Insight. Innovation. Industry.
Business / Human Resources /  •

Leaks in the Talent Pipeline

Commercial lenders can be big money makers for credit unions, which makes these talented staff members recruitment targets for competing financial institutions.

National lending conferences have little to do with improving one’s financial analysis skills. Rather, they are for poaching talent. That, at least, is the rumour. The hearsay is supported by reality: there is a serious talent shortage in the commercial service departments of many financial institutions across North America. And tempting account managers to join the competition — sometimes with the promise of big bonuses — has become a bit of a sideline at places where talent congregates, such as conferences. Nearly every financial institution is guilty of trying to lure experienced lenders from other employers. Lenders, meanwhile, also field cold calls from headhunters.

“At these industry events and conferences you’re seeing all the same people. If you know someone who’s succeeding, then naturally you ask if they’d like to join your organization. It happens a lot quite frankly,” says Kristian Medri, senior regional manager, commercial real estate lending for Central 1 Credit Union in Toronto.

Why is it necessary to be so grabby in the area of commercial lending, including business real estate? Many credit union executives say the skillset required is so unique that it’s tough to find suitable candidates. Each business loan must be considered on its own merits, may take several days to evaluate and many more months in follow up. In contrast, retail loans are more straightforward — does the individual meet the requirements for the loan or not? So it is less challenging to find competent employees to handle these transactions.

Commercial lending refers to financing for businesses, including mortgages for offices or warehouses, loans for equipment and other necessary start-up or expansion capital. Residential mortgages, on the other hand, as well as personal loans for cars, fall under the retail-lending category. In North America, banks and credit unions are the prime source of funds for small and medium businesses. Since the 1980s, commercial lending has been growing in value for financial institutions as business real estate and agricultural endeavors shake off their reputation for being high risk with low returns. Business loans can have a larger spread — better return for lenders — in years when retail interest rates are low. But retail lending typically makes up for this shortfall with volume.

Pay and training an issue

Being poached by a competing nancial institution isn’t the whole story for commercial lenders with impressive resumés. Some credit union managers and executives admit that they aren’t providing sufficient compensation for this challenging role. Meanwhile, other credit unions have ignored training new lenders to replace seasoned lenders who are retiring.

“The bigger issue is not that junior people don’t want jobs in this industry, it’s that senior leaders want to find that experienced hand who can start delivering on day 1.” – Kristian Medri

According to the Bank Director’s 2016 Compensation Survey in the United States, American banks — particularly smaller institutions with regional bases — face this reality, with 43 percent of executives admitting there aren’t enough talented commercial lenders in their area. Among smaller financial institutions (with less than US$250 million in assets) the shortfall rises to 56 percent. “Community banks suffer this shortage the most as they have the least resources to attract qualified talent, and the least funds available for in-house training,” Mark Sanchez wrote in the online business magazine

Maggie Sinclair, senior vice-president of business banking at Conexus Credit Union in Regina (123,000 members, $5.6 billion in assets), agrees that smaller budgets make it tough to attract the best candidates. “More competitive incentives at the larger financial institutions attract stronger performers,” Sinclair says.

Commercial lending makes up 45 percent of Conexus’s total business. It finds the best candidates for entry-level commercial lending roles among the local pool of new financial planners. Planners, Sinclair says, are accustomed to asking clients about their long-term goals rather than efficiently filling an immediate need, such as purchasing a mutual fund. In a business context, lenders who come from a financial planning background are more adept at taking a long view of a business’s requirements for growth instead of a transactional approach where the credit union’s role is simply providing a good interest rate for equipment loans. The hitch, however, is recruiting for more senior level lending roles. “It is not always easy to lure financial planners to commercial and agriculture adviser roles, because the compensation models differ. Unfortunately, with the skillset required, the potential candidates go to larger financial institutions where there is differentiated compensation,” Sinclair says.

Sinclair advocates a variable model, allowing business advisers to add commissions or other types of bonuses such as categorizing commercial loans into tiers reflecting the credit union’s overall goals. For example, net promoter scores (NPS) rate customers on how likely they are to recommend the business to someone else. So building a relationship with a high-scoring member would likely yield more income.

Sinclair also proposes giving commercial lenders (who are more likely to be called business advisers or account managers to indicate they are service and member oriented) the same discretion that investment advisers generally have to negotiate or waive fees. For some deals, this might mean taking a cut in commission bonuses; for others the adviser might earn more.

If credit unions can’t afford to pay for ready-to-roll candidates, the other option is grooming junior staffers. Kristian Medri at Central 1 says that while promoting internally is the ideal, he suspects some credit unions struggle to keep their lending department well staffed because they aren’t thinking long-term. “The bigger issue is not that junior people don’t want jobs in this industry, it’s that senior leaders want to nd that experienced hand who can start delivering on Day 1.”

Medri says that the industry should take more concrete steps towards building a pipeline of talent. It should be seeking out new graduates and seating junior staff next to the seasoned lenders so that a department is never left with a big gap when someone retires or moves on.

“More competitive incentives at the larger financial institutions attract stronger performers.” – Maggie Sinclair

Sinclair agrees. Credit unions “lack a strong training program that provides strong foundational skills, mentors and direction. Our competitors have done a very good job of this and so [their new hires] take less time to become fully functioning employees. Our teams tell us every day this this is a gap in our business,” Sinclair says.

While Central 1 and larger credit unions have lending departments of 50 to 60 people of varying seniority, smaller credit unions have a harder time maintaining lenders-in-waiting when every full-time salary must pull its weight.

Professional development crucial

Kent Farrell, director of credit at Newfoundland and Labrador Credit Union (NLCU) (16,700 members, $572 million in assets) admits to being in this boat. With only three full-time account managers in commercial lending, having another one or two in the wings — but not producing — would strain the budget. NLCU relies on outside sources such as Cusource Professional Development and Education for professional development courses. Unfortunately, Farrell says, the timing doesn’t always match up. Cusource accreditation can take a year to 18 months, with new hires waiting for the course start date to come around.

Farrell says he’d prefer a shorter option that is available more consistently. NLCU, like other smaller credit unions, might only hire a new commercial account manager every few years so having a formal training program in-house doesn’t make sense. But when they do hire, it’s paramount to get the new lender up and running as quickly as possible. “I would love for us credit unions to work together so that there’s constantly an online course for new commercial lenders that takes only a month or so to complete.”

Libro Credit Union’s (103,000 mem- bers, $3.4 billion in assets) commercial lending portfolio makes up just over half of its loan book and accounts for 55 percent of loan revenue. Most of these commercial loans are to small farm-related businesses in southwestern Ontario. In fact, Libro has
the largest agricultural loan book in the Canadian credit union system. In order to help these agricultural operations in their business practices, Libro’s Frank Kennes, vice-president, agriculture and commercial, says advisers need to feel as comfortable in barns and machinery shops as in offices, so that they can truly act as partners for business members. To find such commercial lenders, Libro sends recruiters to agricultural colleges such as the University of Guelph to hire two to four new graduates each year for an in-house trainee program created in 2016.

Even if Kennes had the funds to headhunt top performers from other financial institutions, he says that recruiting seasoned lenders from banks hasn’t worked out for Libro very often; those with banking experience find it dif cult to switch from pleasing shareholders to looking after the best interests of members. “It’s better to get them young and train them up before they have baggage from other institutions,” Kennes says.

While commercial lending hasn’t taken over from credit unions’ prime bread-and-butter of residential mortgages, it is a growing source of significant revenue. As with individual members, commercial members expect more personalized service as well as good rates from credit unions in order to switch from banks. Over the past four decades, credit unions have learned that the best way to retain these high-yield clients is through earning status as a trusted adviser. Therefore it’s incredibly important that these employees have not only technical training but those special qualities of likeability and business intelligence that would make them successful in many fields.

It is clear that credit unions must up the ante to attract these folks and strategize for the long game. Commercial lending is already proving its value to long-term success; now it’s time for credit unions to pay for these gains through smarter compensation models and opportunities for aspiring lenders to shadow seasoned performers. ◊

From the Horse’s Mouth

Three commercial lenders offer their perspectives on problems and perks within the credit union system.

One reason Kent Farrell has committed 14 years to Newfoundland and Labrador Credit Union, but only three each to the Royal Bank of Canada (RBC) and Canadian Imperial Bank of Commerce (CIBC), is surprisingly sentimental for a leader in the business world. After earning a commerce degree with an accounting specialty and then an MBA, RBC hired him as a small-business adviser. Next, CIBC nabbed Farrell by offering exposure to mid-market customers. But then — here’s the surprising part — NLCU pulled him back to small-business lending without offering more money. Why did he go?

In six years at the banks, Farrell says his superiors in Toronto or Montreal had never once asked about his life outside work. In fact, he didn’t have much of one; often slogging 15-hour days, he rarely saw his small children. The family decided together that an initial pay cut would be worth the shorter hours. After just two months as NCLU’s first commercial account manager, Farrell was at a work function with his wife Tammy and colleagues. His CEO, Allison Chaytor-Loveys, made a point of welcoming him to the organization and then shocked Farrell by greeting Tammy by name before he introduced her. “I was honestly blown away,” says Farrell. Chaytor-Loveys’s attitude was present in all levels of management, showing up in many family friendly policies that kept other staff from straying too. Today, Farrell, as the director of credit for a department that encompasses account managers, credit adjudicators and collections officers, says that headhunters have the best luck poaching “younger staff who haven’t worked at banks before.” Senior staff are rarely tempted to switch horses, particularly if they’ve felt the support of the credit union through family challenges. “Anyone who has worked at banks knows their promises of work-life balance and opportunity aren’t true,” says Farrell. “Lots of the people who leave tend to want to come back.”

“Anyone who has worked at banks know their promises of work-life balance and opportunity aren’t true, lots of the people who leave tend to want to come back.” – Kent Farrell

While NLCU’s commercial lending accounts for only 10 percent of its total loans, Farrell reveals that commercial services is a significant part of the credit union’s growth strategy in the coming five years. As a senior executive, Farrell is more likely in meetings than his own office, staying connected to branch managers, who may one day move to commercial services. When he was an account manager, Farrell typically was out of the office too, meeting with business owners to view their risks and needs first hand. During his 19 years in the industry, Farrell’s position has evolved from a formulaic evaluation of loan applications to whole-business commercial services that allow members to contact one account manager for credit, deposits, cash management and any other concerns. It’s an ideal development for people like Farrell, who love to get elbows deep in supporting growing companies and staff.

For Frank Kennes, becoming a commercial lender was the best means of supporting — without actually becoming a farmer — the agricultural community where he grew up in Parkhill, Ont. Now vice-president, agriculture and commercial at Libro Credit Union, Kennes earned an economics degree from the University of Guelph and, at 24, joined St. Willibrord Community Credit Union in nearby Strathroy. (St. Willibrord became Libro in 2006.) As a management trainee, Kennes took turns as a teller, administrator and farm loan supervisor until one day in 1986 the head of credit decided to go back to law school and the CEO offered Kennes the position.

Some might say lucky breaks don’t happen like that anymore but Kennes’s advice to aspiring commercial lenders isn’t that different from his own steps. He recommends taking lending courses online or in community colleges and volunteering for additional responsibilities. Let those in senior positions know about your aspirations and ask to job shadow, he says. Kennes relates a story about one of Libro’s newest account managers who began in their call centre. She took all the courses Kennes suggested, applied for the trainee program in 2016 and is now advising her own clients from the London, Ont. branch.

Kennes’s devotion to members is more than an obligatory cooperative principle. Use the words “closed a deal” in earshot of him and you risk a stern bark. “Cemented a relationship” is the term he prefers. Job satisfaction for Kennes is finding a way to get a struggling enterprise back on its feet or helping an ambitious owner put plans into action. He loves that commercial lending allows him to meet with owners at their workplaces, such as a tool shop in Windsor that makes moulds for car parts. “You feel great after seeing the enthusiasm of the guy as he took us through the plant because you’re with someone who loves what they do.”

Kristian Medri long had an inkling he would make a career in commercial lending. His father was a commercial lender with TD Canada Trust. Now senior regional manager of commercial lending at Central 1 Credit Union, Medri climbed to the position after achieving management and finance degrees at University of Western Ontario in London, Ont, logging two years as trades settlement adviser for State Street Bank and Trust Company and three more as loans officer for Estonian Credit Union (4,726 members, $142.7 million in assets).

To leapfrog into more responsibility, Medri completed an MBA at Ivey Business School at Western. The extra work paid off when Central 1 hired him upon graduation.

While smaller credit unions typically can’t afford to hire more expensive MBA graduates as account managers, Medri believes the skillset makes sense in commercial real estate and development, an industry that involves accountants, lawyers, city planners and tradespeople. MBA grads ask better questions, he says, and communicate more easily with multiple stakeholders. Being process focused instead of trained in lending formulas allows them to see creative options where junior lenders might only see an instance of numbers not adding up. “When you find a lending opportunity that doesn’t totally fit with what you’d like to see, you need to propose alternatives, if there are any. See if you can make this deal work for both parties.”

Medri’s entrepreneurial personality ts well with Central 1’s facilitation of larger commercial real estate and development deals. Arrangements often involve syndication with multiple credit unions and investors. Medri typically is in charge of 10 projects at a time, with at least five on his desk requiring immediate attention in any given week. Where others in his cohort found satisfaction as real estate developers or as investment managers in large banks, Medri finds that overseeing member relationships worth up to $50 million satis es his entrepreneurial inclinations. “You’re given a bucket of funds from your employer that you can lend out to clients and it’s up to you to find those opportunities,” Medri says.