is Glenn Blackwood. And he is a Board Member and Principal of Equias Alliance, a bank-owned life insurance and nonqualified benefits consultant for regional and community banks.   What makes Glenn more fascinating and interesting than your average BOLI guy is Glenn is a former NFL athlete with the Miami Dolphins. And for all you bankers out there, who of you never reenacted the 5 seconds left, game on the line, opponent in the red zone, pass thrown your way, interception, game over, you win…   Well, this guy has been there, done that. And you all hear that not all games ended this way. You will win some and lose some, and learning to deal with that was part of being a professional athlete.   You know, in my mind, competition is the common denominator between sports and business. Certainly, professional sports are a business industry in and of themselves, but I am talking about the competition on the field of play in sports - the gridiron; and the competition on the field of play in business - the boardroom.   So what can be learned from professional sports about competing more effectively in business? And more specifically, what can our bank clients learn from professional sports and a professional athlete who knows business? That’s the purpose of this podcast.   Glenn has over 25 years of experience in the bank-owned life insurance and nonqualified benefit plans consulting and has worked with hundreds of banks in the design and construction of cost-effective solutions, to help banks compete and retain good talent. But before that, he was with the Miami Dolphins for about 10 years and I think he played middle linebacker for the Dolphins. Glenn, did I get that one right?   Glenn:            You got everything right except position. If I had played middle linebacker, I’d have gotten killed.   Kelly:             Oh that’s right, you played safety. Glenn:            Yes, I played safety.   Kelly:             All right. Great. Glenn, welcome! How are you doing?   Glenn:            Thank you. I am doing fine. Glad to be visiting with you.   Kelly:             Great! Thanks for coming on board. Glenn, I don't want to try to summarize your background, because you know yourself better than I know you. Just give us a summary of education, business background, family, where you living, how many kids?   Glenn:            My wife and I have been married for 34 years and we have 4 children and 4 grandchildren. I grew up in Texas and I grew in a football family. My dad played running back at Baylor in the late ‘40s. And then, I had two brothers and one sister.   My sister was a very good athlete as well. She played tennis and actually was one of the top tennis players in the city of San Antonio where we grew up. I’m the youngest of the four and my oldest brother Lyle played at TCU and went on and played in the NFL with a variety of teams, and actually ended up playing with me down in Miami for his last 5 years, which was really a kick.   Then I have another brother Mike, who was probably the best athlete of all of us, but he was just smaller than Lyle and I were. He was a tremendous baseball player, basketball player, golfer, football player, and he played at TCU and then primarily due to size restraint, he wasn’t able to play in the NFL.   I did really well academically in high school so back then there wasn’t as much educational counseling it’s kind of like, well, if you did really good in grades you went into med, you became a doctor.   And then I ended up going to the University of Texas out of my high school. Darrell Royal was kind enough to offer me a scholarship and there is a long story there, which I won’t bore you with. I was not his early on pick, because I was kind of small as well. And they ended up taking a chance on me and I think it worked out for them and certainly worked out for me.   I ended up starting three years there at the University of Texas. I was captain the last year of my playing there.   So I was in pre-med at the University of Texas. Actually, had completed those or was right in the process of completing, when the Dolphins drafted me. And the dean at one of the, I think it was the University of Texas Dental School, said "Look, you can come back and go to school anytime, but how many people get a chance to play in the NFL?"   So I really appreciated him having the candor because a lot of academic guys don’t really value the sports side. He was really a balanced guy and he said, “Go try the NFL. And you can always come back and go to school.”   And I was drafted by the Miami Dolphins in the 8th round and I ended up. So after 10 years in NFL, I wasn’t going to go back and try to redo that, and ended up playing 10 years for the Dolphins. And started my career there and ended my career there. I actually had nine seasons. I played in my last year but I was on injured reserve with a knee injury, which ultimately ended my career. So it was a good run.   Kelly:             Those were Don Shula years, I’m thinking, right?   Glenn:            That would be correct. That was 1979. I was drafted and I retired in April of 1989. I had all my years with coach Shula and that was a great experience from a standpoint of playing for a coach who had a grasp of the game and all phases of the game, as well as how to manage a football team. The head coach has to do a lot of stuff and Shula was probably as good at it as anybody I've ever seen.   Kelly:             And let’s see, Bob Griese would have been the quarterback in those years?   Glenn:            Actually, Griese was there the first two years I came to the Dolphins and then after that, we had a little stub period and then we drafted this kid out of Pittsburgh named Dan Marino and that was the end of that.   Kelly:             And that was the end of that. So you had, what, four years with Marino at the helm?   Glenn:            Danny came in at '83. So I actually had five years of playing with Danny.   Kelly:             Five years, yeah.   Glenn:            There is a great story there. He came up to my brother was in the locker room and my brother had been playing at that time for like 12 years, kind of the seasoned veteran. And here is the rookie Marino at his first start and Danny tells the story during his Hall of Fame speech.   My brother walked up to him and said, "Danny, look just relax. You are a great football player. You’ve got a great arm. You are going to be great in this league. Don't be nervous. Don't go out there with any anxiety. But just remember our whole season is riding on your shoulders."   Marino said, “Thanks a lot!” And he properly went out threw for a 356 yard game and so began the career of Dan Marino and probably one of the most amazing releases I’ve ever seen by a quarterback. He was so quick release. People say, “Oh, what it’s like playing with Danny?” And I’d said, “Well, you know I watched him from the sidelines so I was glad I wasn’t playing against him. But I practiced against him every day. And he made me a better football player because his release was so quick that you had to get a jump. You couldn't play around with him. You couldn’t give him any space because he could get that ball going with accuracy and velocity quicker than anybody I’ve ever seen.   Kelly:             I always have this incredible amount of respect for defensive players - safeties and cornerbacks - when they are in a situation where they know the game is on the line and then it’s the safety and the cornerback facing a really good quarterback and a really good receiver and there you are getting ready for the play. What’s that like? How do you get your mind in the game, where you’re not thinking "Oh my God! If I blow this, I’m done." Right? How do you get yourself prepared for that?   Glenn:            Well, I think part of it is that you realize that you are playing against professionals that are really good at what they do. So you’re going to get beaten some. And if you don't have a healthy understanding of that, then you’ll be a basket case in the NFL. There are those individual NFL players that are so talented…they relish that opportunity because they know they’re that good and they’re going to be able to rise to the occasion.   Most of the players in the NFL are really good athletes, but they are not of that ilk where they are just going to dominate every time. So it’s nerve racking and it is exhilarating when you rise to the occasion, and it’s a gut punch when you don’t. And I’ve been beat for touchdowns and I’ve intercepted passes as they were going in for touchdowns and I’ve stopped the play. And as they said in the Wide World of Sports, the thrill of victory and the agony of defeat. And it’s painful. But if you don't realize that that’s very much the way life is. You’re going to have some moments of exhilaration in life and you are going to have some pain parts in life as well. If you don't negotiate that well, then it can make for a tough time.   Most guys who have a difficult time with that don't last as long in the game, because they can't handle the pressure. I really felt like I prepared extremely well for a game. I had knowledge of my opponents. I knew what they liked to do. I knew what they like to do in certain downs and distances. And so I could it whittle it down.   I remember there was a play where we were playing with the Jets one time and they had a really good tight end, almost like a receiver guy a guy named Jerome Barkum, and I knew what pass route they were going to run. They ran it against me and Richard Todd threw the ball, completed it ind the end zone for touchdown. I knew exactly what they were going to run. I was just playing against a really talented receiver and a quarterback who put the ball in a place where only he could catch it.   Kelly:             Do you get in situations or have you seen players in situations where the fear factor of getting burned it almost creates a paralysis and they get so consumed by failing that they are almost slow to react cause they are so consumed by that?   Glenn:            There is no doubt you see that. You see it all the time. And that’s happened to me. Everybody has those moments where you know you say, “I don't want to be the weak link in this defense or this offense.” So absolutely, that happens. And I think some guys can live through that and come out on the back side and learn from it, and they mature and they grow through things. And then others, they never get a handle on it. And I think it hinders their career.   Look, I watched a lot of guys that were much better athletes than me, come into training camp every year and for some reason you know I was able to keep my job for you know ten years. A large part of it was because I really prepared a lot for the games and I had a good knowledge of the game, and I could coordinate our defense really well. The other part of it was that you kind of grow into that knowing that you’ve got to realize that you are going to have times where you make the play and there’s going to be times where it doesn’t work out the way you wanted to.   And that’s the game of football. You are playing with really good players on the other side of the line and that their job is to make you look bad, to beat you. They are good athletes. So sometimes you win, sometimes you lose. Fortunately, down in Miami, we won a little bit more than we lost and that was good.   Kelly:             Ever been in that situation where there is just mismatch, you are making the wrong reads and then, they are picking on you?   Glenn:            Very seldom I saw myself in that position because I was not reading things right. It usually was just physical talent. I wasn’t the biggest, fastest guy out there. You are going to get in those situations – and sometimes the quarterbacks see it and sometimes they don't.   Kelly:             So after the NFL, you decided you wanted to get in to the bank-owned life insurance business. How did you end up picking this industry?   Glenn:            You know the reason I got into the business is that – it’s a long story but I will make it very short. I ran into a former adversary of mine in the NFL, a guy named Wally Hilgenberg. And Wally played linebacker for the Minnesota Vikings…and played sixteen years in the NFL. And he and a few other gentlemen had started this business and they called the company Bank Compensation Strategies. And that company placed the first BOLI product on a bank in Bloomington, Minnesota back in 1982. And it was kind of a quid pro quo. It was an insurance policy purchase to hedge a SERP or deferred compensation expense.   And that’s the way this whole business really got started. And Wally and I ran into each other at a fishing tournament..I’ve got a name for it but I won’t say it on this…but it’s basically the old guys fishing tournament..former retired guys from the NFL we were fishing down in Louisiana and I happened to sit next to Wally on a bus going to the fishing tournament. And he and I got to talking.   And I had prepared for after football by going to a university down in Miami and studying for a couple of years. I had worked in an investment banking firm because I knew they’d kick me out of football one day. And that’s probably the one thing if I could say for most athletes, especially professional athletes is you’ve got to prepare for the day they tell you you're not good enough anymore. Because it will happen. And when it does, the severing of that cord, of that tie is swift, and it’s brutal, and it’s fast and it’s painful.   If you are not economically prepared and educationally or vocationally prepared, it’s a very tough transition. Fortunately, I had done that and Wally and I got to talking and he said we’ve got this program where he had this BOLI asset and the benefit needs. And he explained it to me and what I saw in it, was I saw there were three real focused needs of expertise.   You had to have some sense mathematically. You had to have accounting grasp. You had to have a legal grasp, because there were agreements involved. And then, you had to understand the regulatory piece of it. And I loved the multitasking and juggling all those balls. That was very similar to what I did on the football field, because I ran our defense for most of the years I was playing down there in Miami.   And so, I had to know what the line backers were doing. I didn’t play their position but I had to know what they were doing, what their challenges were, and our defensive line, our corners. And then I had to when the offense came up and showed us a different formation, I had to change our defense and put us in the right one. I love Bill Arnsparger, my defense coordinator, who was one of the greatest defense coordinators in the NFL and he sat me down on the bleachers one time and said before I was going into my first start, where I was running the defense, and he said, “Glenn. I can only guess right half of time. You have to put the right defense the other half.”   And first of all, Bill was understating his capabilities, because he didn’t guess, number 1. He was well prepared. And most of the time, he gave us the right defense. But he gave me that freedom, to move and change if I saw something I didn’t like.   And I loved that ability, the need to understand all the different pieces of how a defense works together. And it is the same way in this business. You got to understand the legal, the accounting, the regulatory. And I love being able to juggle those balls and being able to put everything together and explain to a bank and a bank board how this works, how we can put it in, how it works from an accounting perspective, and tax and balance sheet and income statement, and then what we do to take care of them to caretake for them on an ongoing basis. I looked at it and I thought this is a good fit for my skill set and Wally wanted somebody in Florida and I said I think I found the right guy for you, and that's me.   Kelly:             Did you ever have to play up in Metropolitan Stadium in the winter?   Glenn:            I played in the Met Stadium but not in the winter. And by the time I played up there in the winter, we had a dome. But I did play in the Packers in the teens and I played in New England and Chicago and New York.   Kelly:             How tough was it from Miami because half your games were down or more than half of your games were down in the southern climate, right? But how tough was that?   Glenn:            It was hard because you had to adjust to the cold weather really, it hardens everything and it makes it harder to catch the ball. One of things coach Shula used to say is don’t overdress and he’d be yelling in the locker room, don’t overdress. His point out of that was you can be warm, you can put on enough stuff to get you warm, but you can't function. You had to get that balance of layering that allowed you to maintain some form of body heat but also be able to move fluidly in your uniform, etc. I think, actually, while it was tough on us, I think it was much harder for the northern teams in November to come down to Miami and play in 80 degree weather and it’s humid. I’ve watched teams literally just melt right before us because they just couldn't handle it in the second half.   Kelly:             Really? What about the Mile High Stadium? Did you ever must have played there?   Glenn:            We did play at Mile High Stadium. That just really wasn't a lot  of problem either for me. The lack of altitude was offset by the lack of humidity…and so you didn’t sweat a lot out there. It was invigorating…I loved playing in that. The worst place I ever played from a physical standpoint of trying to be able to breathe was when we played the Rams out in Anaheim one year and they had a stage four smog alert. It was a one o'clock game; they had to turn the lights on in the stadium. There was so much smog. My lungs burned for about 2 days after that game.   Kelly:             Let's finish with the dumbest thing you have ever done or said in your situation?   Glenn:            I remember one time I was so, we had a fourth and one the Buffalo Bills were going into our endzone. They had kind of a strong set towards me and I was a strong safety and I really wasn’t that big a guy, so my adrenaline was flowing and I thought this guy was going to try and kill me. And they’re going to try to run right over me. It was kind of what you talked earlier, where there’s a little bit of fear there and I didn't want to be the weak link in the defense. So I was geared up and as soon as the ball was snapped, I took off to run into that flanker, he just turned sideways and I whiffed on him and he was a tight end flanker, it was a real tight set. They ran a play action pass and you know when I whiffed on him, I basically stumbled and the guy I was supposed to be covering ran right into the end zone and they threw him a little pass for a touchdown.   Kelly:             Well, that finishes Part 1 of my interview with Glenn Blackwood. I started the podcast saying Glenn was fascinating, interesting and simply a good guy, and I think that came out in this interview. I personally just love hearing his war stories of the NFL.   In Part 2, we will talk more about his second career in business and focusing on his expertise in the bank-owned life insurance business. And true to his form, he is competing and winning in this business just like he did with the Miami Dolphins. Thanks.   Voiceover:     We want to thank you for listening to the syndicated audio program, BankBosun.com. 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 other way represent the views of any other agent, principal, employer, employee, vendor or supplier.

This is Kelly Coughlin. There is a little known secret about how to use your bank owned life insurance asset to pay your cyber security costs, muni bond analytics expenses and other risk and insurance expenses. Listen to this two-minute audio podcast and then call me if you it gets your attention. Two minutes could generate thousands of dollars in expense reductions for your bank. 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, BankBosun.com. 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, my name is Kelly Coughlin. I’m a CPA and the CEO of BankBosun, a risk management company located in Minneapolis, MN. We are writing a research report for publication in a banking journal this coming October comparing the use of bank owned life insurance (BOLI) in two US regions: the Midwest and the Northeast. The data shows there is a significant variance between these two regions and we are trying to dig into it a bit to understand and explain it. The major distinction is some banks tend to use the asset more as an investment that competes with other balance sheet financial assets like municipal bonds for example, others tend to use it a more of a risk management funding tool for their nonqualified benefit plans or benefit plans in general. Some even tend to look at it more as a commercial loan...a loan to a AA credit insurance company. Some banks end up with it on their books through an acquisition and are stuck with it…others look at it as a terrific asset that they can’t get enough of… some like the Other Non-Interest Income classification versus interest income. Some don’t care about that. So far I have talked to about 50 bankers personally. And I really have enjoyed it. I have learned a lot. And I want to talk to about a hundred more. I have a handful of other related questions that will only take a couple minutes. We will be sending you a copy of the report no charge of course so you can see how your peers in the northeast and Midwest are using this non-traditional asset. Additionally, I also wanted to point out we have a risk management program that allows you to utilize your BOLI insurance asset to pay for some of your cyber security risk expenses, muni bond analytics and other risk management expenses the bank has. You keep the insurance policy and investment terms in place, but you modify the servicing and reporting terms. Not only does this cost you nothing, you actually reduce your expenses and increase profits by thousands of dollars.. potentially. Frankly, the only one who kind of loses in the deal is your agent that is “servicing” your BOLI now. So if you want to first and foremost take care of him/her, fine. No worries. I understand that. But if you feel it is more important to take care of the bank and more specifically, the bank’s financial statements, then you might want to talk to me about this. It can be done fairly easily. And our servicing and quarterly and annual board and regulatory reporting is best in the business…so you actually get a win there. Again, my name is Kelly Coughlin. I’m a CPA and the CEO of BankBosun. I can be contacted at 612-232-6640. My email address is: kellycoughlin@bankbosun.com Thank a lot, goodbye. We want to thank you for listening to the syndicated audio program, BankBosun.com 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.

Introduction: 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, BankBosun.com. 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. I'm the program host of the syndicated, biweekly podcast, 'BankBosun.com: Helping Community Banks' C-Suite Officers Navigate Risk and Discover Reward.' As most of you know, we like to focus on three primary categories here, the three 'R's, Risk, Regulation, and Revenue Creation. I think just about all the critical things a bank does can be captured in one or more of these three categories, Risk, Regulation, Revenue Creation. Nowhere else does the results of how a bank does with these three categories, than in the valuation of that bank.     I think Jack Welch, in the eighties, first made popular the notion of shareholder value. He didn't create this concept, but he sure popularized it. I think, since then, we've kind of expanded it to include more than just shareholders, but stakeholders, and stakeholders might include all range of people and enterprises, ranging from suppliers to entire community ecosystems. At its core, we still get back the valuation, the equity value of the enterprise. With that in mind, I'm going to introduce George Thompson, a forty-year, seasoned vet in the bank deal business. George is managing director of The Capital Corporation. George, are you there?   George Thompson: Good morning, Kelly. How are you?   Kelly Coughlin: I'm fine, thanks for joining us today. George, rather than me kind of get into summarizing your background, education, etc, can you give us a minute on who George Thompson is, and why you're the seasoned vet in the banking valuation deal business?   George Thompson: I would be pleased to do so. Kelly, I graduated from the University of Missouri in Columbia, in 1976. Accountancy was my major. I went to work for one of the large accounting firms in Kansas City right out of college, and three years later, joined an individual out of Arthur Anderson, that was wanting to build a CPA practice specifically for community banks in the Midwest. I joined him in 1979, and we built that firm for the next twenty years, ended up selling it when H&R Block and RSM McGladrey were doing their accounting from roll-ups. In about the year 2000, we sold that accounting firm and it merged into RSM McGladrey here in the Midwest.     Since that time, I've been in banking and investment banking, right now, managing director, as you said, with The Capital Corporation. About 85-90 percent of our business is sell-side work. In other words, we work with the sellers of financial institutions, although we do work a little bit with buyers, and will contract with banks to go find them a bank to acquire. Appreciate the invitation to talk about the things that kind of drive value in banking.   Kelly Coughlin: George, how many deals have you been in the middle of?   George Thompson: Our firm, all we work with is banks. We do not do investment banking for small businesses. We do only banks. We have been involved, either whole-bank or branch transactions, over the past fifteen years, with approximately 125 to 140 whole-banks to branch transactions. Probably about seven and a half billion in assets changed hands during those transactions.   Kelly Coughlin: Right. I want to go immediately to net interest income versus other income, non-interest income.   George Thompson: Okay.   Kelly Coughlin: You know, the goal here is to come away with some ideas on, how can, if I'm a CEO or a board member, how can I increase the value of my bank? Now, the obvious things are, well, increase revenues and profits and free cash flow. But I need something better than those things. So I want to go to net interest income and Other Income. Because net interest income, other than getting more quantity, more assets, and more loans, there's a price. You're kind of stuck with the yields that are in the market, right? Other income gives more variability, I should say. My question to you is, in terms of valuation can a bank fetch a higher multiple in valuation, whether that be based on assets or revenues or free cash flow or earnings through an increase in non-interest income versus net interest income. Is there any difference in that?   George Thompson: The answer is yes. I can talk about a couple of specifics. We are working with a bank right now, that has built a program that they refer to as a contract services division, but it is a community bank that has built ties to the servicing, not making credit card loans, but has ties to the credit card industry. And as they service the debt that's on the outside, they are the servicer, they are the administrator. They do not hold the debt, so they do not have the credit risk, but they have built substantial contracts, for revenues. It is recurring revenue, and it has substantially increased what our asking price, and what we expect to get in the marketplace, when we ultimately can get a transaction done.     We have seen other banks that have built substantial mortgage generation machines and divisions, that, it's harder to sell and get a full value for a mortgage division, from the standpoint of, buyers look at those mortgage divisions as more transactional-based, not quite as recurring. Now, if you do it year after year after year, there is value there, but it's not the value that, perhaps, someone would pay for a truly recurring revenue.   Kelly Coughlin: Right, so it's this other income, this non-interest income, is it fair to say that the quality of earnings, I don't know if you use quality, in earnings, is higher in other income? I guess it depends on the permanence, and how long it's been on the books, et cetera, but     George Thompson:   It’s the recurring nature and, you know, can a buyer look at that potential selling bank, and are they willing to pay a multiple of that because they believe it will be recurring for year after year after year? Or is it transactional-based, to where, you know, if there's a downturn in the economy or change in interest rates, I think right now, everybody's waiting, as far as, I mentioned mortgage producing machines are revenue generators, if interest rates go back up, which is kind of anticipated now for a few years, some of that mortgage revenue is going to drop, and buyers anticipate that, so they will pay less of a premium with that.   Kelly Coughlin: Yeah, I guess, part of, in full disclosure, part of my reason to get right to that, is that, I was at one of these, you know, bank conferences, and there was, I'm not going to mention who it was, but this broker who's in the business of kind of promoting municipal bonds, made the argument that bankers might have to extend duration a little bit to get the yield they need to fetch here.     I asked him, offline, I said, "Well," in full disclosure, I'm in the, I work through independent consulting work with Equias Alliance, and we are in the bank-owned life insurance business, and I said, "Well, wouldn't the recurring nature of bank-owned life insurance, more predictable, recurring, et cetera, other non-interest income, wouldn't that be better for the bank's valuation?" He said, "No, I prefer that interest income." When I go back to my Cooper's days of doing some bank valuation work, I thought that other income would increase the value, but ...   George Thompson: It does. There's no doubt that it does. Now, we do not see BOLI being, in any way, a detriment to get a deal done. At the same time, we do not see BOLI being anything that will drive a transaction price higher. I'm involved in a transaction right now that will be announced within the next couple of weeks, whereas the seller, I believe, probably has six to ten million of BOLI already on their books. The buyer is not worried about that, is not concerned about that, welcomes that earning asset as we move forward. In that case, the BOLI certainly, I wouldn't say it helped driving price, but they like the, the buyer likes the earnings off that BOLI, that's for sure.   Kelly Coughlin: Now, this wasn't mean to be a shameless plug for BOLI, but it's one of those things that did come into my mind, and as I'm looking at banks that hold muni bonds versus BOLI, and I just wanted to kind of get that clarified with you. Let's go to another question I have. When you see a deal, what do acquirers like to see, or not see, in terms of locking up staff, how they're dealing with high-producing staff or low-producing staff, I mean, what are you seeing out there in terms of staff like that?   George Thompson: Our buyers, especially in, size matters in this relationship, but as the buyers get larger, as the sellers get larger, normally, you have a group of people, or a handful of people, that are really helping drive earnings and drive the revenue of the seller, which is what the buyer's interested in acquiring. They'll want those revenue streams and customer contacts to continue. We often see that that definitely comes into play with a buyer and a seller, where they want to try to lock up that staff, whether it be with some type of employment agreements. We have seen transactions where the buyer has pretty much made it a demand, as a part of the contract, that one, two, three, four people, sign employment agreements before they're willing to put their name on a contract to pay a real high price. They want to make sure those people are locked up.     Now, it's very difficult to get a pure non-compete. You can certainly get a non-solicitation. We've seen agreements like that, for sure. A lot of our transactions are community banks based, here in Midwestern states, and oftentimes, the primary seller, one of the largest shareholders, if not the single shareholder family, is the president and CEO. Many times, the buyers will, whether they hire them full-time, and we are seeing that more, where some of the bankers are looking ahead, asking themselves, "Who is my buyer? Where are the buyers? Perhaps I should sell this bank now, I'm sixty years old. I would have waited til sixty-five or sixty-eight, but if I sell it now and work three to five more years for the new buyer, one, I get my price, two, I get to keep working, and kind of lock in the liquidity, and not have to worry about it. I can kind of turn that over to a new buyer.     We are seeing that a little bit more often, where the president, CEO, primary seller, does get locked into employment agreements, non-compete agreements, non-solicitation agreements. The buyers want those people locked down.   Kelly Coughlin: Yeah. That goes, probably, in terms of the food chain, it goes down to the producing professionals, the credit guys, and the guys that are doing deals.   George Thompson: Once in a while, you'll see a COO or CFO that falls into that fold, but many times, it is the chief lending officer, the major loan producers, that are bringing the revenue to the table.   Kelly Coughlin: Right, right. How does the cyber security risk, it's one of those big, contingent risks, and potential contingent liabilities out there, any trends, anything that you're seeing going on there, on how they deal with the cyber security risk?   George Thompson: The buyer certainly comes in and looks at what kind of auditing processes, what programs, what compliance, you know, what does the seller have in place that has been protecting cyber security? What programs do they have that's monitoring it, you know, every second, every minute of every day, to protect the customer data and protect the bank from an intrusion? That certainly is a piece of the puzzle when a buyer is doing its due diligence.   Kelly Coughlin: Yeah. Are you finding, on the deals that you're working on, do they typically hire an outside consulting firm to help on that? That isn't the kind of expertise that you'd normally get on an accounting due diligence team.   George Thompson: The inside people for the buyer, you know, the operations people, will get out the audits, get out the contracts, get out the intrusion tests, and really review that hard. They may pursue it, if they see something, you know, "Why didn't you do this, this, this, and this?" We have not seen them go hire, at this point, outside technology companies to come in, during due diligence, and do intrusion testing, or testing of those. They're pretty much relying on what the bank has been doing to satisfy the regulatory agencies.   Kelly Coughlin: Okay. Good. Have you seen any deals collapse because of cyber security?   George Thompson: We have not, in our practice.   Kelly Coughlin: Okay. What are the top five things a bank can do to increase enterprise value for a sale? Looking forward a year. They meet with their board, they say, "Okay, we're going to position this for sale a year from now. Or, two years from now." Other than the obvious, increase revenues, profits, and cash flow, what could a bank do?   George Thompson: Yeah, and let's be honest, Kelly, there are many times that banks are sold and they didn't look out one, two, or three years in advance. I'll touch on a couple of things where the pricing could have been helped. My first comment to anybody that contacts me about selling their bank is asset quality. It seems common sense, but oftentimes, bankers that are wanting to sell, they may be trying to put the smallest amount possible, and we're not, we don't want them to put excess bad debt reserves, or allowance for loan lease losses in their financial statements, but make sure that bad debt reserve is adequate, that you've taken the marks on any problem loans you have, that you've taken the marks on your other real estate owned, or OREO. Just, fewer items to be argued by a potential buyer, with respect to asset quality, will help pricing, will help things go much smoother.     Tied to that is loan file documentation. We've actually seen a couple of transactions within the last year, where the buyers got into the loan review, and had some significant issues, and one of them was one-rated bank. Some significant issues with the loan file documentation, and the lack, in their mind, that the regulators had kind of, let that seller kind of glide along, just because they'd had very few loan losses, had kept giving them one ratings. Their loan file documentation was very poor, so I suggest sellers, or potential sellers, to clean up loan files, and make sure that all the docs are there.   Kelly Coughlin: Low-cost activity, too.   George Thompson: It is. It's something that, you know, you probably have the personnel to go through loan files, dig through them, "We don't have this tax return, we don't have this credit report," you know. "We don't have this debt service coverage calculations." Seems like common sense, but there's, oftentimes, a lot of that loan file documentation just, it doesn't get done, or loan file memos.     Vendor contracts, Kelly. We have seen vendor contracts come up and bite sellers. You know, maybe they didn't think about that contract, that seven-year contract they signed three years ago, and now they're ready to sell their bank. "Oh, by the way, you have a four-year penalty to pay off the core processor, or the ATM company, or the debit card company." Sometimes, those penalties can be substantial. As some of these groups are aging, the stockholder groups, the ownership groups, the management groups, if selling your bank is something that you're thinking about doing, frankly, any time in the next three to five years, you need to be thinking about that when you sign any of these vendor contracts, because these penalties can have a significant bite on the amount of premium you get.     Branch networking. We are seeing people worry more about the viability of some Midwestern towns, Midwestern communities. At the same time, we're seeing people that love to be in the, in county seat towns, and will continue to pay good premiums for locations that are in county seats, that are stable, growing, but there are some real communities that, you know, are losing population, may not be in a county seat, and it really is impacting the premiums that are paid by buyers in some of the communities that really aren't showing future viability. I guess ...   Kelly Coughlin: Are you saying they should be looking at closing those down, in an advance anticipation of the sale?   George Thompson: The answer is, that question should be asked, you know. If you're, let's say you're in a small town, and over the last decade, that small branch has just steadily dropped in deposits and loans. You know, maybe you're down managing it now, with two or three people, and you don't want to close it, you don't want to let people go as far as their jobs, but if a potential buyer walks in and looks at that, and says, "Well, they're just leaving it for me to close," it will cost you, when you go to sell the institution, if the buyer has to be the one that has to be the bad guy, that maybe is taking a banking service away from a community, or from other people. They're going to take that into account when they're calculating what they're willing to pay you.   Kelly Coughlin: Yeah, I guess they take the political hit, don't they, if they have to do it?   George Thompson: That's exactly right. Probably the last thing we touched on, is employment issues, a little bit, but, you know, it goes without saying that a buyer certainly wants key management to stay, they don't want to be the bad guy, firing poor performers. Many times, if there are some poor performers, the buyer will ask the seller to take care of those people before closing, so that the buyer isn't perceived as completely the bad guy.     Tied to the employment issues, unless a buyer has some long-term contracts or long-term deferred compensation contracts, if the seller has those and the buyer doesn't, many times the buyer will ask the seller to get those paid off, and pay off those employees, those long-term, let's say, deferred compensation arrangements. Because it's pretty tough for a buyer to bring home, and say, "Well, we've got three or four people, in the bank we just bought, that have long-term deferred compensation arrangements, but we don't have it here, and we're not going to give them to you, our current set of employees." Sometimes, not always, but sometimes, those deferred compensation arrangements can come into play between buyers and sellers.   Kelly Coughlin: This would be, like, non-qualified benefit plans, you're saying?   George Thompson: It would be. It would be.   Kelly Coughlin: You're saying, those can be considered somewhat negative, depending upon the culture of the acquiring bank.   George Thompson: If the buyer has them, and the seller has them, it can be okay. If the buyer doesn't have them, and the seller does, normally the buyer is not going to take in those long-term deferred compensation arrangements, and have things, employee benefits for new people, that they're not even giving to their current people.   Kelly Coughlin: Right. I know, we at Equias, we like those things, because they help, the non-qualified deferred plans, because they help the bank compete and retain good talent, and, of course, we use the bank-owned life insurance as a way to, kind of, fund those things. It doesn't have a significant impact on their cash flow, but ...   George Thompson: Well, and, you know, a bank has to, you're trying to protect somebody, and you may have had that in place for somebody for ten or fifteen years. It probably did what it was set up to do at the time, which was help you keep that person. Now, if you're in the position, after that ten or fifteen year period, you've protected the people, you provided for them, now they're going to get, maybe, an early payout, then it's up to the buyer to make arrangements to keep that person if they're making the seller cash out that deferred compensation arrangement. I'm like you, Kelly, I've seen it used very positively, many times, in a lot of banks, whether it's deferred director's fees, deferred compensation arrangements with key lending and financial officers. Don't take my comments that they're bad, complication in a deal.   Kelly Coughlin: They're a complication. Right. Got it. Okay. All right. Anything else you wanted to add? That covers most of my questions on this kind of high-level overview of valuations. One of the things I ask you to do is, be prepared to tell me, give me either your favorite quote, or, what I prefer is, George, tell us one of the stupidest things you either said or did in your business career.   George Thompson: You know, I try to never be too stupid, but, you know, going back, a saying I had, and it goes back to high school, and if you found my 1972 yearbook from my high school graduation, what it stated under my name was, "Lead, follow, or get out of the way." I've tried to live that as I've, kind of, been in my professional career. Now, what I gave them, back in 1972, to put in my yearbook, was, "Lead, follow, or get the hell out the way." In rural America, in a little religious farm town, they wouldn't put the H-word in the high school annual, but they wouldn't use the H-word in the high school annual in 1972.   Kelly Coughlin: That's good. You didn't need that on your record, anyway. But now it will be on your record, so there it goes.   George Thompson: Yeah, it's out there now, isn't it?   Kelly Coughlin: It's out there now. All right, George, I appreciate it. Thanks for your time, and we'll get this posted, and published, and syndicated on iTunes and Google Play Store, and there you have it.   George Thompson: Kelly, thanks so much for allowing me to be part of the podcast today.   Kelly Coughlin: Okay. Thanks, George.       We want to thank you for listening to the syndicated audio program, BankBosun.com 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.   Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States.  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 of Kelly Coughlin.  

Introduction: 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, BankBosun.com. 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: Good morning. This is Kelly Coughlin. I've got David Shoemaker on the line. We’re going to do a podcast with David. He's the President of Equias Alliance.   David: Good morning.   Kelly: Good morning David. How you doing?   David: I am well.   Kelly: Just to kind of lay the foundation here I thought we’d talk very briefly about my relationship with David and Equias. As David knows, I'm a CPA. I've been in the investment and banking ecosystem for many years and as part of a consulting gig about a year and a half ago I came across the BOLI industry, the bank owned life insurance industry, and then Equias Alliance. I decided at that time, after looking at this asset class, that this is a space I wanted to get into. And I looked at the competitors, once I decided I liked the product, and decided who are the competitors, Equias, in my mind, rose above everybody else out there.     It wasn’t just me that thought that. I believe American Bankers Association selected Equias as their endorsed vendor. I think another dozen or state banking associations also selected them. Is that a fair statement?   David: Ten of them.   Kelly: Ten, clearly they emerged in my mind and in other’s mind as the key player out there. I met with David and I found him to be a key player in the industry, so I thought I'd do a podcast disclosing that I have an independent consultant relationship with David’s company, Equias. I thought we’d do a podcast and talk about first of all just give us a brief background on who you are, how you got into this space, some background and then we’ll talk about the product generally and how you got into this space and what your take is on that. You want to kick it off with some brief bio on who you are?   David: I graduated from the University of Tennessee, Knoxville with a Bachelor of Science in Business Administration, with a major in accounting, then worked for Deloitte Touche for nine years and an investment banking firm for three years. Then, while I was in investment banking, one of my clients was looking at an insurance product and asked me to help evaluate it knowing that I was a CPA technical type.     I liked what I saw, but what I didn’t like was that, it had a four percent front-end load charge. I thought it was a good asset class, but if we could get rid of the load charge we could make it very viable for banks to want to use as an asset class. I've been in bank owned life insurance and nonqualified differed comp for the last twenty-seven years now. I've worked with hundreds of banks over that period of time. I live in Memphis. I have a wife and six children. There’s a lot to do on a daily basis just keeping up with the family.   Kelly: All right, taking from your statement that you saw what was going in the market, the four percent front-end load. Let's elaborate on that because my understanding based on discussion with others including yourself is that you were one of the early pioneers of crafting the product offering as it is right now. What was the need in the market at that time? Give us a general year when that was. Then, where was the gap in products available and the products needed by the bank? What did you see at that time?   David: The year was 1989. There were several products available in the market, but they all had loads of between two and four percent. That means if you purchased a million dollars of BOLI asset and you had even a two percent load that was a $20,000 initial reduction of your cash value. You’d have to reduce your earnings and capital by $20,000 per million. I saw that as a hindrance to banks wanting to buy that asset.     So my partner at the time, who was an attorney, and I decided we could go to insurance carriers and see if they could provide a product that had no-loads which would be more viable for a bank. During that process we found that there's more to it than we’d initially understood. The carriers have to pay a premium tax to the state which generally averages about two percent. Then the federal government has a tax called the DAC or Deferred Acquisition Cost tax that effectively costs around a point and a quarter.     Carriers at time were not comfortable with essentially front ending that asset to give a hundred percent credit after they paid the taxes because they would potentially lose the money if the policy didn’t remain on the books. It took a fair amount of discussion and a fair amount of time, but my partner and I were able to convince four carriers to do no-load contracts.     At that time, I guess there were two other firms that we knew of in the business. They were Bank Compensation Strategies who pioneered the business and then there was Benmark. They were the primary players in, it wasn’t called BOLI then, the bank owned life insurance market. The need for it was to find a product that was viable to banks that didn’t have these loads charges and the idea behind it, back in that day, was primarily to fund nonqualified, deferred compensation plans for management and Boards of banks.   Kelly: That was the primary need for the product, not as an investment per se, but to help fund the nonqualified benefit portion.   David: Yes, to maybe take it a step further. There were not really any regs back until 1991 that were clear as to what a bank could purchase and couldn’t purchase. They could not buy life insurance as an investment asset. They could buy it to fund specific needs. A nonqualified, deferred comp plan was widely considered to be one of those specific items that could be funded with life insurance. It was not clear at the time that you could buy life insurance to informally fund health care and 401K and other retirement benefits and group life benefits and so forth.     Even in the first regs that were issued in 1991, bank reg; I think it’s called BC249, essentially said that you can’t buy life insurance as an investment. You can buy it to offset the cost of certain benefit plans. Even then it wasn’t clear whether that covered health care and 401Ks and things like that, so the initial design of bank owned life insurance was primarily for the purpose of nonqualified deferred compensation plans.   Kelly: The regs specifically prohibited it as an alternative investment asset class. Is that mainly because of that front-end charge and regulators didn’t want to see the hit to capital?   David: That was not the reason. They just viewed life insurance as not a normal asset for a bank from an investment standpoint. It was for specific purposes, but not considered to be an investment in the same terms as Treasury’s and agencies and municipal bonds.   Kelly: Now, that has changed since those early years correct that regulatory perspective?   David: Technically no, in 1996 there was a guidance issued under OCC96-51 which specifically gave authority for a bank to buy life insurance to informally fund retirement benefits and health care. So even today you can't buy life insurance purely as an investment. You have to purchase it from a regulatory standpoint to offset and/or recover the cost of employee benefit plans.     For instance, if a bank had no employee benefit plans; if they weren’t providing health care or 401K’s or retirement plans or nonqualified plans, they really could not buy life insurance and hold onto it until the death of the insured because they would not have a valid reason under the regs to buy that life insurance.   Kelly: They could only buy like Key Man life insurance.   David: They could buy the Key Man, but when that Key Man would leave the bank they’d have to surrender the policy because there was no need for it once that key man left.   Kelly: A bank does not have to have a nonqualified benefit plan. It could just have any sort of benefit plan. It could be health insurance. It could be 401K, any sort of benefit, correct?   David: That's correct, as long as they're providing employee benefits. From experience, if a bank provides health care coverage typically the cost of health care in today’s market is so high that health care alone is enough to justify buying bank owned life insurance generally up to twenty-five percent of capital.   Kelly: Right, so do you see BOLI as primarily an alternative asset class or an insurance product with investment benefits or does it kind of depend on what the needs of the bank are?   David: I would say it depends on the needs of the bank. I'd say it probably leans more toward the alternative asset class in that you look at the features of bank owned life insurance as a tool to produce earnings that would help the bottom line and help recover employee benefit expenses. BOLI has features that are attractive from that standpoint.   Kelly: As an alternative asset class, and I know you and I've had this discussion offline a couple times, if you consider the investment features as an alternative asset class what asset class does BOLI compete against best or worst I suppose? Where do you think, if you were a bank and they liked the features and benefits of BOLI and they need as a replacement. What asset do you think it replaces best MUNI’s, agencies, loans? As I see it, it could be a loan to an insurance company. Where do you see it?   David: It's hard to say that BOLI replaces any particular investment because the features are different than all the other asset classes that are traditional for a bank. If you go down that path and talk about, for instance, BOLI versus MUNI’s there is some common characteristics in that they both have income that's not taxable that helps produce generally higher returns than most taxable asset classes.     There are a lot of differences in those two asset classes, for instance, MUNI’s generally have a fixed rate interest rate, whereas BOLI is an adjustable interest rate. The credit quality of both are high. The BOLI carriers tend to be large, very well-known, highly rated carriers, so very strong credit quality. BOLI has no mark to market in the asset, that in reporting periods whereas municipal bonds generally have to do a mark to market of capital through the OTTI adjustment. BOLI essentially doesn’t have a diminution of value when rates rise whereas municipal bonds could.     Now, from the value of municipal bonds relative to BOLI is that it's always tax-free rather than tax deferred. BOLI’s tax deferred technically, but if held until death its tax free. If you surrender a BOLI contract before maturity, before the person dies, you have a tax liability for the gain plus an extra ten percent for the it’s called a modified endowment contract penalty. BOLI effectively has minimal liquidity from the standpoint of once you buy it you intend to hold it until death, because you don’t want to incur the tax liability.     Whereas a municipal bond if you decided to sell that you would still retain all the income that you've earned to that point tax free. Sometimes banks put municipal bonds in the hold to maturity buckets so they can't really sell the bond; it becomes an illiquid asset for them as well. There's some pros and cons to each, but BOLI does hold up well generally considering the pros and cons of it to any of the asset classes.   Kelly: But, especially MUNI’s.   David: Yes, I think from that standpoint rather than one versus the other it might be some combination of the two for diversification.   Kelly: From my perspective, I see MUNI yields to get higher yield you have to extend duration, so you look at the risk of extending duration versus investing some assets in bank owned life insurance. I've only been doing this for a year now. It’s seems that like half the banks have BOLI on the balance sheet and half don’t.     From my perspective, it's kind of a CPA, risk manager, investment person I don’t really see why a bank wouldn’t max out their twenty-five percent of net capital. Now, that sounds pretty self-serving I know, but in your experience what's the single biggest reason for a bank to not include BOLI in its assets class, because there certainly is a reasonable amount of bias and hesitancy for Boards and CFO’s to get BOLI. What's the single biggest reason that you see for a bank to not include it in their asset class?   David: The stats on BOLI are that sixty percent of the banks across the country have BOLI and forty percent don’t. For banks over a hundred million it's about two-thirds that have BOLI and one-third that don’t. It’s fairly common for banks above one hundred million to have an investment in bank owned life insurance. For those that don’t, it generally falls into one of two to three reasons.     Probably the most prevalent is a bank that has high loan demand. The bank wants to make loans to its local market because that helps build franchise value. If they have high loan demands, say their loan to deposit ratio is over a hundred percent, they may not have the liquidity to hold BOLI at the current time. All their attention and all their liquidity is going into making loans. While BOLI competes with loans well on the yield side, the tax equivalent yield side, banks tend to want to have loans for building the franchise value versus owning bank owned life insurance. If they have the option, they're going it put it into loans rather than BOLI assuming they feel comfortable with the credit quality of those loans. That's probably the biggest reason.     Number two is that some banks don’t fully understand the asset, haven’t taken the time to fully understand it. The pros and cons and features of BOLI is not traditional with a lot of banks. There's this uncertainty about something that's not traditional. They may think “We haven’t done that before and I don’t want to take the time to learn pros and cons.” Maybe they’ve had a presentation and it wasn’t presented in a way that made it clear what the pros and cons are. They maybe saw it as too much of a sales push instead of laying out all the pros and all the cons kind of thing.     Keep in mind that for BOLI to be approved by a bank it generally requires a hundred percent agreement, meaning you must have the CFO of the bank, the CEO of the bank and usually everybody on the Board to be in unison that they want to buy BOLI. You can have one person dissent out of ten, for instance, and that could keep it from happening.   Kelly: Why is unanimity required?   David: It’s not required. It's just generally the way it is. First off, if you don’t have the CEO and CFO on board it probably won't go to the Board. You need both of them. The Board, they normally just don’t want BOLI to be something that causes dissention among the Board members. That's not always the case, but typically they need all Board members or at least eighty to ninety percent approval before they would invest in the asset. I haven’t really run into it, but I don’t think you’ll see BOLI being approved on a five to four vote.   Kelly: Yeah, but that would be true with just about any asset class. Let's say the bank wanted to, the CFO proposed extending duration. Don’t you think that unanimity would be expected or the same standard would be expected for that decision to extend municipal bond duration versus like in a BOLI decision?   David: Yes, I would think so. On investments they have their investment policy that's been approved by the Board and that decision would have to be made within the investment policy about extending duration. Yes, I would think you would need a very high approval rate of the Board members before you would change the investment the policy to do something that effectively increases the risk.   Kelly: Do you see BOLI as being subject to…say within the scope of the banks investment policy in your experience?   David: No, BOLI has its own policy. One of the requirements under the regs is that you have to have a BOLI policy before you can purchase it. You would establish a bank owned life insurance policy; in a sense it's an investment policy for BOLI all to its own. It explains within the policy the bank’s view of BOLI; the percentage of capital that the bank would be willing to purchase; the percent to any one carrier; the due diligence that would be done before purchase; carrier selection; vendor selection. How would they go about deciding which carriers, which vendors and so forth? That all has to be documented in a policy before the bank can even go about purchasing a BOLI product.   Kelly: The bank either includes that as a chapter within the investment policy or they have it as its own separate investment policy.   David: I have pretty much only seen it as its own separate policy. If they include it within the investment policy it would be its own chapter. It's fairly lengthy. It's usually ten - fifteen pages of policy all to itself.   Kelly: How has the industry changed since the early years?   David: In the early years, I guess from a salesperson’s standpoint the hard part was to get a bank to talk to you about BOLI because it just wasn’t common and owning life insurance as an asset was not normal. It was outside the box and a lot of bankers didn’t want to discuss doing something that was outside the box. The biggest hurdle was getting the audience.     Today, most banks know about BOLI so they've heard about it and they have had many, many sales calls about it. Other banks they know have purchased it, so they understand at least the term and what it is. Now, there are just a whole lot of sales calls from insurance sales folks asking about BOLI. They're aware of it. It's just very, very competitive and maybe difficult for the bankers to understand the difference in firm A versus firm B.     The other way that's changed, when I started doing this the only products available were what's called general account products where the carrier provides a universal life insurance product or some whole life products that have an interest rate or dividend rate. Then the main risk to the bank was a carrier’s credit whether the carrier would be able to pay the claim later. Today, you have not only general account which are still very popular, but since then there's been a lot of purchases of what is called hybrid separate account products and also variable separate account products.     Variable separate account products are where the assets are segregated from creditors somewhat like a mutual fund. The bank can choose to invest the money within a particular investment bucket; although, for a bank it as to be eligible investments unless it's used as a hedge against a deferred comp plan. Those have some higher risk features, a little bit more moving parts. They have a stable value wrap sold by a registered product or private placement memorandum and so they're more complicated. Most community banks shy away from those because of the complications and the mark to market within the portfolio.     Then, there's a hybrid separate account product that has features very much like a general account. It has an added credit enhancement that if the carrier were to ever become insolvent the assets within the separate account by legal definitions are segregated from creditors of the insurance carrier so that those assets would only be available to the policy holders. These new asset classes have been pretty popular and have essentially enhanced the options for banks to buy bank owned life insurance.   Kelly: The first generation of BOLI was the general account, no-load product and then the second generation would be some of these the hybrid accounts and some of these more sophisticated product structures. But the core concept was the same, right?   David: That's correct, basically similar structure from a standpoint of no loads, no surrender charges, single premium, just a difference in the chassis if you will.   Kelly: Right, the risk sharing to a certain extent, right, because was the separate account available back then in the early years?   David: You could buy a separate account that was called variable universal life. It was a shelf product, but banks really didn’t buy it then because you had mark to market. Say it was all in a bond fund but the interest rates went up and the value of the bond fund went down five percent you’d have to take an immediate mark to market on your balance sheet and income statement. That was not very attractive to a buyer. If you're a bank you don’t want that kind of volatility on your income statement.   Kelly: Even though that's the nature of a municipal bond portfolio, they have to mark those.   David: A municipal bond portfolio they mark to market, but not through the income statement. They mark to market through the capital account.   Kelly: Right.   David: It doesn’t flow through income.   Kelly: Right.   David: Whereas if you were to do the same thing in a variable universal life insurance contract and have that mark to market risk you’d have to mark that through your income statement because the cash value is changing.   Kelly: One of the things that I noticed about Equias, again this sounds somewhat self-serving, but I’ll say it anyway. This relates to the industry changes. When I see Equias, it just seems to be a highly professional organization. I think eighteen consultants and thirty some support personnel and I believe seven CPAs and a bunch of attorneys, MBA’s that kind of thing. It just seems that one of the things that appears to have happened with Equias having emerged as the key player is the element of professional consulting capabilities versus I would suspect in the early years, and currently, many of potentially our competitors, it's mainly a bunch of insurance guys, right, trying to sell product?  I would think in the early years that's what it was all about, insurance guys trying to sell insurance to a new market…banks.   David: Yes, there was a lot of that. The business model that Equias developed was this is not an area that banks have a lot of expertise in and that they need support services so that they can spend a minimal amount of their time dealing with the technical stuff and don’t have to pay a lot to CPA firms and law firms to help them through the process.     We set up the firm with the idea that we could provide those services at costs that are competitive with anybody in the marketplace. Through volume we could provide more services and all the technical services that a bank would need, but do it in a very cost effective way. That’s where we actually have eight CPAs and two attorneys and a former OCC regulator, former bankers, bank directors, and a former head of the BOLI area for one of the major insurance carriers.     We've staffed our firm with very, very experienced, competent, technical people including the consultants are all very experienced, so that we could be a real asset to the banks. It'd be hard for our competitors to match our knowledge and experience and to duplicate what we can do.   Kelly: One of the things that got my attention was I think you're one of the few that has a SOC 1, Type 2 audit. Not many insurance “agencies” have that kind of thing going on. That was a good plus in my mind with you guys.   David: Yeah, it covers our implementation process, as well as our administration process, and covers not only the BOLI side of it, but covers the nonqualified benefits side. We’ve set up internal controls when we established the company and we followed those controls. We've been able to go through the audit process very efficiently and effectively.   Kelly: I’ll probably be criticized for this being an infomercial for Equias, but what the heck. That's what we can do. All right let's finish with one final thing. I’ll give you the choice. This is a question I ask every guest either your favorite quote or, what I like the best, is tell us what one of the stupidest things you’ve said or done in your business career.   David: One of the early days in my career I remember having gone to this bank to explain BOLI and the nonqualified plans probably for the seventh or eighth time. Some of the Board members were wearing out with me coming back almost it seemed like every month. One of the Board members, who was an attorney, when I came back this time she just looked and “Oh no, not you again.” I said, “Yeah.” She said, “Look, if I vote for this, does that mean you won't come back and you'll leave us alone?” I said, ‘You’ve got my word on that.” I guess in that case persistence paid off.   Kelly: It's good, yeah.   David: It wasn’t one of those real positive “I'm glad to see you” kind of moments.   Kelly: That's right; you got the deal done though.   David: Yeah, I was able to get it done through persistence, not through the sales process really.   Kelly: Yeah, that's good. All right, David, thanks for your time. I appreciate it.   We want to thank you for listening to the syndicated audio program, BankBosun.com 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.   Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States.  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 of Kelly Coughlin.  

Sun Tzu Helps a Bank Defeat Its Competition by Kelly Coughlin, BankBosun CEO,   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, BankBosun.com. 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. Hi this is Kelly Coughlin. I am the CEO and program host of BankBosun. Today, I am not going to have a guest today but I’m going to introduce a screen play that I wrote, it’s titled: How Sun Tzu and a Harvard Professor Helped a Community Bank Crush its Competition. Here is the Play Summary: The play tells about how the board of directors and shareholders of a community bank, frustrated by an ongoing loss in revenues to big banks, financial advisors and non-bank competitors, threatened Joe, the bank CEO,  to turn it around or the board will sell, merge or close the bank. Let me start by introducing the setting: It is 2016. Main Street Community Bank is a middle market bank with $ 1billion in net capital. The bank’s board, CEO and CFO lose sleep over the Three Rs: Risk, Revenue and Regulation. His Big Bank Competitors compete against them on product and price. And they can pay their execs more compensation. The big banks drive regulatory change, partly because of their own major screw ups, and partly because of their access to and, influence of, the regulatory and legislative banking ecosystem; and partly, and perhaps simply, because they have more money to spend to buy influence and effect change. Joe also competes with non-bank financial companies who compete on technology and mobile access making them very attractive to the millennial market.   His wealth management and trust areas compete for deposits and investments with financial advisors, CPAs, independent brokers and wire-house brokers. It’s a dismal setting and many are projecting and predicting that the community banking ecosystem will no longer survive, dying a slow death like travel agencies, video rental companies, and bookstores. The board tell Joe to either fix it or they will either sell, merge or close the bank. Let me next introduce the characters: Joe, CEO, Main Street Community Bank. Joe is accountable to his board of directors, his investor/shareholders, regulators; directly to his CFO and other officers; and indirectly to every employee at the firm. And of course, he is accountable to all current and prospective customers, both business and individuals. He gets pressure to hire and retain professionals, and even more pressure to keep tight controls on expenses. The next main character is Sun Tzu. Sun Tzu was an ancient Chinese military general, strategist and philosopher, who is believed to have written the famous “The Art of War”. The third main character is Michael Porter. One of the many business case studies I read in business school at Babson College in Massachusetts was written in March 1979 by Michael Porter, a very smart Harvard University professor, titled, How Competitive Forces Shape Strategy. And another one was written in January 2008, The Five Competitive Forces that Shape Strategy. I would encourage all banks C-Suite execs to read these articles. Contact me if you have any trouble locating them. And finally, the fourth main character is me, Kelly Coughlin. I am a CPA and the CEO of BankBosun. I’m also an independent consultant for Equias Alliance. I have been working in the banking ecosystem since I was 23 years old. And that was over 20 years ago….alot over 20 years ago…ok, it was over 30 years ago. I have had senior and executive experience at PWC, Merrill Lynch, Lloyds Bank and was CEO of a financial technology and investment company for over12 years. The Three Act Play: The classic way to tell a story…or write a screen play… going all the way back to Aristotle I think, is to have a beginning, middle and end…or in screenplay vernacular, the Setup, the Confrontation and the Resolution. So with that in mind, here is Act 1, The Beginning, The Setup: Joe’s banks is losing customers, revenues and profits. It’s not attracting millennials who are using their phone, devices and the internet. It’s not attracting high net worth wealth management clients, who are using big banks, brokers and accountants. It’s not attracting institutional clients of pensions and endowments, who are using independent financial advisors. It’s losing loans to credit unions and non-bank financial companies. Joe knows that if he continues to try to compete for customers on the existing playing field, because of their capital, regulatory and human resource constraints, he will lose. Joe knows he needs a change in his business strategy and create new tactics to implement that strategy or he will fail.   Act 2, The Confrontation Act 2 is where the playwright demonstrates a loss so painful, a failure so great, that the protagonist (Joe) must confront his reality and status quo and either continue in this miserable, wretched state or change his state and condition. In my Act 2, change in business strategy and tactics” is the change is the confrontation. And for my play, I introduce Sun Tzu and Michael Porter. In act 2, we have Sun Tzu meeting with Joe and sharing his ancient wisdom with ideas like: You must subdue your enemy without fighting. Know your enemy and know yourself and you can fight a hundred battles without disaster. He will win who knows when to fight and when not to fight. Attack your enemy where he is unprepared, appear where you are not expected. The greatest victory is that which requires no battle. If you wait by the river long enough, the bodies of your enemies will float by. I’m not really sure how relevant that one is…but for some reason I like it… But two of my favorites are: Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.   I’m going to repeat that: Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat. And here’s my second favorite: Avoid your competitors' strengths; and attack their weaknesses. So the idea here is the advice and wisdom of Sun Tzu leads Joe to think clearer and more strategic about confronting his dilemma, which requires him to confront his enemy and his competition. And to avoid his enemy’s strengths and attack their weakness and change the field of battle to a location and venue where his enemy cannot effectively compete. And then to help our protagonist identify where this field of battle is, I introduce Michael Porter with his brilliant Five Force Analysis. These forces are: Threat of new entrants 2nd of the Five Forces: Bargaining power of suppliers, in banking the key suppliers in my mind are human resources…the competition to retain and recruit talent Bargaining power of customers. Customers certainly can drive fee income. If customers know they are key, they will demand lower fees or lower interest on loans; higher interest on deposits. Direct rivals: these are other community banks that compete head on with Joe’s bank. They are most likely banks that are stuck in the old business model paradigm, that is, they haven’t met Sun Tzu, Michael Porter, or Kelly Coughlin. But these rivals ironically are NOT the most significant competitor of Joe. And that leads to the fifth and final force. Substitutes. This is the biggest competitive threat. These include big banks, and other substitute providers like non-bank financial companies, internet banks, phone banks for deposits and loans; and for wealth management and trust, CPAs, brokers and financial advisors Joe is introduced to Michael Porter, who helps him bank understand that his real competitive advantage exists in three primary areas: 1) location: he has a physical presence in his customers’ local community; 2) security: he has brand image of safety, permanence and security; and 3) service: a live person, not simply a phone contact or email contact, but a live person with whom he can speak. And while his direct rivals, other community banks in his footprint, are certainly direct competitive threats because they also share his competitive advantages; his biggest threat are other substitute competitors – big banks, internet financial companies, who do not share that competitive advantage. Joe now begins to see his wisdom. But he fears he does not have the budget to spend on fancy and sophisticated consulting ideas. And now we introduce our final character, Kelly Coughlin, CEO, BankBosun, that’s me. I introduce Tactical Ecosystem Marketing for Community Banks. Kelly explains that the terms tactics and strategy are often confused. Strategy is the overall plan; tactics are the actual means used to gain an objective, the end goal. Strategy helps you understand the question “What is our goal and objective? What are we trying to accomplish?” Tactics help you answer the question, “How are we going to accomplish our goal and objective?” Kelly describes how Tactical Ecosystem Marketing is a cost effective marketing tactic that requires Joe to do a couple basic things compete effectively with his direct rivals and substitutes on a playing field they simply cannot or will not compete: Identify the ecosystem. These are business owners, accountants, lawyers and other center of influence in the bank’s footprint including customers. Create multi-media content including audio podcasts to promote his role and importance in the community’s ecosystem and among its members and learn of his target customers’ individual and collective needs, and their product and service features and benefits. Establish Joe as a community leader who is interested not simply in earning fees from members in the ecosystem, rather, equally interested in helping the ecosystem thrive.   Finally, Act 3: The Resolution Joe meets with Kelly Kelly shows Joe how he can accomplish these within a budget that his board will approve and possibly at no cost to the bank at all. They create a plan to write 24 articles on some of the bank’s activities, leveraging some of the work the bank’s credit officers and investment team is already creating. Kelly helps Joe create a plan to do 24 podcasts over the next 12 months and syndicate them in iTunes and Google. They interview the CEOs of some of Joe’s big target customers to help better understand their needs and challenges. They create some fun and entertaining videos that explain the benefits of community banking versus non-bank financials for millennials. Joe’s bank is now thriving and he is recapturing market share. And most important of all Joe’s kids think that their dad is the smartest, coolest, most sophisticated dad in the world. Why? Because Joe’s on iTunes and Google Playstore. And they’re not. And Joe’s board of directors loves him. That’s it for now. Thanks for listening. We want to thank you for listening to the syndicated audio program, BankBosun.com 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.   Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States.  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.    

Kelly interviews Peter Weinstock, Partner, Hunton & Williams, Dallas Office. They talk about bank M&A deals and minority shareholder actions to gain control of bank management. Peter Weinstock’s practice focuses on corporate and regulatory representation of financial institutions. He is Practice Group Leader of the Financial Institutions Section and has counseled institutions on more than 150 M&A transactions, as well as provided representation on securities offerings and capital planning.   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, BankBosun.com. 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: Hi, this is Kelly Coughln from the BankBosun. Hope everybody’s doing fine. I’m going to do an interview today with a deal guy. He’s with a law firm in Dallas, Texas. We’re going to talk about the types of deals that are getting done. Are they P&A deals? Are they stock deals? There are distressed deals out there, there are strategic ones, and what is he saying in terms of M&A activity in the banking sector. With that, we’ll get Peter Weinstock on the phone, from Hunton & Williams. Let’s talk about deals, Peter. I have kind of a basic question on general trends. In bad banking economies, it seems that we have a lot of P&A deals, where I think the seller is normally the FDIC, correct? Peter: Right. Kelly: We must have had a lot of those in 2008, 2009, possibly up to 2010. Peter: Yeah, I agree. For really almost a four, four and a half year period, there were more deals sold by the FDIC than there were private sector M&A transactions. Kelly: Then today, better economy, better banking environment, we don’t see many of those, correct? Peter: Very few. Kelly: Would you say that the number of P&A deals is a leading indicator, lagging indicator of economic conditions of banks in general? Peter: Yeah, it’s certainly a lagging indicator, just like capital as a protection is a lagging indicator because what tends to happen is asset quality issues or concentration levels or interest rate risk, some of those other factors, the metrics indicating those issues are becoming problematic kick in long before capital starts declining and capital starts declining generally long before or moderately before problem banks are looking to sell or the FDIC takes over. The number of P&A transactions, which again, we’re down to very few, are more reflective of the fact that the economy seemed to turn sometime in 2012 and we’ve had now three full years of, even though it’s not a great recovery, we’ve had some recovery. Kelly: How many P&A deals have we seen in three years? Peter: I think we’re only up to two so far this year, where we were, in 2009 through 2011, we were having dozens and in one of those years over one hundred bank deals. Kelly: The two this year, are they in, say, oil patch regions that are struggling economically or somewhere else? Peter: That’s an outstanding question because the answer is, it’s not. That’s not to say that the oil patch or the commodity price areas are not under stress. Certainly, the ag economy is under some stress, but again, it gets back to your first question about lagging indicators. The banks that are failing now are banks that have been circling around the drain for a long time now. They’ve been shrinking to maintain capital ratios, but they can’t get recapitalized because of the legacy assets that they have from the downturn, so we still have a significant number of banks that are undercapitalized and unless something happens, they could fail because they have elevated problem asset levels and those problem asset levels are what would bring them down. At December 31 there were 78 banks that were still somewhere undercapitalized or only adequately capitalized, which is down from, at one point, the problem bank list was over 600, but the 78 institutions that are adequately capitalized or worst, as of year end, are ones that are suffering from the last downturn, rather than the next one. Kelly: All right, you mentioned 78 that are undercapitalized. What’s the metric that you use? Peter: These are banks that are not well capitalized, so they’re adequately capitalized or lower, which is they have to have a leverage ratio of 5% in order to be well capitalized. Then you have the Basel III metrics. Right now, you’re talking about a total risk-based capital ratio of under 10% and total leverage ratio of under 5% to be adequately capitalized or, in that case, undercapitalized. It’s not an incredibly high bar that they’re not able to chin, so these 78, you would think that they would be able to recapitalize themselves, but the big challenge that they have is their elevated asset quality levels. Kelly: You have these 78 banks. Are brokers out there, investment bankers out there trying to get them to sell? You guys probably don’t do that. Lawyers don’t hustle for business like that, I don’t think, right? You’re not making cold calls? Peter: We’re purist, man. We would never do such a thing. I’m sure that all 78 of them have been shaking the trees and have talked to anyone and everyone who they think could be an avenue for capital and for addressing their problems, but at some point, if you’ve got capital of 5 million but you have problem assets of 15 or 20 million, at some point the numbers don’t make sense for an investor and that’s why these institutions are still on the list, some of them. Kelly: Let’s talk about the good side of the market, not the problem areas. Let’s say last year, you being a proxy for the market, how many deals were related to distressed banks and how many were for strategic acquisition reasons or market expansion? Peter: I would tell you the vast majority of them were strategic and few were problem bank acquisitions. What I mean by strategic isn’t necessarily that the seller was in great shape and they sold for a very high price. What we’re seeing is a number of sellers are kind of giving up the ghost because in this interest rate environment, with anemic loan demand, very competitive loan pricing, there are sellers that look at their compliance costs and their IT costs and their personnel costs and they’re saying, “We’re not big enough to do a deal. We’re not big enough to survive on our own and make our shareholders a fair return, so we need to look at doing something else.” The something else is not necessarily selling for cash and going on down the road. One of the biggest trend lines we’ve seen in the last two, three years, is the willingness of sellers to take illiquid stock, stock from a privately owned financial institution. Kelly: In the acquiring company. Peter: To take illiquid stock from an acquiring company, that’s another community bank like they may be, sellers are much more willing to do that than they ever have been before in my 30+ year career. I think the biggest driver of that is that on the operational standpoint, the challenges of being a bank are such that skill matters and then on the shareholder valuation standpoint, I think they recognize that this may not be the greatest pricing time to sell out, so they look at doing some kind of strategic combination to be part of a bigger, more profitable organization, even though the stock is illiquid. Kelly: Let’s say, in those situations where you’ve got a reasonably healthy bank, they see that if they don’t do something they might be in part of the 78 again, but they might go down that way, so they’re proactive. As a part of that, they have to lock up some of their good producers, right? Their good credit officers and those things. One of the thing we do in our business is help with non-qualified plan benefits to try to use that as a way to lock in good senior management. Do you see much of that going on as part of the deal criteria? Peter: It surprises me that more banks that are potential sales candidates don’t do more. In community bank America, it almost doesn’t matter how big you are, you’re a potential target. I’ll give you an example. One of my clients is a $5 billion bank in California and they merged with an $8 billion bank in December, they announced it. The reason is because our client, that’s $5 billion, felt that they needed to get bigger in order to compete. The $8 billion bank felt like they needed to be bigger to compete, so now they’re going to be $13 billion. If you’re not an $8 or a $5 billion bank, if you’re smaller than that, you might say to yourself, I don’t need to be bigger to survive, but my efficiency ratio sure as heck would improve if we got bigger. I would tell you that almost every bank is a candidate to be sold, they’re a candidate to buy and they’re a candidate to be sold. KPMG did a survey in 2014 and it indicated that over 50% of the banks thought they would engage in an acquisition, but 3% of banks thought they would sell. The numbers wound up in 2015 being something like 4.4% of all the banks sold. Every bank out there, it seems, is thinking about doing an acquisition, but every bank and community bank America is a potential candidate. A long way around to your question is because the banks are all potential merger candidates, then they really should look at putting in place protections for their employees and really locking them up, but when they’re doing that, they also need to think about not hurting shareholder value. The way you could hurt shareholder value is you provide some kind of agreement, let’s say a change in control agreement, that provides on a change in control the employee gets paid if they leave the bank. Now we hurt shareholder value because the buyer knows that they could lose that person because there’s an incentive for that person to leave. Really, it takes somebody like you to think through not just how to protect the person, not just how to lock them up, but also to do it in a way where it creates or at least preserves shareholder value because the buyer is not looking at that contract and saying that that contract harms me because I’m going to lose a valuable producer. Your question is a good one and I would even go further and I’d say what exists gets paid. If people want agreements to be in place, they need to put them in place because if they exist they’ll get paid, where if you wait until a potential acquisition, then what’s going to happen is the acquirer is going to say, “You can do that, but if you do that it comes out of the shareholder’s purchase price,” and I don’t think you want to be negotiating those types of agreements with another person with their elbows on the table. Kelly: I’ve got a lot of experience in other financial sectors like financial advisors and broker dealers and the common theme with them is you’ve got much more highly paid execs, but the notion that the assets go down in the elevator every day. It’s more or less the same thing with many banks and not locking them up one way or another in an acquisition, it always kind of surprises me. Let’s talk about surprises in an acquisition landmines. It seems to me that when we’re talking about banks that are not a huge footprint, a community bank that’s got 1 to 15 branches, isn’t it a fair statement to say that more of the acquirers or interested acquirers are going to be a current competitor of that bank and doesn’t that always present a bit of a due diligence challenge or problem, where you’re going to release sensitive, confidential information to your competitor? Peter: That is absolutely correct that that’s a possibility. The reason for that is because most financial institution mergers are driven by cost savings. Where do you get the most cost savings? In a market deal or an adjoining market deal. It is very likely the party that can pay the most is going to be an existing competitor. That absolutely presents challenges in terms of protecting your employees and your confidential information. Obviously you’re going to negotiate the heck out of the non-disclosure agreement, if that’s likely buyer, if you’re the seller. The other thing is you’re probably going to want to hold back on when you deliver information until there is an agreement on all of the relevant terms and then the due diligence becomes more in the way of confirming diligence than it does in terms of setting the price. You’ll release some key information, including whether there’s a termination fee as a result of the transaction on your data processing agreement, changing control agreements with employees, give all of that pricing type information, but you might hold back the loan review and the customer review until the deal is essentially set. Kelly: The customer name is withheld until the deal is a little more mature. Peter: We’ve also done it where you redact the customer names, but in an in-market deal it doesn’t take a lot of information for the buyer to know who that player is. Kelly: Yeah, right. Back to my other question that we started on. Surprises? Peter: I’d say the biggest surprise to buyers is that the seller’s compliance issues could infect them. I’ll give you an example. When MB Financial was acquiring Cole Taylor, Cole Taylor had a major compliance issue and the transaction was held up for about a year, while the regulators got comfortable with the resolution of that compliance issue. Similarly there have been a number of red-lining cases and BSA cases where the compliance issues of the target have held up the deal. I think that’s a surprise for a number of buyers because if you’re engaged in a potential transaction, you’re locked into that transaction. You’ve agreed to try to get that deal closed. If you wind up with an extended regulatory approval time period, that could prevent you, preclude you from going after a deal that becomes available six months, a year later that might be a better deal for you. Similarly for sellers, even in cash deal, if there’s a surprise that the buyer’s compliance issues can be such a hold up and what we’ve seen is we’ve seen AML, BSA, KYC issues that have held up approval of deals for two or three years in UDAP and some other consumer compliance issues that similarly have held up deals. As a seller, you have to perform some reverse due diligence, some extensive reverse due diligence on the buyer, even in the transaction that’s a cash deal. For a lot of sellers, that’s a surprise to them. Kelly: Do regulators hold up the deal or does the buyer intentionally hold that up? Peter: Generally it’s the regulators because from the buyer standpoint, they become aware of the issue and they adopt a plan of remediation for the issue. It’s one thing for a private sector party to get a handle on an issue and have a plan of remediation and feel good that they can implement it. It’s a whole other thing for an agent, say, to get their arms around it in a time frame that seems reasonable. The Federal Reserve has two analysts in Washington who handle compliance issues with regard to applications. Kelly: The buyer would just haircut the valuation. At the end of the day it’s a contingent liability, right? They would just haircut the valuation on it. Peter: If it’s a known risk and it’s one that they have presumably priced in. If it’s not a known risk and they become aware of it, then they may go back to the seller and say, “We’ve got all of these costs related to it, we need to reduce the price,” or if it’s significant enough, they could decide to walk the transaction. Kelly: In terms of surprises, known compliance issues and I suppose the ‘know what you don’t know,’ whatever that term is. You know those issues, it’s the unknown compliance regulatory issues. Any ideas on pre-detecting, early detection of those things? Peter: That’s really you just have to engage in some pretty thorough diligence of the other party to really understand where the risk areas are. Kelly: I suppose you look at their internal controls and their timely filings or substantiation and all of those things on the control structure. Peter: You do. Something that I like looking at as a starting point for diligence is nowadays banks have to do risk assessments. Seemingly a banker can’t walk out doing a five-page risk assessment. Those risk assessments are the other party’s self-confessing, if you will, where they see their own challenges or concerns. The beauty of that for the other party is that gives them a roadmap of things to look at in diligence. Kelly: I was director of risk management for asset management subsidiaries of Lloyd’s Bank out of London, and this was many, many years ago. Regulatory issues and compliance back then just didn’t quite get the importance. They actually did in the UK, but things have ramped up in the US quite a bit, that it’s probably more on par with what it was with the British banks back then. Peter: If you parachuted back, if you were Mr. Peabody and you got in the Wayback Machine and went back to 2000 and you had a full-time, dedicated BSA officer, and how many banks had full-time, dedicated compliance offer and how many banks had a full-time, dedicated risk officer, and how many banks had a full-time, dedicated IT person, and you compare those numbers to the way they are now, it’s just shocking. The bigger the acquisition, the more you want to look at areas that you might not want to spend the money on if you’re a smaller institution. In a bigger deal, you absolutely want to evaluate IT exposures and make sure that there have not been or in place potential breaches. Kelly: Why don’t you give us parting thoughts you’d like to give. Speak to both buyers and sellers. Peter: One thing we’re seeing for banks that may not want to be a seller is there is a lot more activism. We had six private banks in the fourth quarter that had proxy sites, tender offers. One even had a TRO, a temporary restraining order, filed against them. That’s continued in the first quarter of 2016. One thing is to put in place protections and recognize that your risks can be from your existing shareholder base or people who buy in. The world’s awash in money and people out there know if they could buy stock of a bank at eight-tenths of book or book and then wrestle control of the board and get control, then the bank on the sale might be worth book and a quarter or book and a half, book seven, where they could potentially even more than double their money, buy the stock and flipping it in a control situation. We’re seeing activism creeping down into the community bank, into the private bank sector, and that’s something clearly you want to watch. Kelly: You’re not talking political and social activism. You’re talking about business acquisition, venture capital, investment activism. Peter: Absolutely. We’re talking shareholder activism. Then just another thing that we’ve seen on the buyer’s side is buyers tend to be most focused targets who are of sale who sent them books. We talked about some of the compliance challenges of the application process. Just because somebody sends you a book and the book says, “We’re for sale,” doesn’t mean that they’re the greatest candidate for you to buy. What you want to be careful about is being locked up on a deal in the regulatory process that is somebody who doesn’t really move the needle for you. It’s got something that obviously is worthwhile, but maybe it’s really not consistent with your strategic focus. We’ve seen potential buyers almost shift their strategic focus just because an investment banker sends them a book on a potential target. Kelly: Two good points. I always like to finish with two things: Your favorite quote and the stupidest thing you’ve either said or done in your business life. Peter: There are a lot of the latter. Upon the former, I like the Warren Buffet quote, which it really resonates when you’re talking about shareholder activism. He said, “I prefer to manage my business for the shareholders who want to stay in and not the ones who want to get out.” I may be paraphrasing it, but that’s the thought. I like that quote a lot because that’s actually directors of the bank. Those are the people they have a duty to. The second one is the stupidest thing I’ve ever done in my career? Kelly: Yes. Peter: One thing that I learned a long time ago not to do is something that’s emotionally gratifying because in business it almost always is a bad decision. Early on in my career I would get testy with regulators and that’s never a good strategy. Gray hair and maybe even the loss of hair and some experience, I’ve learned the wisdom of working together with regulators a lot more than trying to beat them up. Kelly: Can you recall one that you said something to? Peter: I remember when I was a third-year lawyer, I went to a meeting with the Federal Reserve and I’m not exactly sure what I said at the point, but this person with the Federal Reserve got up and it wasn’t quite Nikita Khrushchev banging his shoe on the table, but he was animated. Kelly: All right, Peter. Thank you very much. I appreciate your time. I wish you the best. We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly Coughlin interviews Wes Sierk, President and Co-Founder of Risk Management Advisors. Wes is the author of the book Taken Captive: The Secret to Capturing Your Piece of America’s Multi-Billion Dollar Insurance Industry. Wes is a recognized expert in using captive insurance strategies to manage and fund certain types of risk. Kelly Coughlin believes that such a strategy could be used to manage and fund cyber security risk. This is the first in a series of three podcasts covering captive insurance and cyber security risk management.   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, BankBosun.com. 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: Hello this is Kelly Coughlin with the BankBosun. This is the podcast that’s the first in a series of three podcasts that are going to be related to using captive insurance strategy to manage and ensure cyber security risk and loss. I’ve talked to many bankers over my 25-year career and I have observed in the past five years cyber security going from a concern of IT guys and techno geeks to top of mind attention and concern of CEOs, CFOs and boards of directors. In fact, I was at a conference in Kansas a while back, and a number of the sessions were on cyber security risk. I was thinking, “Well, should we go to that? Should we not go to that?” We talked to C-level execs. These sessions were all standing room only, completely filled with C-level execs. It occurred to me that in this environment, we have potentially overpricing of all services related to the risk management of this risk including prevention, detection, hardware, software, consulting. I thought the subject of these 3 podcasts would be the transference of this risk. I think one of the areas that I detect as potentially being mis-priced is the cost of insurance, partly because the risk of loss is all over the map. We thought, “Let’s explore cyber security risk through a captive insurance enterprise.” To help kick this series off, I am interviewing Wes Sierk, President and Cofounder of Risk Management Advisors. I came across Wes through a book that he wrote, exciting title called, Taken Captive. That sounds good so far. Here’s where it goes downhill: “The secret to capturing your piece of America’s multi-billion dollar insurance industry.” I’m interviewing Wes remotely. He’s in Long Beach, California. Wes, you heard my introduction, and the reason you would be on this call, but let’s start with a couple of minutes on your background, how it would connect to bank cyber security risk management. Wes: Well first of all thank you for having me on the show. I started out in the insurance business in 1993 in a division of Northwestern Mutual, which was a life insurance company called CCI, Compensation Consulting Inc. Mostly what we did there is qualified and non-qualified planning, retirement plans and deferred comp, things like that. I came across captive insurance companies in 2000. My first thought was, it was a perfect alternative to deferred comp. That’s how I got into it. My background is … I’m a researcher, so I started digging into why life insurance was all the same. It was you go to a life insurance company and you get a 45-year-old male, and you say, “How much is a million dollars of coverage?” The insurance company prints out that ledger. If you had ten agents going to the market, they would all come back with the same quote. PNC is completely different. You actually have one broker who goes to the market for you and it’s much more of a negotiation, which leads into the pricing issues that you alluded to earlier in your call. My partner Jared and myself went on to form Risk Management Advisors in 2004 and all we’ve been doing since is just the design, implementation and management of captive insurance companies. On a personal side, married for about 24 years, two kids, I coach baseball, and Risk Management Advisors has a Nascar team. Kelly: Give us a definition in two sentences of captive insurance. Wes: It’s an insurance company that a business sets up to insure their own risk. It’s pretty simple. Kelly: It could be a bank? Wes: Yes. Instead of them buying their general liability, their cyber, their property, all of their coverage from AIG, Zurich, Liberties of the world, they actually form their own licensed regulated insurance company and they pay those premiums to their own company. They deduct those premiums, just like they would by paying any other company. Kelly: All right. In terms of primary motivations, my research shows that one, you’ve got access to cheap insurance rates because you’re paying them directly to your own carriers so to speak, right? You’ve got first dollar loss coverage, you can accelerate loss deductions, which appears to be a fancy term for you can over-fund the risk premium and build up tax deductible reserve. Are those the three core motivations to do this, or are there others? What’s the primary motivation to do this? Wes: I think you hit the nail on the head. One thing it does give you, if you’re an insurance company, is it gives you access to the reinsurance marketplace. Kelly: How much would a bank be saving? Are you talking 5% or are we talking 40%? Wes: Well it depends on the kind of policies they’re writing and the amount of risk that they’re willing to take. One thing is, the reason why reinsurance is less expensive is because the insurance industry, insurance companies, have thousands of employees. I read somewhere that the insurance industry has three times as many employees as the US Post Office. They do a lot of the processing of paperwork and claims and things like that, so they have higher overhead. A re-insurer can get away with having 5% of the employees of an insurance company, because they only attach at a certain level whether that’s 50, 100, 250, a million, whatever. They’re not getting involved in the day-to-day operations of the insurance company and the day-to-day pay out of claims. That’s left to the insurance company level. We see, for regular insurances, I would say you could see a 30% savings over your traditional insurance. Kelly: In the banking business we have what are called banker’s banks, and they provide banking services to banks. They don’t do anything directly with the public. So would a reinsurance company be an insurance company’s insurance company where they provide services only to another insurance company, so you cut out all of the sales process I suppose, the distribution expenses? Aren’t those the core things that are cut out plus the servicing part because they’re not dealing with million to 20 million dollar cases, they’re dealing with whatever the number is, 50 million or above, the larger ones? Wes: You’re exactly right. Your analogy is very good. Where bankers have banker’s banks, this would be like an insurance company’s insurance company. Kelly: If one were going to set up a captive, that entity would have to also sign up, unless they were going to absorb all of the risk themselves, which is unlikely. If they want to transfer or share some of that risk, they have to set up relationships with reinsurance companies, correct? Wes: Correct, unless they want to take that risk themselves, which we don’t usually recommend the first couple of years. Kelly: I suppose companies like you, this is not an infomercial for your group, but is that part of what you do, is you have these relationships and there’s probably some vetting process that you would go through to bring on a new captive client, I suppose, and introduce them and negotiate terms, etc with the reinsurance company. Is that one of the roles that your company provides? Wes: Yes it is. Clients come to us because they want us to set up and manage their insurance company for them; deal with the departments insurance; do all of the regulatory filings and in most cases, not all cases but most cases; they’ll have us go and negotiate the reinsurance contracts for them. The good thing about reinsurance, reinsurance is always sold net of commissions, unlike an insurance policy where you pay an insurance agent, we’re just negotiating on behalf of the insurance company as a manager of the insurance company. Kelly: That’s where the big savings comes from. Wes: Yeah, there’s a lot of savings in that. I’m not going to begrudge brokers because brokers bring a tremendous amount of value to clients. Kelly: There are a couple of ways to set these things up from what I can tell. You could set them up as a single parent captive or a group pooled collective type where you have a group of banks. You have a single bank, Bank A that decides, “We’re going to set this up.” It’s only one bank in there. Then you have a pooled or group approach where you have Banks A and B setting up the collective. They either do it alone or with others, like kind business I suppose, right? Is that a fair assessment? Wes: Yeah, they either do it by themselves or they do it with other people. Then within the other people, there is many different ways they can do it. Kelly: You know the context and setting that this call is about. It’s specific community banks, cyber security risk, captive insurance. If you had to Google this, those three terms would be in there. One other risk if you do it as a group or collective, let’s just say there are two banks in the collective – you have Bank A and B that are, let’s say they’re putting in an equal amount. Let’s say Bank A has great internal controls and risk management processes, Bank B has terrible ones. Bank B incurs all the loss and Bank A has insured it all. There part of the reason was to put in a bunch of excess premium perhaps, build up this reserve. Then you have Bank B eating up all the reserves. Is there a way that a bank can set up a hybrid of this where they could share say, the operating expenses, maybe consulting expenses, a number of things related to the entity? It could be another class of stock, something where the actual risk is only absorbed by the individual bank and ultimately a reinsurance carrier downstream. Wes: There could be, but I wanted to go back to one point you made, which was Bank A has great internal controls and Bank B doesn’t. The issue with cyber security is many banks have good security or great security, but it’s also the luck of the draw. The person with bad security could be fine and the one with great internal controls could have that one in a million chance where somebody comes in and breaches their security or takes millions of dollars out of their company. Within the group captive there’s also cell companies. You can have a cell captive. A cell captive is one where it basically looks at and smells like one large insurance company but each individual bank has its own cell, so they kind of wall off the assets and liabilities on a bank by bank or cell by cell limit. That could go a long way to protecting the bank. Then you go get one reinsurance treaty for all of the banks, and then you carve it off. You go get 100 million dollars of coverage and you carve it off at 5 million dollars per bank for twenty banks. The insurance companies like that because they know that if they’re writing 100 million dollars in coverage and they basically divided it at 5 million between twenty banks, they know their chance of loss is actually smaller. The frequency may be higher but the severity probably wouldn’t, and that’s where they get into the pricing. They’d much rather spread it 5 million over twenty banks, than one bank have a 20 or 25 million dollar claim. Kelly: I accept your point that Bank A may have great controls and Bank B not, but Bank A could be hacked, right? I understand that’s a valid point, but I think in this environment what is going to happen is certainly you have the Top 10 banks, they’re the high-value targets of cyber criminals. They have the budget to always attempt to put up the adequate defenses to that. I fear what is going to happen is the less target-rich environments like community banks will, as the Top 10 banks for instance, get better at defense, then the smaller community banks are going to be the target and they don’t have the resources to fund that. It’s an expensive undertaking. where you’ve got hardware expenses, software, consulting, insurance, all of this stuff, and staff of course. My thinking was that you set up this captive and you develop best practices. I’m going back to my PWC days in consulting, where in consulting business you’re always looking for best practices, but you develop best practices and you share the costs. You buy them properly, buy them at the right price, right terms, etc, and then you share the cost over twenty entities and not one community bank. The reality is these banks can’t afford to set up the high-level controls that a Top 10 bank can do it. Wes: You’re exactly right. It’s the philosophy of build your ark before the flood comes. By creating their own insurance company and warehousing dollars today, because of the way the policies are written, they basically expire every 15 months. If they are the targets of cyber criminals three years from now, they would have already stockpiled a ton of money, so they can weather a claim if they have it and maybe not have to hit their reinsurance. To your point, we both know what’s happening in the cyber marketplace as far as the premium dollars in the traditional market. The reason why … it’s because insurance companies are doing the exact same thing. They’re charging exorbitant fees today because they don’t know how big this is going to be. It reminds me of the old asbestos claims. Remember when asbestos started being a problem? All of the insurance companies started raising their rates dramatically. Then what happened was, a couple of smart insurance guys said, “You’re charging $700,000 for a million dollar general liability policy for asbestos, but if the people actually get hurt, it’s going to be a worker’s comp claim.” It’s not going to be a general liability claim, but the insurance company hadn’t thought that far ahead. They just wanted to get as many dollars in their coffers as they could in case they got hit. For cyber, you went to that conference … you’re exactly right. Five years ago it would have been just the IT people and you’d have fifteen people in the room. Now it’s actually the C-level. It’s CEO, CLO, CFO that are doing this. Kelly: The board members are the ones that are saying, “Get to the conference. I want you there.” They’re telling their CEOs to get there. Wes: It’s huge. It’s such a huge problem. I was just reading an FBI report on cyber crime. Their prediction is all businesses in the next five years will be spending at least 10% of their gross income on cyber for protections and hardware and software, and everything. You can’t even fathom that today, but it’s coming. Now we have passwords on top of passwords to get into password programs. They listed off that the FBI did a study and they went into the Apple iTunes store where people get the applications and they have all these password programs. 10 of the top 20 were programs that were sold that said, “Number one password protector.” They were sold and designed by organized crime, downloading these programs for their iPhone and their Androids, putting all their passwords in, all their banking information, and all that stuff was being directly fed to Russian organized crime. They don’t have to steal cartons of cigarettes anymore when they can make 20 to 30 million dollars in one financial transaction. Kelly: Absolutely. Wes: It’s staggering. I can see why these board members and CFOs and everyone else would be concerned about it. It’s a big issue. One of our clients was just hit with it. Kelly: Let’s say we set up Newco captive insurance for community banks. You set up as part of this synthesis of best practices and captive insurance for cyber security. I’m going to throw in another term, “best practices.” I don’t necessarily think they’re into gouging. They just can’t efficiently price it because the risk parameters or the level of risk that they’re taking on an entity basis per entity, per insured, is all over the map. When you take in a company to join the captive … would you call them a shareholder? Wes: Yes. Kelly: Okay. When you take a shareholder, they have to adopt the best practices standards that the new captive insurance carrier says. Does that make sense, that would be part of the admission process? Wes: I would say you definitely want to do that. Some insurance companies, it’s really a risk assessment for cyber preparedness. There are some insurance companies that have done a great job at this. In fact, one of them, these people developed this cyber preparedness company for Ace and Chub insurance company, as freelancers. They said, “Well we want this to make sure.” For them they realized that, “Hey, there’s a real market for this.” They basically bought company back for nothing. This was a few years ago. They’re like, “Well this isn’t going to be as big as we thought it was.” That’s all they do is analyze cyber preparedness. They give you a full report. We just had them come into ours because we have a lot of data in our stuff. We have a lot of HIPPA stuff because we run insurance companies for medical, for example. They gave us a whole big report of change this, change this, change this, and some stuff you’d never even think about. You’re like, “Whoa.” The cost to do it … I thought it was going to be very expensive but it was nothing on the scale of things. Kelly: You just hope that they’re not owned by the Russian mob, right? Wes: Yeah, exactly. Three of my clients had used them and the one that just got hit for cyber, their system was set up in such a way where they were instantly notified that this was happening. This was a server in Toronto. Instantly they had to switch the whole thing offline. They flew two of their internal programmers from here in California up to Toronto. They were back online in under 24 hours without an ounce of data. I’m like, “You know what? I’ve got to have your people come in and do this.” This is a company that does 100 million dollars in sales. I think everyone should be requiring this. Kelly: I think there’s some really cool things you could do when you have many entities splitting the cost of this. I’m certainly set up best policies, procedures, all that kind of stuff. You could buy licenses. You get quantity discount, volume discounts there. There’s a lot of benefit to having a larger group in there. Even just the project team, these banks don’t have the resources to have a really good project team to do a good vendor search, for instance. That’s a costly undertaking in and of itself is, “Well what email provider should we do?” They just don’t have the resources free to do that. You threw out the 10% number. My goal would be to let’s set it up so the goal we could make that a 5% of revenue number, not 10. Wes: Or 1%. What I was saying was, that was what the FBI’s projection of what people would be spending on their cyber stuff was. In my business, I can’t even fathom that. We spend all this money a year on hardware and software, and our business is X. If I were to extrapolate that out to say, “Well how much would we do if we did 10%?” There’s like, “There’s no way.” We could buy server hubs. We could buy everything. I guarantee you if you picked ten of your banks who listen to this, one of them is doing something great that the other nine aren’t, and so having a depository … You say, “Hey this was a great idea that this bank is doing and then you could take it over to the other one.” Kelly: Yeah, but what happens, Wes, is that everybody is going to these conferences. They get the heck scared out of them, they come back and they talk to their IT guy and say, “You know I just went to a conference. We’ve got to start controlling this risk.” Then they look at it and realize that, “Oh this is going to cost $100,000? Oh I guess we can’t afford that.” There’s plenty of ideas out there. There are some great ideas and there is some not great ideas, but there’s loads of ideas. Taking the idea and having the resources to actually implement is the big challenge. I believe that the captive program is a way to pull those things together buy cost-efficiently, do vendor searches efficiently. It all comes together there through that thing. Yeah, there are some tax benefits by throwing in higher premiums, that kind of thing. That’s great but I don’t think this is primarily a tax-driven … It just so happens that taxes will be favorable … favorable tax treatment. I really think it’s the cost-effective way to manage risk and to get best practices adopted in community banks throughout the country that otherwise just can’t quite afford it in their budget. Wes: I was going to say, and you’re using double duty dollars. Right now if they buy cyber insurance from AIG, they’re not getting internal controls, they’re not getting all of this due diligence, they’re not having somebody come in. They pay them and then if there is a claim … They still on top of their premiums have to go out and do the best practices and do all of the stuff to make sure they’re secured vs. paying premiums to their own company. Let’s say the insurance company takes 10% of all the premiums that it takes in from all the companies and then uses that to go in and install the best practices and stuff, so you’re actually using money that you would have just given to somebody else to now improve your overall business operation. We’ve had people do that with worker’s comp where, hey they can’t afford a safety guy and their worker’s comp rates have gone up, so they create their own worker’s comp company and now they use the money they were giving to Liberty and AIG and all these other companies to hire their own full-time safety person. That’s actually now just an expense of the insurance company vs them having to take money out of the bottom line of their company. Kelly: One other thought that’s a great image that I have of you is set up this captive, you have fifty banks involved and you also fund a cyber security SWAT team comprised of Navy Seals and Rangers that are deployed in the event of some ransom war type deal, right? Then they get engaged, they’re ready to go, and then they go out and take them down. Wes: Yeah, that’s a great idea. Kelly: Otherwise it’s a call to the FBI and okay, they do great work, granted, but man it’d be nice to have our own team. That could be Phase 2 down the road. Anyway, let’s wrap it up. I really appreciate your time. Let me ask you this. Do you have a favorite quote? Wes: Yeah, well I do but it’s a Ayn Rand in Atlas Shrugged they talked about Rearden Metal and it was going to be too expensive to rebuild these bridges for the trains using Rearden Metal because of the engineering. The quote was, “When men got structural steel, they didn’t use it to build steel copies of wooden bridges.” Kelly: Good one. Wes: I look at captives and things like that as you can use it as a powerful tool to do something in a completely different way. You don’t have to just use it for the same way you were always doing stuff. I would say that would be the first one that popped into my mind. Kelly: What’s the stupidest thing you’ve ever done in your business career? Give people a laugh. Give people a chuckle here. Wes: Oh, I have an album on my bookshelf. You know Bill Withers, “Lean on Me”? Kelly: Lean on Me and “Use Me”. Wes: I got an appointment. His wife called and wanted me to come talk about overall financial planning and stuff. I went to see him and I’m like, “I love your music. I love the movie and everything.” They’re just sitting there like uh-huh, uh-huh. The meeting didn’t go well and I left there. I had it confused with Stand by Me instead of Lean on Me. My dad found this Bill Withers album and he said, “Keep this on your bookshelf and any time you don’t know the answer, you won’t make a complete fool of yourself.” Kelly: Oh that’s a great one! That’s very good, I love that one. All right, Wes. I appreciate your time. How can people contact you? Wes: Yeah, my website is Risk Management Advisors. It’s riskMGMTadvisors.com and my email is WSIERK@riskMGMTadvisors.com. I create a website that’s not branded by us, but it’s captiveinsurance101.com and it just has general info on captives. You were kind enough to mention my book. The book is called Taken Captive and it’s just takencaptive.com We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly interviews Adam Mustafa, Invictus Consulting Group who talks about CECL and some of the challenges banks have in accounting for future credit loss.   elly 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, BankBosun.com. 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: Hi, this is Kelly Coughlin with the BankBosun. I’m going to do an interview today with Adam Mustafa, who’s one of the founders of a company called Invictus Group. There’s been so much discussion in the last couple months on this new CECL regulation that’s coming down the pike here this year some time that deals with how banks are supposed to be valuing and estimating their credit loss. I read a report that Invictus put together, a 2016 regulatory outlook. I actually did three blog posts on it, so you can go to the blog section and read those, as well, and then I’ve appended the Invictus report, as well. With that in mind, I’ll get Adam on the line. Adam, we’re going to talk about some things that are relevant to the bank industry. Why don’t you give us some background on yourself, on Invictus. I see a Mustafa name at the top of the letterhead. I assume that’s a family member. Adam: Yes, my father and I co-founded the business, and like I tell everybody I’m the smarter, better looking version of him. I do all the work, and he gets to take all the credit. In all seriousness, we started the firm back in 2008 right after the financial crisis began. Today, our bread and butter is providing community banks with strategic advisory services that focus very heavily on using analytics to get an edge in terms of acquiring other banks, being able to analyze those banks and know those banks better than they know themselves, and using analytics also to customize their own capital requirements with their regulators in the face of increasing regulation and the implementation of Basel III. Kelly: You were with Deloitte Touche for a while. It looked like a number of your other guys came from the banking or investment banking circles. What’s kind of been the genesis of the partners? You and your dad, where did you guys come from? Adam: I’ve been very much an entrepreneur. I consider myself an entrepreneur first and foremost. I did work at Deloitte, and I was in their business evaluations group. I worked on Wall Street as a junior grunt earlier in my career. I’ve seen commercial banking and investment banking from a variety of different angles. My father’s background is far more impressive than mine. In many ways, a lot of the techniques we use today, my father learned from the great Walter Wriston at Citigroup. My father worked at Citibank in the late ’70s through the mid-’80s, where he was responsible for all mergers and acquisitions, including Citibank’s acquisitions of other financial institutions. He is a disciple of Walter Wriston. Again, a lot of the techniques we use today were originated by Wriston, and we’ve just updated it for today’s times. That’s our background. We like to say we put the A back in ALCO. What we do is, on the one hand, innovative, because as soon as the 2008 crises occurred, the conventional techniques for analyzing banks all broke down. We’ve developed new analytics, but at the same time, they go back to the fundamentals of banking. You could trace their origins back to the ’60s and the ’70s when Walter Wriston was running Citibank. Kelly: So now we get at the name Invictus and Invictus Group. Can I assume that it comes from the William Ernest Henley poem, “I am the master of my fate. I am the captain of my soul,” that type of Invictus, or is it another genesis? Adam: Yes, sir. You hit the nail on the head. In many ways it was very much a metaphor for the times we were in, circa 2008, 2009, when we were in the depths of the financial crisis. Nobody knew exactly what was going to happen, but everybody knew that the industry was never going to be the same. Kelly: Yeah, one of my favorite stanzas from that poem, it describes 2008 pretty well. It says, “In the fell clutch of circumstance, I have not winced nor cried aloud. Under the bludgeonings of chance, my head is bloody but unbowed.” It describes how many of us went through a very tough period. You also had some experience with the famous Jim Cramer. What was that like? Adam: I was with him long enough to have a cup of coffee. I don’t even think he would remember my name, although he called me Ace for some odd reason. It was a great experience because he is obviously very well-known and very well respected. He’s got a method to his madness, so just being able to observe him, even though he didn’t know my name, to watch him go about his day, watch him go about his process, I learned a heck of a lot from him. I’d actually tell you what I learned was that I don’t want to be a stock picker because that job is not only very difficult but is very short-term oriented. It is very focused on what companies are going to report quarterly earnings better than what the analysts thought. It was very focused on what tomorrow’s economic indicators were. It was too short-term oriented for me. And so if nothing else, I learned that I wouldn’t make much of a stock picker. Kelly: Let’s get right into it. I’ve known about you guys for a number of years, and I have great respect for the work that you do, but what got my attention I’d say most recently was this 2016 Regulatory Outlook. As I was pouring through that, it’s about a fifteen or twenty page report, most of which most CEOs and CFOs won’t read because it’s too long, I went through it and parsed it out into three components. One was a regulatory compliance cyber security thing. Part two was balance sheet risk management, and then part three, which was more board-level issues. Just briefly I want to skip to part two that got my attention. “Invictus research found seven hundred and fifty banks with commercial real estate concentrations above 250%. Regulatory guidance suggests banks have unhealthy concentrations.” That seems a lot. Adam: Yeah, it’s very hypocritical when you think about it, because on the one hand, there is these concentration ratios that are essentially monitoring community banks, in terms of their exposure to commercial real estate, but at the end of the day, that’s what community banks are. They are commercial real estate lenders. That’s what nine out of ten of them do. In many cases, of course they’re going to have concentration ratios in that range. The regulators tend to use 300% as a threshold, and if a bank goes over 300%, that’s when they will examine them a lot more thoroughly, but that’s what community banks do. Community banks, they’re like any other for-profit business. They’re in business to make money, and they have to make loans to make money. If you try to limit the number of loans they can make, then they won’t be able to make enough money, especially in this environment. And then on the other hand, if these ratios start to push them towards other forms of lending, such as C&I, then all of a sudden they don’t have expertise in C&I. It can be very dangerous making loans in areas where you don’t have an expertise in, and then the regulators will come after banks for venturing into lines of business where they may not have what they need from a skill set perspective. If they make too much of the loans that is their bread and butter, then they’re going to come under scrutiny, but if they try to diversify, they’ll come under scrutiny for getting into lines of business that they’re not familiar with. Community banks are in a very tough position. That being said, I understand where the regulators are coming from. When you look at the carnage of the 2008 financial crisis, and you study banks that failed and got into heavy trouble, there was heavy concentration. The key is, let’s evaluate the spirit of what’s happening. The spirit of what’s happening is that regulators don’t want banks to fail, but at the same time, banks got to stick to their bread and butter. At the end of the day and we work with a lot of banks who are over that 300% threshold. At the end of the day, the regulators will be comfortable, and a community bank could have a concentration level at 500% to capital, but they have to demonstrate to the regulators that they have the toolkit from the perspective of risk management, capital management, and the sophistication to manage that type of risk. Kelly: On this CECL business, what is the basic difference between from what banks are doing now in doing some sort of loan loss reserve? There seems to be this discussion on the life of the loan, and replacing and incurred loss approach with a lifetime expected loss estimate. It seems like, on origination, FASB and the regulators are going to say, “Okay, when you originate the loan, we want you to estimate how much you’re going to lose on this loan on origination.” When they do the loan, they’re not really expecting that they’re going to be losing on the life of the loan. Every credit they grant is estimated to be a good credit, so what is the difference here on the approach that they’re doing now, which is a basic allowance system possibly based on past results, versus this lifetime expected loss estimate? Adam: The primary difference is that CECL is designed to be forward looking, whereas the current process for recording a loan loss reserve is backward looking. That’s the primary difference. Kelly: Backward looking on their entire portfolio, not with that particular credit, but their overall portfolio, correct? Adam: Yes. Let’s examine quickly how banks today calculate their loan loss reserve. It’s actually very simple, but you could then see how broken it is. By the way, I’m not advocating here for CECL, but the one thing I can tell you right now is the current way of calculating ALLL (Allowance for Loan and Lease Losses) is a joke. Let’s start with what banks do as first step. They take all of their high quality loans, they call them pass-rated loans, or loans that are currently doing fine, they put them into pools, and they will calculate how much they expect to lose off that pool, but that calculation is based off their historical loss experience. It’s backward looking from that perspective. Then with the loans that are in trouble, they have to actually analyze those loans individually, and they will look at the collateral position of the loan. They’ll look at the borrower’s financials, and they will estimate using that data, which is also backward looking, how much reserve they need to have against those individual loans. Then you’ve got this third bucket. What CFOs will refer to is as is “qualitative factors”. Qualitative factors is the plug right now, the band aid that’s trying to bridge this gap of the ALLL being backward looking, and the idea that their own loss reserve should be forward looking. Essentially, these qualitative factors is like throwing darts at a board. The CFO or the chief credit officer will look at economic conditions locally and then add plus or minus 1, or 10, or 15% to these scorecards, and then they’ll try to use these score cards to pad their ALLL. The irony is that this bucket, these qualitative factors, for most banks is actually representing 90 or 95% of their loan loss reserve. 90 or 95% of bank’s loan loss reserve today right now is based off throwing darts at a board. Frankly, that is not effective. The irony is, is that although studies have shown that CECL would hurt banks and would require banks to add to the reserve, we actually don’t see that. For strong, healthy banks, this bucket of qualitative factors is such a large component of their ALLL. We actually think CECL would help a lot of banks because it would demonstrate with more science and far less art how actually less risky those loans are, depending on where and when they were originated. Kelly: Those qualitative factors that you mentioned, isn’t there a bit of an issue as to how that data is captured. Some of it is captured maybe in memory, some of it’s captured in a Word document, maybe it’s in Excel format. It’s not like there’s a standard input of this type of data, number one, and then number two, isn’t it true that much of that data is kind of subjective? Adam: That’s exactly my point. It’s like throwing darts at a board. It’s highly subjective. It’s 99% art, 1% science at the most, and yet these qualitative factors, the number coming out of that bucket, is representing 90 to 95% of a bank’s loan loss reserve. Kelly: Okay, but they’re still under the duty to try to compile that data, correct? That’ve got to collect it and compile, and then make some decisions based on that, right? Adam: There’s not a lot of data, that’s the problem, for them to collect. Many of them are doing their best to try to collect local or national economic data and try to interpret that, but it is literally like throwing darts at a board. Therein lies the problem. This is why the FASB wants to replace how banks are calculating their loan loss reserves now and replace it with CECL. If you went back to 2008, and you studied what happened in the crisis, a lot of banks didn’t have enough in the reserve. When we’ve done this, if you study failed banks and you looked at their loan loss provisioning, you would see zero, zero, zero, zero, zero, and then a huge spike in one quarter, the quarter where the regulators showed up, and all of a sudden, the banks is under-capitalized and then two quarters later they fail. There was too much volatility. The ALLL itself is highly subjective, easy to manipulate, especially for larger, publicly traded banks. The current system for ALLL completely broke down in the financial crisis, which is why FASB proposed CECL. Kelly: Wouldn’t it be true, though, that the qualitative factors that you mentioned that led to the ALLL analysis or result, those qualitative factors will help guide the CECL analysis, correct? Adam: CECL’s going to replace that, because the regulators know, FASB knows that these qualitative factors are a joke. The qualitative factors right now is a band aid. FASB wants to improve the methodology for the reserve in instead of relying on these qualitative factors. They want to have a lot more science to the process. They want it to be far more forward looking. That’s why they want to implement CECL. Kelly: I was under the impression, though, that some of those qualitative factors were part of the calculus of CECL, though. Adam: The spirit of it, yes. The spirit of the qualitative factors right now in the ALLL is to basically say, “Yeah, we know when we calculate our loan loss reserve off our pooled loans and our individually impaired loans that that number’s not big enough because economic conditions could change, and economic conditions right now are fragile, albeit, we’re in this recovery driven by artificially low interest rates. We know enough to know the environment is fragile. We need to find a way to capture that in the loan loss reserve, so let’s come up with these qualitative factors to fulfill that. It’s not a great approach. Kelly: The basic formula is something like probability of default, times exposure default, times loss of the given default, and that equals CECL. On that probability of default, therein lies the subjective element to that, correct? Adam: Any forward looking model is going to be dependent on assumptions, and assumptions will vary in terms of how much art and science is contributing to them. The methodology you just described, it is one methodology that is being recommended for CECL compliance. It’s probably going to be the most used methodology. The key assumptions such as probability default and loss given default themselves will require some subjectivity or art to it, but there’s a lot more science that can be used in that process. That’s how we work with our clients. Kelly: All right, so let’s move to the bigger picture here. Give us your take on this whole CECL thing. Is it a crisis? Is it something that CFO’s and CEOs and boards should put at the absolute top of the front burner? What’s your take on it? Adam: I think CECL doesn’t need to be so complicated. I think there are vendors who stand to benefit from CECL, who are either subconsciously or consciously creating the perception that CECL’s going to be far more complicated than it really need to be. Kelly: Both of us worked at Big 6 accounting firms in our early careers. I can picture, I was at PWC, and you were at Deloitte Touche? I mean these guys must be licking their chops at the size of some of these engagements, don’t you think, to get in there and help these banks out? Adam: Yeah, absolutely. Take your typical community bank where it’s hard enough to make money in this environment. Our perspective on it A) this could increase my loan loss reserve, which is going to decrease my earnings and my capital, and B), the cost of putting the system in place for even doing that calculation’s going to cost me money now. From a community bank’s perspective, I completely understand the concern. That being said, let’s set the record straight. CECL hasn’t yet been passed. They’re talking about early half of this year where they’re going to make a final decision on it, although, they hinted at the end of last year it’s likely going to happen. They also said there’s going to be a five year runway for compliance. So I don’t think community banks need to overreact to CECL. I think they need to develop a plan for CECL readiness, but I don’t think they need to rush into anything. I don’t think they need to panic about it. At the end of the day, CECL does not change the actual risk of a loan. If I make a loan to you today, the risk of that loan hasn’t gone up because of CECL. Maybe how I account for that risk has changed, but it doesn’t change the spirit of making loans. That all being said, here’s some things that community banks should be aware of. You know we talked about the life of the loan, but the other thing that community banks need to be aware of is the vintage of the loan matters. If you have a properly built CECL model, what you will find is that the risk profile of loans made during the early part of a credit cycle will actually be very low, but if you’re making a lot of loans in the late part of a credit cycle, the risk could be very high. If you’ve got the system in place, you’ll be able to analyze that and not just have the accounting treatment reflect it, but more importantly, it will highlight your strategic decision-making, and it will help provide community banks with a sense of the risk/reward trade-off of making new loans in different environments. What we found is, the time to make new loans is in the early part of a credit cycle and not the second half of a credit cycle, and CECL will just bring that point to the surface, but it doesn’t change the actual risk profile of the loan itself. Kelly: All right, let’s wrap it up. Do you have three to five takeaways you want to leave the bankers with? Adam: I’m just going to leave you with one takeaway. It’s a quote that summarizes everything that we’re seeing in this environment, CECL being one aspect of it, which is, “The worst loans are made in the best of times.” The opposite of that is actually also true. A CECL model will quantify that point, but with or without CECL, that point holds true, and community banks, from a strategic planning perspective, really need to think hard about that. Kelly: That’s a good one. We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly Coughlin talks to Kevin Chiappetta, CFA, Financial Institution Management Associates Corporation about bank portfolio stress testing tools that are being utilized to help banks get prepared for the new FASB rule and CECL   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, BankBosun.com. 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: Kevin, I came across FIMAC I think, at a conference in Wichita, where I met your CEO, Greg Donner. I think Greg made a presentation there that I thought was really interesting. Let’s just start out with a little bit of just brief background, Kevin, of who you are. Then we can do a deeper dive into what FIMAC does, and what you see going on in the market today. Kevin: I appreciate the opportunity. Living in the Milwaukee area, my wife and I are the parents of two recently grown children. We’ve got one out of college, living overseas. We’ve got one who’s in college not too far from you, up in the St. Paul area. Kelly: You came over from your executive director from a company called Balance Sheet Solutions. Kevin: That’s correct. Kelly: You guys are in the space of helping banks manage their balance sheet … Both their assets and liabilities. Correct? Kevin: That is correct. We actually are two different approaches on that. We consider ourselves a technology company. We do provide the tools to do that. There are a number of them in the market place available at different price points. Different models which accomplish the tasks with slightly different variations, but we also are the consulting side of it. We use those tools to help the financial institution understand the risk that’s inherit in that, and use that risk information to make different decisions. We also want to be able to lend the expertise that we’ve been able to accumulate over the years. Both from bank CFO positions and other consulting firms to help them understand that information. Help them build that information better. Having the technology is fantastic. It’s helpful, but understanding how to use that technology is really where we’re kind of moving forward with our firm, helping those institutions understand what all goes into using technology to make better decisions. Kelly: The first point of entry is technology. Give them some tools. They start to use it, and they think that it probably triggers more questions than answers, so they need help implementing it. You’ve got a consulting area that helps the bank from that point. Kevin: Precisely. Kelly: What are some of the different business models out there to help the bank with their ALM? Kevin: The most basic approach that we’ve seen is the technology side. Here’s our model. Here’s what it cost to run it. We can help you move data in and out. Here are the results. We provide that series of results in a report, and you’re off on your own. There is some benefit to that. Obviously, it tends to be more of a low-cost entry. For those who are well-versed in that type of thing, it might be advantageous. We can see all the way up to the full consulting as we’ve described it before. We know that there are a number of competitors in the market space that provide that as well. We see some of this provided by firms who offer other product lines. Perhaps a broker dealer could offer something like that under a different feed-based arrangement, so we see a number of different ways to pay for that service. Whether you’re paying through a soft-dollar transaction type of thing that doesn’t show up on the income statement, or more on the straight feed base. There are probably three or four different ways, I think, that we see financial institutions using this information. Where is it coming from? Who’s running it? When we start to compare the models themselves, we get into what type of random number generator is being used to create rate paths and some of the more geeky stuff that comes along with the rate models. We can start to split hairs as to one model comparison to the next. I think the business side of it really breaks down into a model-only on the left-hand side, and on the right-hand side, the full-in consulting. Either you are or you’re not a full service on the consulting side. You’re just merely providing the service that brings the data in and pushes the reports out. Kelly: You certainly have plenty of brokers that are trying to jam municipals and securities into the asset side. Right? That’s one component that is somewhat of a unique approach that you guys have. Kevin: Without a doubt. We’ve run across some of those models. I don’t want to be overly disparaging. It really cuts back to something. We want to make sure as an organization that we separate duties. We do that in a lot of different areas. Those who are responsible for money coming in versus money coming out. To the big duties, we try to make sure that we split the risk-taking and risk-measuring. When you start to combine those two duties you open up the opportunity for one to kind of crowd out the other. When you have advice that’s given on an overall risk-management standpoint for somebody who’s being compensated for selling you risk, it doesn’t take long to see that the opportunity to create more risk than you wanted to was there. I’m sure there are very good people doing that modeling, but when it comes down to it at the end of the day. Whether I eat or not is dependent on you buying risk and adding it to your balance sheet. The opportunity to create an environment that looks like you can absorb more risk is clearly there. Personally, I just don’t think that you’ve done enough effort to separate those two duties to make sure that conflict of interest is removed if you’re getting the information on your risk-management and acting on that from the same place. It creates too much room to create errors either willfully or otherwise. Kelly: In other words, if you’re going to accept the business model where brokers drive the decisions, then you better have done your preparation and homework beforehand so that you know exactly what you need. Don’t let them decide which assets sit inside the bank’s portfolio at the inherit conflict. Is that a fair statement? Kevin: Yeah. I think that’s a spot-on statement. Clearly, to create these risk reports it requires a certain amount of judgement to go into some of the assumptions. I don’t want to get overly technical but if you look at the liability side, it requires a certain amount of assumption. You need to understand the impact of that assumption has on the result. If my main motivation is to sell risk asset, I can make an organization look more or less risky depending on what is necessary. The opportunities exist for that to happen. Any time the opportunity for that conflict of interest opens itself up, it has risk managers and organizations who are responsible for managing that risk. I think it’s imperative that we try to close off those opportunities. Whether or not you believe they’re there. The opportunity for it to be there and anybody with a suspecting eye is going to be drawn right to that, taking that opportunity for that risk-management problem off the table. It just goes a long way in proper governing. Kelly: All right. Another approach, that I’ve seen in the marketing out there, might be to outsource it completely to another investment management firm where they will take on the entire function. They’ll take care of finding and executing the trade. Presumably, not with their own broker, I would imagine, but in theory they could. They could be a broker dealer, they could be an investment adviser, and run the trade. Do you see much of that going on? Kevin: Yeah. We do see some of that. Some of my background comes from that particular business model, whether with or without the dealer side. It’s not too dissimilar from the role I described earlier on our consulting side, where we spend a great deal of time getting to know the organization and working along with them. In essence, being an outsourced CFO, or finance division if you will, we create that role and play that role within the organization. Along the lines with that business line, however, it’s imperative that you don’t simply take it off their table and say, “Go focus on lending,” or “File your table reports and everything will be fine.” It’s imperative that you become part of the organization, provide the information, the education, and help them understand what’s going on with that decision-making process. It might seem easy, say, in February now to come up with the reports from the year end, then tell them where they are and what they can do, but along about April, May when they need to answer for an exam a process , “ Where did those numbers come from? How did you make that decision process?” I can’t think of something that would go worse in that exam process than not being able to answer a question because you just don’t know what’s going on behind the numbers that created that decision. However, we approach that. If you don’t include management in the decision-making process, I think later on there’s going to be some difficult conversations you’re going to be having. Kelly: Why don’t we talk about what’s going on with this new FASB ruling, the current expected credit loss that is coming out here? I believe it’s going to come out this year. Correct? What are you guys doing? What should banks be doing? What are your thoughts around that issue? It seems to be a fairly big one. Kevin: It clearly is. It’s kind of been hovering out there for a while now. This sort of looming storm coming our way. As we look and see the discussion of the proposal, I think the proposal become more finite this year, so we get a lot better feel for how it comes out. It’s a slight shifting from the current allowance calculation where our allowances sort of reflect previous history on loan credit performance. It gets more into a projection. From our standpoint it really works very well with the mathematics that we’ve been doing in the forecasting for interest rate risk. It may be an eyebrow-curler but I think there some really definite, clear parallel there. We’re expected to put a present value on the projected losses for a particular loan, loan portfolio, or loan type. However we want to look at that. That really kind of goes along with the same type of mathematics we run now for expected cash flow. From our standpoint, this is more of a pivoting of how we’re going to create that projection of loan losses from a look-back historically to a forward-looking calculation. The technology that we have isn’t going to require us to make any major changes in the mathematics of it. We’re just applying it a slightly different focus. To be projecting a current value of a future cash flow, that’s kind of what our whole business is about. While it is somewhat scary, because we still don’t know exactly what it is, and it’s going to change to focus of what we’re doing. We feel very strongly that we have the tools, and the expertise in place to help management get their arms around this forecasting process. Then, sort of tweak the way put the input into a loan-stressing calculation or a forward-looking calculation. It’s so similar to what we’re doing now that we’re trying to take a sort-of … Let’s relax, focus on it, and apply that same thought process into the loan loss process. We think we’re going to be able to come up with a solution that’s going to be fairly well understood, fairly well put into place, and maybe less stress than we we’re thinking at the beginning, simply, because of the unknown. Kelly: You guys aren’t currently doing that now for loan portfolios. You’re doing it for assets. You’re doing it for investments. Correct? Kevin: Yeah. Absolutely. We’re applying that same concept to losses. What is the value of that loss? Is it the currently value of those future losses? The same discounting process that we’re going to go through. We’re just using that into a different piece of the balance sheet than we’ve had in the past. We’ll do a study so we can build an assumption built on some sort of a historic look-back as to how the depositors behave. We’ll help them understand the pre-payment speed. All the different assumptions that have to go into that technology in order to understand the behavior of the cash flows under different rate environment. We help them with that point. I mentioned earlier that I think one of the biggest assists we’ve had right now is just bringing people up to speed into what it is we’re doing. The board can handle those responsibilities that have been squarely put into their lap, but they just don’t have the day-to-day expertise to deal with making sure that they can deal with what’s going on. When they see what comes out of that technology, they get a better feel for what went into it and what it’s telling them once they see the results. Kelly: Okay. You guys are well-positioned, I’m thinking or at least from what I’m hearing, for this CECL ruling. Correct? Kevin: Yeah. We’re very confident that we have the tools in place now to tackle CECL. There’s still a lot of detail that needs to be brought out and put into place, but we understand the mathematics of it very well. That’s the business we’ve been in for decades. Just merely applying that concept here isn’t overly frightening. Again, there are detail that need to be brought out. There are certain things that we need to make sure we’re comfortable with so that we’re applying it properly to comply with the CECL guidelines. Without a doubt, we’re very confident that we have the knowledge, expertise, and the tools in place to tackle this once we get around what all the specifics are. Consciously optimistic is the right way, I think, to put that. Kelly: Okay. That’s great. Do you have any take-aways that you’d like to go away with? Kevin: Sure. Let’s start with CECL because that’s what we we’re most recently discussing, and again, it’s going to bare a repeating. We have the knowledge and the expertise in place already as banks, and institutions. We’ve been working with these concepts. We’re now applying it to a different area of the balance sheet and the balance sheet reporting. I think it’s important to know what the guidelines are, but by the same respect we want to make sure that we don’t get overly concerned with the concept of moving from a backward-looking to a forward-looking projection of losses. It’s merely applying the concepts we know into a different area. The biggest concern that we have on CECL is more making sure we understand the guidelines behind the assumption building process and get that done. We want to make sure that we don’t step into a panic state because it’s something new. From an interest rate standpoint, one of the things that we’re trying very, very hard is to get people to conceptualize as they get into the balance sheet management process. Not merely the interest rate reporting process. What do we mean by that? As I’ve mentioned before, we have the technology side of our business. We do a great job of getting the information, and reporting that information. What we do with that information becomes the big next step. From the consulting side, what we’re trying to get organizations to understand is more the movement up the scale towards this modern portfolio theory. We want to look at the balance sheet as an entire entity rather than component, as most things are done now. For instance, organizations that run an investment portfolio with a certain set of guidelines, because we don’t want risk here. We take risk elsewhere. That isn’t necessarily beneficial to the overall organization, or to the balance sheet. We want to look at how a decision is made in a loan portfolio. It has an impact on the balance sheet. We want to understand that. A decision made in the investment portfolio has an impact on the balance sheet, and we want to understand what that is. Understanding how things interact with each other when we’re going through the risk management process is one of our biggest challenges. Trying to evolve organizations out of the component style management into a more holistic balance sheet style management. In order to do that, you really need how the balance sheets react to each other. In order to do that, you need to be able to break down interest rate risk reports that we’ve provided. In order to get to position, we have to take three steps backwards. We need to make sure the policies are written correctly, that the management understands what we’re doing, that the process of doing testing, stress testing, movement rates, and seeing how different decision’s reactions appear on the balance sheet. All of those things become critical in order to look at the balance sheet management as opposed to component management. When we start using this information to make management decisions as to merely reporting what our risk profile is, that is a huge step forward in getting everybody aligned. We’ve got Board alignment through line management alignment. Everybody understands what we’re trying to accomplish. Everybody understands how things impact, and we know that before those decisions are made. We just feel that’s a much better approach. One that if we embrace the holistic approach, the decision making process becomes more a matter at looking at the menu and picking which we want to have as opposed to hoping that things work out our way. Kelly: Great. Very helpful. Do you have a favorite quote? Kevin: There’s one from a business standpoint that I was told a long, long time ago. I try to remind people of the same thing. When you find yourself in a hole, the best exit strategy is to stop digging. You see how people try to manage their way out of that hole. It sounds kind of basic. Maybe a little too folksy, but it makes a whole lot of sense. Whatever put you in that spot, you need to stop doing it first. That’s our first strategy. Stop doing what put you in that world of hurt, and start trying to come up with ways to get out of it. Kelly: That’s great. We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly Coughlin interviews Donald Moore about generating more revenues from trust and wealth management clients and managing risk in that business line. Moore is a former OCC examiner.   Donald Moore Jr., CEO of Bearmoor, LLC has over 20 years of experience in the asset management and fiduciary industry. He has served in senior fiduciary positions with various US Treasury agencies, as well as a leading financial services consulting firm. He began his career as a Trust Examiner with Office of the Comptroller of the Currency. He has examined over 50 trust divisions, including the lead position at two of the nation’s largest trust institutions. He has assisted in the development of national policy and guidelines at both the Comptroller’s Office and the Office of Thrift Supervision. 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, BankBosun.com. 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: I’ve got Don Moore CEO of Bearmoor LLC. Don, how are you doing? Don: I’m doing well, thank you Kelly, I appreciate the opportunity to chat with you today. Kelly: Don, you’re in Boulder? Don: I’m not quite in the Republic of Boulder, I’m a little bit closer to the Breckenridge area up in the hills of Colorado. Kelly: You’re happy because the Broncos just won the Super Bowl, I take it. Don: I’m slightly indifferent to the Broncos winning, although they had their ginormous parade yesterday down in Denver. Everyone’s excited that Peyton got his Super Bowl, but again, I think it was the defense that won it for him. Yeah, we’re happy here in the state. No one’s going off the edge yet. Kelly: Let’s get right into it. Tell me what Bearmoor does. What’s your value proposition? Don: Basically, it’s the optimization of risk-adjusted revenue from an organization’s existing fiduciary activities portfolio. It’s basically their personal trusts, their investment management accounts, their retirement accounts, foundation endowments and custody. All those off-balance-sheet activities within the fiduciary world. Again, the optimization of their risk-adjusted revenue from their existing portfolio. Kelly: First of all, it’s banks that are in the wealth management business. They have trusts, they have wealth management capabilities, correct? Don: Correct, a lot of organizations that are clients, their definition of wealth management differs, but it does include trusts, insurance, and private banking. Kelly: You help those kind of banks do what? Don: Optimize top-line revenue. What we mean by that is, I like to use a quote from Bono, the lead singer for U2, he was up at his concert and doing one of his social announcements where he was clapping his hands and he said, “Do you know, every time I clap my hands, a child in Africa dies?” And someone screamed out, “Stop clapping your hands.” We don’t focus in on expense because for the past 10 years in the industry, the industry’s been focused on nothing but expenses. The expenses have outpaced revenue growth 6 out of the last 10 years. Their focus on expenses I don’t think, has been all that fantastic. We like to say, “Well you’re already focused on expense reduction, we want to help you grow top-line revenues.” Our value proposition leads to an increase to revenue top-line. Kelly: Before we get into how you do that, let’s talk about some personal background. Don: All right, I’ll start out with education. I went to school, got a degree in finance and accounting, after I graduated from that I went to work for the United States Treasury Department as an examiner with the Office of the Comptroller. The currency, the OCC, I found an opportunity to begin examining in the fiduciary world and I became a fiduciary examiner. Through that, I went to Washington, DC. For those of you in the fiduciary world that have an understanding of Regulation 9, when I was in Washington, DC I helped draft and write that regulation that now national banks follow. For most states, it’s been adopted verbatim on that. I left there, and went over to another Treasury Department, the Office of Trust Supervision, which has now been rolled into the OCC and wrote their fiduciary training program and some of their examination procedures over there in a fellowship capacity of 18 months before leaving and going to the consulting world, and focused on consulting in the fiduciary world, and that brings us to where we are right now. I am married to my wife Toni, we live out here in Colorado, we have four children. Hobbies; I would say right now we’re doing lots of skiing, got some good snow out here in Colorado, so that’s one of my hobbies. Do a lot of running, outdoor activities is me. That’s who I am, I’m 52 years old and I feel it every day. Kelly: Don and I have known each other for probably 15 years, and we made a good connection when we found out you grew up in Minnesota, correct? St. Louis Park? Don: Yeah, sure, you betcha. Kelly: Let’s talk about the business. How do you help these banks make money? How do you help a wealth management bank make some money? I want to come up with let’s say five take-aways on how our listeners can make money through what company like yours offer. Don: Let’s start out with, the opportunities for increasing top-line revenue within your fiduciary activities exist. They are out there. I like to use the phrase, “You’re standing on a whale, fishing for minnows,” because there’s already opportunities to increase your top-line revenue within our organization. What we mean by that is we go through and do an analysis account by account basis and identify opportunities in three phases: one, gap analysis which is, “Hey, where are you missing it?” From the standpoint of what you think you’re getting. You may have some system errors, system inaccuracies that can help you identify opportunities, that’s one phase. Second one is competitive analysis. Where is it that you would like to beat your competition, and where is it that you actually are? We ask you what your business’s strategic plans are, we go out and do mystery shopping and competitive shopping for the organization to make sure that they understand where they are and where their competition is, and where they can go with their current level of pricing. The third analysis is a regulatory analysis. What’s changed in regulation that allows you to either understand the regulation and generate additional revenue, or do we have some risk there? Again, gap analysis, competitive analysis, regulatory analysis to help you identify those opportunities, because they do exist. I would say that’s the first area. Kelly: You exposed that just recently, gap analysis. You’re looking at pricing, and how competitive they might be in pricing in addition to more of a qualitative, these are the type of services they would offer? Don: Along the lines of both, Kelly, with regards to the types of services we want to break it down so we understand the types of services they offer. Then the pricing that they have on each of those services. When we talk about pricing, we all know that there are committees, and then there are boards, and we’re talking about the board-approved pricing for these services. Kelly: This is for wealth management services. These are the basis points. This is how much we charge for a $5,000,000 fiduciary trust account, correct? Don: Correct. Absolutely. Those are established by, I would say, the business line which then goes to the committee and the boards approve. These are the pricing and it would include not just basis points, but it would include minimum account fees, it would include fees for ancillary services such as real estate administration, closely held business administration. Maybe there’s a tax prep fee or a tax information letter fee. Maybe there’s a stand-alone fee for extraordinary type services. All the fees charged for the services provided within wealth management on the fee schedule. We then go through and see what accounts are actually on that schedule, and what accounts are not, what accounts have customization, what accounts have discounts. It doesn’t make sense for the level of service being provided. What’s critical with that, from a Bearmoor perspective, is what I would say would be the second take-away, which would be a risk understanding of your accounts. If you haven’t done a risk assessment on an account by account basis, it would be highly recommended that you do so. This would allow you to identify the level of risk for each account and type of account using system information. This isn’t something that’s subjective, it’s based upon system criteria that you’ve established and put risk weightings on it. Let’s say you have an account that is an irrevocable trust account with two co-trustees, five beneficiaries, some unique assets in there, and maybe it’s over $2,500,000. You would assign various risk criteria to each one of those factors. Maybe that has a higher risk than a revocable trust. Kelly: You’re not talking about portfolio risk, you’re talking about risk of an unhappy client (other than portfolio volatility). Don: Correct. What we’re seeing is a fair amount of, I hate to go back to the regulatory side, but a fair amount of regulators are saying, “Hey, we can risk rate loan accounts on the banking side, why can’t we individually risk rate these off-balance-sheet trust accounts from an administration standpoint, from a level of risk?” and then get some understanding about what may be some levels of capital might be for this entire portfolio. It’s not investment portfolio risk management, for lack of a better term it’s complexity rating the account. Kelly: Give us three things that you like to look at, that might go into the calculus of that. Don: I would say type of account. Kelly: The fiduciary, non-fiduciary. Don: Correct, you would have the fiduciary accounts would be those revvocable and irrevocable trusts, investment management accounts, foundation endowments, IRAs. Then the non-fiduciary lower risk would be a custody account, where you don’t have any investment management responsibilities. Another item would be the type of assets in there, so maybe less risk would be a mutual fund portfolio, that’s made up of a bunch of mutual funds to meet the account’s objective. A higher risk would be, “Hey, it’s a stand-alone investment in a large piece of commercial real estate.” High risk on that. The third thing would be type and/or number of beneficiaries. The larger the beneficiary pool, the more risk you may have because you have different competing objectives. Some of those might be income beneficiaries, others might be remainder beneficiaries, or growth beneficiaries. Kelly: The high-risk account would be one in which there’s a fiduciary relationship to your holding assets that are perhaps individual securities and not mutual funds and the third? Don: Number of beneficiaries. Kelly: Number of beneficiaries. Is that because the more people you have in the equation, the more likely it is you’re going to have somebody complaining about it? Don: More likely there’s going to be a complaint there, but more likely that there’s going to be conflicts of interest. What I mean by that conflicts of interest is those beneficiaries may all have different needs and you as the fiduciary that’s managing that account, have to take all those into consideration and make sure you treat them equitably and fairly based upon the information you have. Kelly: Tell us how you help the bank make more money. Don: From that account by account analysis on the gap analysis and identifying opportunities within their portfolio. Not just from a best practices from what we’ve seen over the past 15 years of doing this, but also what’s taking place within their lines of business and their strategy. Overlaying that on that analysis and saying, “Hey, here is the opportunity, and here’s how that opportunity impacts each account.” Kelly: This is for your part one you look at the market, you look at competitors, and you say, “Oh, your competition’s charging 200 basis points, you’re only charging 150. You could charge 180,” for example. Don: Correct. If you still want to be the low-cost provider and the lowest-cost provider is charging that 200, and you’re at 150, you could go all the way up to that 200 and charge 190, 180. Right. Kelly: Right. Don: Do that complete analysis. Or your minimum fee is stated to be this, we’ve done in a cost analysis of your portfolio and you’re not even covering your costs with your minimum fee. You’ve got to adjust your minimum fee. Kelly: Don’t you think most banks know their competitor? Let’s say pricing, and their level of service, because they either get clients poached frequently, or infrequently, and if they find out why, then it’s well, his is cheaper, or better service, whatever it was. Don’t you think they know that? Don: That’s what we thought. That’s what we were counting on, but when we started doing the mystery shopping, because we asked our clients who are their competitors, who do they want us to mystery shop. Then we also provide them all the other information that we have. That, other than the actual opportunities, was one of the most highly prized pieces of information that we provided to our clients was, “Oh, look at all this competitor information.” My business partner and I looked at each other and said, “Wow, we didn’t realize how valuable this was. We thought you guys knew it, we’re showing it to you to let you know that we know it.” You would think they would know it, but a lot of times that isn’t the case based upon the information that we were able to gather and the reaction that we get from those. I think they have an understanding of it, but once they actually see the documentation and support for that that we’re able to gather, that brings it full circle. Kelly: I’m intrigued by, and I always have been intrigued by you being a former regulator with all due respect to your former profession, the dark side I suppose, or actually I think when you go into industry, they say you’ve gone to the dark side, I believe. However you look at it, how a former regulator can help on the revenue side is always been amusing to me. I know you do have a pretty good reputation out there, so kudos. You’ve been doing it quite a while, I believe. Don: Yeah, I appreciate those comments. Perhaps my capitalistic views weren’t always the right forum to be a regulator, so maybe I’ve always had to get back to this side. Maybe I was on the dark side and came back to the light. Kelly: Any more takeaways? Don: I would say re-acceptance, and what I mean by re-acceptance is, based upon the information that you have today on your existing accounts, the level of administration, the level of responsibility, the potential problems associated with the risk audit compliance items, the regulatory issues, and the revenue that you’re making on it, would you re-accept the accounts in your portfolio today? If the answer to that is no or maybe, you need to actually go through and do this risk assessment and the revenue opportunity assessment to make sure be able to answer that question yes or these are accounts we no longer need to be a part of. Kelly: It isn’t just no longer be part of, it may be no I wouldn’t accept it under these terms. These terms being pricing, but would you accept it at 50 basis points? No. Would you accept at 150? Yes. Isn’t that as much of a relevant question as acceptance or non-acceptance, it’s how should we price this thing? Don: Proper pricing is critical. We have top 10 risk piece that we do and one of the top 10 risks is appropriate pricing, so you’re absolutely right. “Hey, I wouldn’t re-accept it because of the assets.” That’s one thing. I wouldn’t re-accept this because of the price and the assets. Could we price it accordingly where you would accept it? Absolutely. That’s part of the analysis we do. Kelly: Why don’t you post on our website the top 10 risk pieces in a blog post? Don: Absolutely, I can do that. Kelly: That’d be nice to accompany this. That’s it for now, give us your favorite quote. Don: It’s Milton Friedman the great economist. “The question is, do corporate executives, provided that they stay within the law, have responsibilities in their business activities, other than to make as much money for their shareholders as possible?” My answer to that is, no they do not. Basically, everyone should stay focused on generating revenue for the shareholders for where they have their fiduciary duty. Kelly: What’s the stupidest thing you’ve said or done in your business career? Don: This is classic me, and this took a long time to live down. This was years ago. I basically said, I used another quote when I was giving a presentation because someone asked a question with regards to revenue enhancement and I said in front of this entire group, “Life’s tough, but it’s tougher if you’re stupid.” Yep. Kelly: Good one. Don: I was much younger. Kelly: Don, I enjoyed talking to you, thanks so much for your time. We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly talks to Dan Hill, CEO, Sensory Logic, about how the latest face recognition techniques and technology can tell you many things about people before you agree to do business with them or hire them.   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, BankBosun.com. 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: Dan, I want to do introduce you and talk to you briefly about what you’re doing with your role as CEO of Sensory Logic, and generally get some of your background and talk about the science of what you guys are doing with this technology. My summary of it is something like you’re using technology to objectively measure 12 human emotions. They range from joy to sadness, and anxiety with the purpose of evaluating personality traits, measuring personality traits, to determine how neurotic or how normal people are for the purpose of identifying matches with whatever the goal might be to using that. Is that a reasonable estimate or summary of what you guys are doing? Dan: We are trying to capture and quantify emotional response and that can apply to consumer’s reactions to the advertising, website, and other touch points of thanks for instance, but if you move over to the more personal side in terms of financial advisors or trying to reduce risks when looking at hedge fund managers, yes, then you start getting into the personality dimensions. Obviously for hedge funds you want to make sure that they are prudent investors and not someone given to overly large risks. There’s both a general consumer application we are talking about here, and one that’s more personnel driven. Kelly: That sounds interesting, using technology to evaluate those things that are clearly has been in the realm of subjective interviews and personal objective evaluation is fascinating. Let’s go over a little bit of your background, Dan. Currently you’re CEO of Sensory Logic, and a little bit about what you are, who you are, and then who Sensory Logic is. Dan: I started the company in 1998, and I got lucky. Someone I knew at IBM sent over to me an article about the breakthroughs in brain science and how much people are emotional decision makers. You may know the conservative estimation is that at least 95% of peoples’ mental activity is subconscious. A lot of what happens to us and for us is below the water line so to speak, and it’s important to access that and the emotional part of the brain sends ten times as much information to the rational part of the brain and vice versa. As to the ratio of emotional to rational in terms of the interactions it is a ten to one ratio. Kelly: Presumably we have a rational mind that’s informing our subconscious mind, correct? Dan: Sure, the mind is very interactive so there is an interplay back and forth, but I think the real thrust of the breakthroughs in brain science in the last 25 years aided by technology and from MRI brain scans for one thing, is that we really have to change our viewpoint. We probably have run for 300 years with Dick Hart’s assumption that we are rational beings. The famous comment, I think therefore I am. Ambrose Bierce, a contemporary of Mark Twain said, “I think therefore I am.” That’s probably a lot closer to the truth. In the financial industry you want to go to the numbers and facial coding gives us a chance to bring numbers to something that otherwise might have seemed rather soft and squishy which is emotions. In reality there’s really two currencies in the business world. Dollars and emotions, and we’re after the second one on behalf of the first one. Kelly: Not to be outdone with your quoting of philosophers, I will reference Aristotle who also used the concept of having, of creating habits that are natural to the human that just make it part of the unconscious, subconscious mind so that your naturally inclined to do, he felt like, the virtuous, the right thing. That took kind of integrating the conscious mind, the rational mind, with the subconscious mind. Is that consistent? Dan: I think the metaphor that Aristotle used actually was that human beings is as if they are in a chariot, and it’s driven by two horses and one’s the rational horse and one’s the emotional horse. He was already acknowledging, obviously, the importance of emotions. I think what the neuro biology advances have suggested is that maybe the darker horse, the emotional horse, may be the stronger of the two, most likely is. Kelly: Dan thank you, you crushed me on your quoting of Aristotle. Thanks, I appreciate that. Dan: That wasn’t my goal, but whatever helps illuminate things for people. Kelly: And I went to a Jesuit school! So let’s talk about your education. You have a PhD. Tell us about your education. Dan: I do have a PhD in English literature, not psychology as some people might assume, but I’m an inquisitive learning sort of guy and really what happened is once I got this article brought forward from the IBM person, I really started on a second education. I don’t have a formal degree, but I have spent a great deal of time reading and talking to experts in neuro biology and psychology over the last 20 years to understand really one of the drivers of human nature and just to give you some feeling for the groundings here. If you go back to Latin motivation and emotion have the same root word, move, to make something happen. That’s how essential emotions are to human behavior, and the person who first realized the importance of emotions was Charles Darwin. In his work on evolution he essentially said to himself, “Okay, emotions must give us an adaptive advantage, otherwise they would have gone away. How can I best capture emotions?” That turns out to be the face, so what we do is use facial coding to be able to bring science to bear on emotions. Kelly: Dan, where do you live? Tell me a little bit about your personal, family life. Do you have any hobbies? Dan: When I have the time, sure. I like to play tennis. I’m an avid movie goer. I enjoy traveling so I’ve been to about 80 countries including a year ago or so was in Botswana on a non-hunting safari. It’s whatever can broaden the horizons. There’s readings, there’s films, there’s tennis, there’s travel, obviously time with my wife, so there isn’t anything remarkable there, it’s just try to be a busy and engaged guy. Kelly: Let’s get down to some business stuff. Tell me in fifteen words or less, roughly, what the value proposition of Sensory Logic is. Dan: Actions speak louder than words, and there are things people can’t or won’t say, and if you can get to emotions you can get below the surface and get to the real thing. Kelly: In terms of the banking ecosystem which is the ecosystem we are navigating through, what is the applicability or this, not necessarily your company, but this technology if you will, that value proposition, how would it benefit, how is it connected? Is it connected now, or is it an area that you guys want to be connected to. Where’s the applicability? Generally speaking. Dan: There’s really two realms. Let’s start with the one we’ve historically been in, because I’ve run my company for 17 years, and we’ve done work for nearly half the world’s top 100 consumer facing companies, so things outside of the industrial realm and so forth. That’s plenty of things in the financial services industry. It’s a long list of banks and institutions, also in the insurance industry, as well that we’ve done work. From that point of view, obviously if you have these touch points with consumers you want to connect effectively. I think the place you have to start is that of course, trust is the emotion of business. Trust is not an emotion you can capture through facial coding, but you can capture its opposite which is contempt. Contempt means I don’t trust you, I don’t respect you. If you’ve ever read Malcolm Gladwell’s best seller “Blink”, facial coding was the only tool described in the book for some 30 pages. At the University of Washington in Seattle they have a love lab where couples come in who are in distressed marriages, they use facial coding to figure out whether they can save the marriage. Contempt is the most reliable indicator that the marriage will fail, so if it’s not good for a married couple you can imagine it’s not good for a company and its clients. We use this in advertising testing and websites to understand how people are responding. There’s several varieties of information that is important. The first one is actually do you engage them. Do they emotionally respond? You don’t want to waste your advertising dollar, you don’t want to just be talking to yourself, you need to make that emotional connection. That’s one of the first things we go after. Kelly: Put yourself in the place of a community bank CEO and they’re in the business of making business loans, by example. How does that CEO or that credit officer, how could that credit officer utilize this technology? Not your company, but the technology. How do you envision that this technology could be employed by a credit officer at a community bank in any city in the USA. Dan: There’s actually a template here. I mentioned Charles Darwin earlier, but there’s a man named Paul Ekman, E-K-M-A-N, who’s been honored by the Smithsonian who has been cited by Time Magazine as one of the 100 most influential people on the planet. Paul worked as a colleague at the School of Medicine in San Francisco. Over the course of about 15 years he created what is called the Facial Action Coding System. He figured out from 43 muscles in the face what are the muscle movements, the action units, the activity that reveals seven core emotions which you alluded to earlier. They run from joy, the high end of happiness, through things like fear and contempt. These muscle movements correspond to the emotions, this is relative public knowledge, also in a book of mine, and that information for a loan officer if they were to do their due diligence, and take some homework assignments, and actually study this a little bit, would give them a feel for the person across the table. There is no lie muscle in the face, it’s not that simple, but there are patterns you can look for. Obviously if the person is unusually anxious, if they show contempt, if there’s an unusual rhythm to how they’re emoting, if the emotions seem inappropriate to the conversation. There’s probably a half dozen little ways in which you can get a feel for whether the person is solid and honest, and therefore a loan risk worth taking, or ones that are passed on. Kelly: These quantifiable and emotional metrics, I’m just going to quickly list them. Joy, and they’re more or less in a continuum here, starting with joy going down to anxiety. Joy, pleasure, satisfaction, acceptance, curiosity, alert, skepticism, dislike, contempt, frustration, sadness, anxiety. So you guys can measure these twelve emotional reactions that appear on a person’s face, convert those into a profile. The profile has to equal 100%, so it comes up with a profile. Again, back to the CEO that’s going to potentially do a loan to this business customer. It comes up with that profile and then what? Dan: In our case we were trained directly by Dr. Ekman, so you are right. You get to a pool of 100%, so you distribute which emotions are occurring based on those muscle activities, and as to the output. Once you know the emotional profile of somebody, I would suggest, for instance, they index very high on anger, or what we call frustration, that should be of concern, because frustration obviously is an emotion about I want to hit you. I want to break through barriers to progress, I want to control my destiny. That all sounds good except the hit part, so someone who is violent or combustible, if they index high in frustration, is there a greater chance that someone is at risk? Definitely for you as a banker. If they are really high on anxiety, why are they so anxious? What is going on here? How solid is the scheme in which the bank is taking a chance. I think particularly when you look at the negative emotions you’ve got to be careful, because we have more negative core emotions as human beings than positive ones, not because we’re negative or Dr. Ekman is negative, but rather it’s a survival technique. People hear bad news more loudly because it helps defend themselves. You want to look at negative emotions like the two I just mentioned, also contempt. Frankly it often corresponds to a lack of honesty or a lack of connection back to you as a banker. If I had to highlight three, those are the one I would probably go to. Although I will say that someone who is overly happy, it’s a nice emotion in terms of it’s embracive, it’s accepting, but a really happy person can be sloppy with the details, so strangely enough, there, too, a banker might face a bit of a risk factor. Kelly: You also have the external environment, for instance, that can influence a person’s behavior on that given day. Could be they just got in a fight with their wife that morning, or their favorite football team lost so they’re having a proverbial bad day. Especially if you have this human subjectively scoring this stuff. I’m intrigued by that, so you have some kind of de facto shrinks up there kind of ticking off, watching the video saying, “Oh look at that he frowned, we’re going to check off he dislikes this,” or “Look at her eyes. She looks a little sad, we’re going to mark her down a little bit for sadness.” It scares me a little bit that police interrogation might be using this. Dan: Quite often that cat’s already out of the bag. Dr. Ekman has done training of the CIA and the FBI. We worked a bit with a company trying to automate facial coding for the TSA, so yes, this is a huge interest, obviously, to anyone involved with national security or policing matters. Whether it’s used properly, whether inaccurately, whether it’s done within the boundaries of the law. That’s really outside of our purview, that’s not how we’re trying to use facial coding, but there’s no doubt that obviously every angle of life people are looking for advantages and security, and because if you’ve never been lied to in your life, congratulations. Facial coding gets you past the lip service to behavior, to actions, as to how people respond based on what they reveal in their face. It’s going to be of interest to a lot of parties. Kelly: From this data that these scores are measuring they are taking that data, and then scoring it. I’ve seen some stuff that talks about the big five model, ranging from extroversion, agreeableness, conscientiousness, openness, to neuroticism. Tell me about that. Dan: I have ten US patents, most of them related to facial coding, and one of them does involve personnel. I have been at work for a few years now looking to see if we can come up with an emotional formula and algorithm so to speak, that can match these big five personality traits. I wouldn’t say we have anything definitive at this point, but I am making the effort because the one thing that bothers me about all manner of these self-reported psychology personality profiles is that it is self-reported. Self-report is a big problem. People tell lies. Dr. Ekman has estimated the average person tells three lies per ten minutes of conversation, but the biggest lies in life are the ones we tell ourselves. I’m reasonable, but everyone else in this meeting is crazy, etc., etc. Self-reporting is rather dubious, and so yes, we are looking for a way around that to say that by picking up these muscle activities, which by the way, all have numbers to them, and I realize you might feel it’s subjective, but we’ve done coder reliability. We have been trained by Dr. Ekman, so we know which muscle movements correspond to which emotions. Studies would indicate that human coders well-trained and versed in doing this will be over 90% accurate. Kelly: What would the goal be for this credit officer, he probably does this subconsciously anyway, but he certainly is making some judgements alright, how normal, how neurotic is this guy. Am I able to pry this data out of him and he’s in charge of sales? What’s the likelihood that this company is going to be successful if I have to pry this stuff out of him.” Same with openness, right. Agreeableness. I don’t know how you would determine conscientiousness. Does he show up to the meeting on time, and doesn’t care, I mean that’s kind of a real fuzzy one, that conscientiousness. Dan: Actually that’s one of the traits where we have some of the inklings of an algorithm or a correspondence. You’re not going to want someone who is overly happy and blissful. I already mentioned that if you really index high in joy you tend to be a bit more of free thinker, which is great, but you can also be sloppy with the details, so that doesn’t square very well with conscientious. Being hot-headed and having really intense anger doesn’t work, but actually the face shows eight different versions of anger, from slight annoyance to outrage. The lower grade versions of frustration can actually be helpful from a conscientiousness point of view, because one of the definitions or understandings of frustration is I want to be in control of my life and I want to make progress. If that is done in a way that is not overly combustible then you have the makings of someone who might indeed, if it’s leavened by some other emotions, be conscientious. Kelly: Give me the three to five takeaways that a bank CEO should take from this. Dan: One is they’re going to be making some outreach to people so let’s start on the marketing side. Presumably they’re going to have a website. It’s easy for someone inside the organization to think that their website is really clear, and I can tell you from doing usability tests for all sorts of companies on websites, that it’s often about as clear as mud. So I would say the first takeaway is they should think if their website a lot more like it’s the drive through lane of a fast food joint. That may seem demeaning to them, but these people know how at quick service restaurants to get it across to people and quickly and let them keep moving. If they look at their website from that perspective, and it doesn’t resonate, and it’s not quickly understandable, they’ve got a problem. The joke that has to be explained to you in life is never as funny as the joke you just get, so think in terms of hut, hut, hike. If the connection isn’t about that readily done, you’ve got a problem. The second thing I would suggest is probably a lot of banks will at least, if nothing else, have some print ads or some mailers at times. We’ve discovered that if you put your company logo in the lower right hand corner which is where ad agencies love to put it, that is typically about the second to last place anybody will look at on a piece of paper. That’s bad news because we’ve found that people read quickly, they barely read at all. The banker, the CEOs, the bank may think that people are going to study my marketing material closely, read it word-by-word, not the case. Likelihood is they’re going to spend three to fifteen seconds on it. If you advertise for yourself and it’s unbranded in effect because they don’t get to the logo, then you’ve got a problem. I’d say that’s the second one. Third one is you’re in the people business. If they come into the bank or the bank branches, we respond to nothing more strongly than other people. We can tell the difference, human beings. There is a difference between a true smile and a social smile. Social smile is clearly less authentic than the true smile. It is hard for employees to be able to manage a true smile repeatedly during the day, especially on demand, but knowing that that emotional connection with the customer is important. I sit on airplanes often for my business, and I facially code the people who are serving us in the isles, and look for those little moments where they give away weariness, or something else that’s a little off putting sometimes. Dan: That’s three for you. I think we’ve already touched on the loan officer, so I’ve got you up to four. I guess the fifth one would be, frankly, who you hire, and taking a little more care. Not just look at their credentials, but look at their personality which is what Southwest Airlines does. Kelly: What does Southwest airlines do, briefly? Dan: They actually have their people look for a sense of humor. They ask them to tell little stories about themselves, or incidents, or I think even, if I’m not mistaken, at times literally play comedian for a bit, and try to tell a joke. They don’t want to hire somebody who’s just ultra serious and has no levity to them because if you have no levity you can’t be flexible, and if you can’t be flexible you can’t adjust to your customer’s needs. Kelly: To that end, I’m going to ask you what’s the stupidest think you’ve ever said or done in your business career? Dan: That would be numerous no doubt. I would say one is, someone asked me once if I was quote/unquote a “rebel” and that’s the way they phrased it. I simply said, “I suppose so.” That’s not the answer I should have given. The truth is I’m a reformer. I’m not interested in rebelling against something, I am interested in improving something. Whether it’s market research or in the financial sector, making sure your advertising dollar is not wasted, and that your customer service is better, I go back to my earlier quote. “There’s two currencies: dollars and emotions, and you need both of them and they interact with another.” I’m not a rebel, I’m a reformer and someone who is eager to make sure that people aren’t inefficient, don’t waste their money, make the best progress, the best connection they possibly can. If you step closer to the customer you can step ahead of the competition. Kelly: And since you’re an English lit PhD, I’m going to see if you can identify it. If you can’t, I will think very lowly of you. Dan: Wonderful, wonderful. Kelly: “Arise and go now. I will arise and go now, and go to Innisfree.” Dan: That would be Yates. Kelly: Very good. He’s my favorite writer. Dan: Yates is a tremendous poet. I was in Dublin a couple of years ago, there was special exhibit on Yates’ poetry, and I fell in love with all over again. Kelly: Good for you. Now I’m uber impressed. Do you have a favorite quote? Dan: I have so many favorite quotes. It’s probably one of them is from Groucho Marx, “Who are you going to believe, me or your own eyes?” Kelly: Very good. Dan, I appreciate your time. CEO of Sensory Logic. How can people get hold of you? Dan: We’ve got a website, of course. Sensory Logic.com should be able to do the trick We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.

Kelly Coughlin is interviwed by Chris Carlson. Chris is a lawyer and actor in Minneapolis and applies his Socratic method to extract from Kelly what the heck he is doing with BankBosun. 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, BankBosun.com. 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: Hi, this is Kelly Coughlin. I’ve got my long-time friend Chris Carlson on the line. He’s CEO of Narrative Pros. Chris, are you there? Chris: I am. Kelly: Great. How are you doing? Chris: I’m pretty good. How about you? Kelly: I’m terrific. Chris and I were catching up. We haven’t talked with each other in a while, and we were catching up on what’s going on. Chris had a bunch of questions about what we’re doing at the Bank Bosun, and we thought, “Well, let’s turn this into a podcast.” Rather than me talking to Chris about what I’m doing, he’s going to ask me some questions so it will help him and the audience better understand what we’ve got going on. Chris I’m going to turn it over to you. Chris: All right. Well, I think first up on the order of business is letting everyone else know a little bit more about who you are. I’ve known you for a while, but why don’t you let people know a little bit more about yourself. Kelly: I’m 58, 4 daughters, 4 granddaughters, and I don’t know if you knew this, I have one grandson. Finally a male in the family. Chris: Oh, congratulations! Finally! Kelly: CPA. Went to Gonzaga University. My uncle is Father Bernard J. Coughlin who is President. Go Barney! He’s 92 now, and I always give him a shout-out when given the opportunity. I also got my MBA from Babson. Let’s see, I worked for PWC when it was Coopers and Lybrand, and then Lloyd’s Bank, CEO of an investment and financial technology company that I founded, managed, and sold. I don’t if I’ve touched base with you since I’ve started working with Equias Alliance as a risk consultant. They do bank-owned life insurance (BOLI) and non-qualified plan programs for banks. I don’t think we’ve really touched base since I started with them. Chris: No. It’s interesting. Kelly: Yes, it is. Chris: Speaking of which, explain to me this BankBosun. Am I saying that right? I take it it’s a nautical term. Kelly: Yeah. Technically, it’s spelled B-O-S-U-N on the website, BankBosun, but Bosun is actually spelled B-O-A-T-S-W-A-I-N, like boat swain, but it’s pronounced Bosun. Chris: Okay. Kelly: BankBosun, it’s a syndicated audio program, really, that’s designed to bring together executives all throughout the U.S. who are participating in what I call the bank ecosystem. Chris: Wait. I’m not going to let off the hook here. What does a boatswain do? Kelly: The captain of a ship needs help and guidance and support, so the boatswain helps the skipper, the captain of the ship, achieve its mission and purpose. Chris: All right. Yeah, that’s a segue because I’m connecting the dots as we speak as I listen to you. BankBosun helps C-level execs in the way. Is that right? Kelly: Yeah. That’s correct. We’re not dealing with ship captains. We’re dealing with bank officers, chief officers. It’s a clever play on the words C-officers, sea-level officers. Chris: It is clever. It’s very punny. A lot of puns. That’s good though. It keeps the interest. I’m not going to let off the hook with the other fancy term which is banking ecosystem. An ecosystem, if I remember it, that’s like the jungle. Right? What do you mean by banking ecosystem? Kelly: The jungle is one ecosystem, so technically it’s a biological community interacting within a set relationship among resources, habitats, and residents of the area. By this, I mean the residents of the banking community, so it’s all the residents of the banking community interacting among each other. The area is not defined as a physical definition like a pond or an ocean or a jungle. It’s defined as a business industry, and in this case, it’s the banking industry. Chris: Sure. All right. What do they need? I mean, why them? I mean, given your background it makes sense. Kelly: Why the banking ecosystem? Chris: Yeah, why do they need particular help and why are you the one to help direct that assistance? Kelly: Well, bankers are just fascinating, interesting people, aren’t they? Chris: Yes, yes they are. They evidently need a lot of help. Kelly: Well, I’ve been in the banking ecosystem, if we can keep using and then abusing and overusing that term, since I was 22. I started my career at Merrill in Seattle in the early 80’s selling mortgage-backed securities to the banks and credit unions. That was a good introduction to navigating this ecosystem. I would say that I learned a lot from that. Then I was consultant at PWC, and CEO of Lloyd’s at two asset management subsidiaries of Lloyd’s Bank, and then as a CEO of our financial technology company Global Bridge. Our primary market was banks, so I’ve been in this ecosystem, if you will, for many, many years, and I do find it interesting and fascinating. The 2008 crash, or melt down I should say, and several others that we’ve had in history, emphasize that banks are a foundation or bedrock of the economy. Frankly, they need all the help they can get. It’s good for the economy. Chris: These bankers you’re trying to reach, I’m assuming you’re doing it through these podcasts and other high-tech, and you’re pretty comfortable that they’ll be able to get the help they need through that and not be put off by it? It’s a good way to reach them? Kelly: Well, it’s certainly is not something that historically they’re used to and comfortable with. Historically it’s been print media, download reports, print them, stick them in your briefcase, read them when you can. Half the time you don’t read them, or if you do, you read them on the airplane and then chuck them. It’s not something that they’re used to right now, but I know as a CEO of a couple of companies in my past, that we pulled in so many different directions from different constituents whether it be board members or key customers or regulators, employees, suppliers, consultants, accountants, everybody is pulling at us and yanking at our time. CEO’s, generally, and CFO’s, but C-level execs, they need to extract value from all these different sources of information efficiently and effectively. I really am a proponent of the multitasking concept, so the idea was, “Let’s give them some good information, bring together this ecosystem, give them some good information but in a way that they can do other things.” Kelly: Frankly, we’re right in the middle of sporting season, football season and the World Series. I was actually down in Kansas City for the World Series. That was fun. The commercials are ridiculous in these sporting events especially football, so I figured out a way to multitask during these games. Certainly during football games you can read if you want, but also you can listen and learn too. CEO’s, you run your own company. You got a million things going on. Right? You’ve got to figure out a way to maximize the return off of that. Chris: Absolutely. Yeah. You said earlier that you think that it’s a time when banks have a greater challenge than they’ve had in the past, and with your nautical-themed assistance, give me a sense of why now is a particularly challenging time for banks and how you’re going to be able to help us. Kelly: Well, I like the nautical theme for the Bank Bosun. I’ve sailed for many years. I’ve lived in Seattle in the 80’s. To me skippering a boat was, where you have a lot of moving parts and people and weather and tides and currents and rocks and other boats to deal with and coast guard, the regulator, and it really served as a great metaphor for running a business, but especially a bank. I think any executive that’s been in charge of a boat knows exactly what I mean about that. When you’re out sailing in the Puget Sound or the ocean, you use whatever tools and information you can muster up to get you and your crew and your boat to the next point. There are no guide posts. There are no signs. You have to watch weather, currents, tides, all that kind of stuff. All of those principles apply to skippering a company, but especially a bank. Chris: That makes sense. You sold me on the metaphor. Kelly: Good. Chris: Tell me more about where you’re at right now and what the connection is with your Bank Bosun. Are they okay with this new gig? How do they relate? Kelly: Well, Equias is in the bank-owned life insurance space. BOLI is the acronym for that. I came across Equias and the BOLI industry when I was working on a management consulting project. I didn’t know anything about the industry or the product at that time, but after I finished the engagement I thought, “Man, I need to get into this space,” because I love the asset class, if you will. Frankly, it’s an alternative investment for banks’ portfolios. Now, it has to be surrounded by insurance and you have to make sure that insurance is a key part of it, but at the end of the day, it’s a phenomenal asset class. It transfers balance sheet risk. You get a higher return than treasuries, than municipal bonds, and that sort of thing, but I really do like the asset class. Then it has some benefits for funding non-qualified plans. The thing that I liked about it is it reminded me of my early Merrill Lynch days selling mortgage backed securities. At the time, mortgage backed securities were a new, innovative product. They had a few more moving parts involved, and it required me to simplify the value proposition. You really need to focus on the benefits, which everybody needs to do in any business. With any product, you’ve got to focus on the benefits. I always think of the line, “People don’t want a quarter-inch drill. They want a quarter-inch hole.” Now this is, at the end of the day, a life insurance product. I also love the line by Woody Allen, “I tried to commit suicide one day by inhaling next to an insurance salesman.” There’s always some inherent bias against that. My father sold insurance, and I told that to him when I was about 22 or something. He didn’t find it that funny actually. I find it funny. Chris: It is funny. It’s a funny line. Kelly: Yeah, it is. Chris: It’s funny because the word inhaling is funny. Kelly: You’re going to probably offend somebody. Chris: Probably, but that’s not your target market. Kelly: They’re my colleagues. Chris: Your friends, as it were. Speaking of friends, I haven’t wished you, my friend, a Happy New Year. We’re about a year into it here, and you see all these lists coming out, top movies, top TV shows. Why don’t you give me the top three initiatives for, BOLI, or for the banking ecosystem? Kelly: Okay. Chris: Pick your field. Kelly: Well, I certainly have three, but I’m not going to tell you two of them because I wouldn’t want to tip off our competitors onto what I’ve got up my proverbial sleeve. Chris: Okay. Kelly: Stay tuned. News at 5. Chris: That’s right. Kelly: Let me hear your sales voice say that. Chris: News at 5. Now it’s, News in 5 seconds. I asked you for the top three initiatives for 2016 and you said that you’ll give me one. Kelly: I’ll give you one. Chris: It’s called negotiating? Kelly: Yeah. Chris: Okay. Kelly: The one that I’m intrigued by is a confluence of two things. One is cyber security risk. Chris: All right. Kelly: The other is risk transference of that risk. I want to explore whether it makes sense to pursue a captive insurance program for banks to underwrite cyber security risk. Setup a collective or a community to do that. I think it’s being mispriced now by insurance companies because they haven’t really identified the risk. They haven’t really identified how big the risk is, how to mitigate the risk, and then how to price it. Anytime you have unknowns like that, especially in insurance, you get over, mispricing, I should say. That’s something that intrigues me. Chris: Yeah, it makes sense. Kelly: Yeah. The other two I’m not going to tell you about. Chris: Perfect! In the acting business, we call this dramatic tension, which you’ve done a good job of creating. Kelly: Thanks! Chris: Well it sounds interesting. It’s good stuff. We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin.  

Kelly talks to Chris Carlson, CEO, Narrative Pros, about what business leaders can learn from a stage and theater actor about presentations to small and large audiences.   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, BankBosun.com. 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: I’ve got my friend Chris Carlson CEO of NarrativePros on the line, Chris are you there? Chris: I’m here. Kelly: Great, Chris and I have known each other for many, many years. Chris is an actor at the Guthrie Theater in Minneapolis He’s also a lawyer and an entrepreneur, and I’m a big fun of his. Listeners are saying, why does he have a starving actor, lawyer on here? Before we get to your connection in to the banking ecosystem. A little bit of personal background. Chris: Minnesota residence, most of my life, three kids, I’m 46. I’ve been, as I said earlier acting professionally for 22 years. I’ve been an attorney for about as long. Kelly: Well let’s get into why I have you on BankBosun and your connection to the banking echo system. If you recall, I asked you to give a talk at a conference my company was hosting for banks and investment managers. I think we had like six or seven speakers there over a two day period, probably eight or nine I suppose. You got the highest rankings of anybody in terms of popularity. Tell me why you think that happened and what your value proposition, if you will, to the banking industry is. What was it that resonated with these bankers in that message? Chris: Absolutely, and I to think to answer as many of those question as efficiently as I can, it has to do with the value of genuine connections between individuals, whether that’s one on one or one to many, or many to one. The expertise that I have amassed over the years, is to how to efficiently create that. How to make that efficient, how to maximize the feedback that you get from any communication. Kelly: What does that really mean? Chris: Let me give you an example, bankers are smart guys. They tend to live in their heads when it comes to ideas. They believe if they have a great piece of advice, that that’s the end of their value. That I tell you to invest in stock A, because that will help you. But the real world has as much to do about that conversation and whether or not you say invest in stock A, in a way that is meaningful, whether it makes sense to them. Whether you’re rude, whether you’re cold or indifferent. The value of advice when it’s person to person, which is at the center of any banking relationship, depends on the connection between two people. It’s not whether or not I like you necessarily, but it’s I have to trust you. I have to respect you. I have to understand you absolutely. It has as much to do about that as anything. Kelly: How I perceive you or how a customer perceives a banker. Not necessarily how he really is. Chris: Well actually I would say that the goal is to have them perceive you as you really are, and we are many different people to many different audiences. You yourself are a father, a friend, a boxer. You will behave differently in the ring than with a client. What you need to do is harness what will be of the most value, and make the strongest connection with the audience that you’re in front of. That has to come from somewhere that’s true. One of the things that people often mistake is that acting is fake, and it actually has all to do with truth. If you see a good actor, you get them, you buy them, you connect with them. If you see a bad actor, you absolutely reject them. You don’t get it. It’s not real. Kelly: I think what you’re saying is that you learned this in your acting career. And as a lawyer, you practice this. But you learned this through your acting training to be real. Two scenarios, one is making a one on one presentation, and another is giving a talk to 20 people. What does your advice do in those two scenarios? Chris: My advice hopefully will encourage people to understand that their impact on their audience, whether it’s one person or 20 people, has more to do with how they say their message, and how they’re able to let people connect with them as real individuals. How they’re able to be themselves in a very genuine and authentic way, and then share the advice that they have. Far too often people, I call them left brain professionals. People who think a lot will sit in front of their computer and work on their outline in their PowerPoint and then get up and give it, without really spending much time on whether or not they’re giving it in a way that incorporates who they are. I think you, Kelly, are a good example of an effective delivery. That’s you, when I hear you talking, that’s the same Kelly that I hear when I’m having a conversation with in the coffee shop. People are drawn to that. For a banker to have an interaction with somebody, the more genuine they can be, the more that they can focus on that individual as a human being, and also share with them, themselves as a human being. That will make the advice that they give, that much more meaningful and valuable. In many ways it’s the same thing when they stand up in front of 20 people. It‘s genuine and real and to a degree vulnerable. That has a lot to do with fear that is natural, standing in front of a group of people or a high pressure sale. Anyway that you can wrestle that fear, and you kind of say look, “This is me, and this is what I have to say and I think it would be great if you used it, or bought, but if you don’t I understand.” That’s incredibly attractive for people to be around that kind of energy versus, “Look you really got to buy this and it’s really important to me. I don’t know what I’m going to do if you don’t, if you don’t buy this, if you don’t listen to me.” Even though it is important what the person thinks about you, or whether or not they take your advice or buy it. Showing that, gets in the way of who you are and their comfort quite honestly. Kelly: Give me a couple of takeaways that relate to preparing for a presentation and then three or four related to the actual presentation itself, beginning, middle and end that kind of thing. We’ve got some real solid takeaways, I can put some guiding principles here. Chris: Let’s start with the content, that’s where everyone’s comfort is, and most people will spend 100% of their preparation time working on their PowerPoint slides, and you definitely have to work on some kind of presentation, outline and some visuals do help. Number one, when it comes to the visuals, speaker support, PowerPoint, I would work as hard as you can to get rid of all the words quite honestly and just focus on graphs and charts, and pictures or visual creatures. There is a huge disconnect when somebody puts up a bunch of words on a slide, and reads them, or makes the audience read them. It’s just counterproductive and disingenuous to a live environment. You as the speaker need to be considered to be value bringer and you have to explain these things. I would say as few words as possible on any kind of visual support. The content in what someone says, you should outline in bullet points, words or phrases, but not in complete sentences. Don’t lock yourself into phrasing them, in any particular way. Let yourself react to those ideas and explain them, and that’s come off and it’s very authentic and genuine. Kelly: No words on slides. Chris: No words on slides. I would join the audience in cheering if I were to see less words on slides. It’s easy to do, and I think it’s actually fear. People are insecure and they’re like, ”Ah, I got to put all these words on here.” Well take the words off and say the words to people. Kelly: No words on the slide, that’s number one. What was number two? Chris: Number two outline your points in a way that you can speak to them in a genuine way instead, for example, I have been involved in the banking ecosystem since I was 22. Instead of writing that out and then reading it, you might just have something that says 22. You look at it and you say, “Ever since I was 22, I’ve been working in banking.” Let those words, let you work through the thoughts, so that the words come to you at that time. You have to have good notes but it will force you to pick the words authentically and people will hear that. That’s number two. Number three is when you pick these ideas and when you explain them, pretend you’re explaining them to your 92 year old father, or your grandma next door. In other words avoid jargon, you’ve got to be simple, direct and accessible, and I think that people who work in the idea profession tend to be complicated, inaccessible and you always want to be as clear as possible. Simplicity is not easy, it’s very difficult and working on that simplicity is an incredible investment in giving your audiences, who’s paying attention, a return of interest. They will appreciate you, summarizing things very simply and to button this third point off. Work very hard to summarize the single point that you have to make in one sentence. Imagine that your audience is walking out the door, and they don’t have time to hear your whole speech, what would be the one thing you would want to tell them. If you complain, oh no it’s too complicated, it can’t be distilled into one sentence, I would say to you that your audience is doing that anyways. After they walk out, someone’s going to say, “What did Kelly Coughlin talk about?” “Oh, Kelly is working on this cool BankBosun thing, that it’s needed, it helps out C-suite Executives in the banking industry.” They’re summarizing what you’re saying anyways. If you jump into their shoes and try to say all right, “What is the one takeaway from this? You’re going to help them do that. Kelly: That’s good, I recall again from that conference you spoke at. There was some prep work that you recommended. Chris: Sure, let me focus on one of them. A lot of acting technique or approach is focused on combating the nerves and stress of performing. That we appear, genuine, authentic relaxed. One of the truths of performing in front of a bunch of people is that you are nervous. It’s human, so what we want to do is make sure that we find another truth to counteract that. The best counter measure to stress is breathing. When we’re with our friends, or when we’re relaxed, or when we’re uncomfortable and not threatened, the human being breathes from the belly, they use … we use our diaphragm to pull in breath, and when you’re very relaxed, and actually if you watch your kids when they’re sleeping, you’ll see their stomachs go up and down. Now their stomachs are going up and down because the diaphragm is pulling in breath. When we’re nervous we tend not to breath from our diaphragm, our belly, we tend to take shallow breathes and it makes us more nervous and it changes our voice. Someone who’s really relaxed would sound like this, but if they were breathing … their voice goes up a little bit, and it gets a little breathy, and it’s just not as grounded. We can hear that, we feel that someone has a breathiness to their voice and it’s a little higher in pitch, but if you take a breath, and breathe from your diaphragm, not only does the pitch go down, but you can also project your voice further. You can talk louder. So breathing, putting your hand on your stomach and trying to train yourself to breathe so that your stomach flops out when you breathe in, is one of the most effective counter measures to stress and to get you back into yourself, to being a relaxed confident genuine person. Kelly: Let’s talk about, what are kind of some of the deal killers out there. The absolute be cognizant that you don’t do this. Chris: We’ve already touched on some them. These things would be anything that disconnect you from your audience; that separate you from them. For example, number one, the minute you start reading off of the slide, you’re not being in front of an audience genuinely. You’ve turned towards the screen, you’re reading something that everyone else is perfectly capable of reading. I mean that’s just a fundamental disconnect with one audience. “Hey buddy, I can see the slide and you’re reading it for me and it doesn’t make any sense.” Another one would be reading your speech which is very similar, and that’s telling the audience, “I’m not going to talk with you. I’m not going to share with you my ideas, I’m going to read what I wrote, and you’re going to listen to it.” At which point the audience feel like, well why don’t you just give me them for the reading, so that I can read it. Something that’s kind of fun, that I’ve uncovered, is that the average person speaks at about 150 words a minute. We can understand and we think at about 800 words a minute. That means that there is an attention gap. Every time someone starts talking over a couple of 100 words, where my mind is running circles around what you’re telling me. You always have to participate in that because if you don’t, if you don’t give them something to think about that is helping you, they’re going to think about something else. Kelly: Well don’t the non-verbal clues fill that void to a certain extent? Chris: They can, or they cut against it. Something that I was just doing some research on, hand gestures and body gestures. It’s fascinating, the neuro-scientists have studied it, and we use specifically our hands to make gestures, to help us think of a word, and so if we’re genuinely using our hands it’s because we’re trying to think of how to say something, but if you want someone who has prepared a hand gesture like a politician or a bad speaker. The hand gesture comes at or after what they’re trying to say, not before. In the real world, the hand gesture comes a little bit before what it is that they have to say. That’s what the hand gesture is for. When someone plans it, when someone says, “I think it would be good if I moved my hand like this.” They tend to do it in a way that’s very disconnected and fake, because we can tell that. Instinctively, they do it as you’re saying the word or phrase, or after it. That’s an example of another disconnection with an audience where they get the sense, and it’s an unconscious sense, it’s not, “My, he moved his hands in a way that was not matching with the phrase. Therefore I think he’s fake.” We’re not aware of that consciously but unconsciously we think to ourselves, “Wow this guy is a … he’s a fake, he’s not being real with us.” It’s very common. Kelly: Tell me about what should people do with their hands as a default, and then how should we stand? One foot, two feet, hands in the pocket, hands by the side? Give us a couple of ideas on that. Chris: It’s hard to do, but you forget about your hands. Don’t plan any gestures, let your hands go. Just like I was suggesting with your words to jot a note, and then let the specific words you use to express that idea come out in that moment. The same thing should be with your hands. Let your hands make whatever gesture. If you’re an Italian, outspoken hand gesturing person, that’s what you have to do. Kelly: Even if it’s a distraction I’ve been to talks where somebody will be using their hands, you end up following their hands the whole time. Chris: I would say to you that hands gestures become distracting when they’re not connected with what they’re saying. If they’re connected with what they’re saying, you’re not even going to notice them. You become attracted when they’re not connected. If someone has a non-verbal tick, if they’re just moving their hands and it has no connection with what they’re saying, yes it becomes repetitive and it’s a distraction. It’s just like someone who says, has a verbal tick and says um, um all the time and it’s distracting because it’s getting in the way of um, um what you’re trying to say. Kelly: What about movement on the stage? Chris: Less is more, when you start moving around, there’s a huge temptation because of nerves, the sympathetic nervous system, the fight or flight reaction kicks in, and people want to move and I see this so frequently with inexperienced presenters. They’ll start wondering around the stage, or they’ll shift away back and forth on their feet, and that is not connected with anything they’re saying 90% of the time…99. They’re just moving because they’re full of adrenaline and they feel like they should move. But, if it’s not connected with what they’re saying, it is inherently destructive. Why is someone pacing back and forth on the stage? It’s funny because I’ll get push back on that, people will say, “Well I’m trying to be more interesting and dynamic on the stage.” I have no problem with being interesting and dynamic, I have a problem, if it’s not connected with what you’re saying. When in doubt, you need to practice standing still because you’re going to want to move. Move if there’s a reason, move if it makes sense. For example, if you’re separating a point. In the first situation, the FED needs to do XYZ and I’m going to talk about this for a while. In the second situation, and then you can move on that, that might make sense. That’s an example, but that requires practice and planning. So I always recommend that people just stand still. Kelly: Do you prefer microphone that is attached to you versus attached to a podium, because you’re kind of stuck and glued to the podium, but is that your preference? Chris: Yes, a lapel or lavalier microphone allows you to forget about the microphone and that’s what you need to do with a majority of the technology that’s helping support you. Some microphone on a podium tends to trap you behind the podium, which is bad for a number of reasons. You have a temptation to lean on the podium, you’re blocked and a lot of your body language from the audience. You might have more of a tendency to look down. A lavalier microphones will allow you to just take one step to the right or left of the podium, and to find a comfortable position in front of the audience and be accessible. Kelly: That’s terrific, I appreciate that. Chris do you have a favorite quote to finish off here? I always like to get one Chris: Any good quote. Kelly: Good quotes. Chris: Good quotes. “In law, what place are tainted in corrupt but being seasoned with a gracious voice obscures the show of evil.” Kelly: Good one, Chris I appreciate your time on this, and good luck to you with NarrativePros, and we’ll be in touch. Anybody wants to contact Chris, feel free, Narrativepros.com, is that the website? Chris: That’s it. Kelly: Thanks Chris We want to thank you for listening to the syndicated audio program, BankBosun.com 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. Kelly provides bank owned life insurance portfolio and nonqualified benefit services to banks across the United States. 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 of Kelly Coughlin. .