Honored by Banker & Tradesman for Fourth Year in a Row

Wellesley Hills, MA, August 2, 2011 — First Wellesley Consulting Group, Inc. has been named the Banker & Tradesman Best of 2011 Gold Award winner in the Bank Consultant category.  First Wellesley is honored and pleased to be designated the top bank consultant by the Banker & Tradesman 2011 Readers’ Poll.

“We are truly honored to have been chosen again by the Banker & Tradesman readers.  We thank the readers, our clients and colleagues for their confidence in us,” said James D. Jones, President/CEO, First Wellesley Consulting Group, Inc.

Banker & Tradesman, founded in 1872 and headquartered in Boston, MA, is published by the Warren Group.  The Warren Group provides comprehensive banking and real estate news and data throughout New England.

• The readers’ poll honored the best providers of services in the banking and real estate professions.
• Over 40,000 votes were cast for the providers that they believe are best in numerous banking categories.
• “This is a subjective, not objective poll.  It does not measure who writes the most business, who has the most revenue or the most customers.  It does measure the loyalty and satisfaction readers have with vendors.  It is an opportunity for readers to speak up for those providers they believe are the best,” said Vincent Michael Valvo, Group Publisher and Editor-in-Chief, Banker & Tradesman.

About First Wellesley

First Wellesley Consulting Group, Inc. (www.FirstWellesley.com) was established in Wellesley Hills, MA, in 1991. First Wellesley is a national professional services firm specializing in the financial services and mortgage industries and provides strategic planning, consulting, research, presentation and SurveyMatters™ polling services.

Consulting services include lending strategy, technology and organizational optimization and best practice process reengineering.  Clients include Fortune 500, Inc. 500, and other companies, including national and community banks, vendors and trade associations.  First Wellesley is a member of the Massachusetts Bankers Association.

James D. Jones, a 32-year industry veteran, is a nationally known speaker who discusses innovative strategies, best practices, emerging technologies and industry trends. He is a former bank executive, mortgage banker and Big 4 consultant.  He speaks nationally at industry conferences to CEO, director and management audiences and educates industry professionals in strategy and technology.  Mr. Jones serves on the core faculty of the New England School for Financial Studies.  He is the author of Strategic Planning for Mortgage Lenders, published by the Mortgage Bankers Association, and is designated as an MBA Master Faculty Fellow.

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Consumers will be prohibited, on a practical basis, from negotiating price with lenders. Because compensation to loan originators must remain constant, loan originators will be prohibited from reducing their commissions on specific loans to meet competitive conditions. The net effect of this will be that a consumer will be prompted to obtain their mortgage from a second lender rather than negotiate better pricing with their first lender. Think of the consequence of this prohibition being applied to the automobile industry. Consumers would be prohibited from negotiating a better deal with an auto dealer and have to go from one dealer to another in order to achieve their best deal. I don’t believe consumers will appreciate this frustrating “serial shopping” requirement.  This is one unintended consequence of the new regulation.

Loan products that require more work on the part of loan originators and lenders are likely to be deemphasized or ignored. Loan originators can only receive a fixed commission percent based on loan amount, without regard to loan type or any other factors. This means that the more complex loans such as first-time home buyer loans, low-to-moderate income loans and other type of products that require more work are more likely to be ignored. Loan originators will pursue the loans which are easiest to do and not focus on loans that take double the time to complete.  Consumers lose out under this scenario.

I estimate that the cost of implementation for small to mid-size lenders will range between $50 and $150 per loan for the first year. Significant legal, management, regulatory, disclosure, technology, training, monitoring, process workflow, audit and other expenses make this a costly regulation to implement.

Now, here’s the kicker.  The Federal Reserve Board intends on implementing this regulation on April 1, 2011.  Meanwhile, the Dodd-Frank Wall Street Reform and Protection Act also includes provisions for loan officer compensation changes.   The Board plans to create a second round of rules to further revise loan officer compensation.  This means that lenders will be required to pay twice to implement loan officer commission rules.

What about the new disclosure requirement?  I’m not convinced that the simplistic “safe harbor” provision will provide consumers with the best loan choices.  Providing “lowest rate,” “lowest points and fee,” and “lowest interest rate” for a “safe mortgage” options is not the same as providing consumers with the best loan recommendations for their circumstances.  Selecting the “best loan” for a consumer is not always as simple as the three “lowest” options.

I’m not persuaded, given the regulation’s complexity, that the “one and done” rulemaking process will produce a regulation that does no harm to consumers, lenders and loan originators.  It’s essential that the Board issue FAQs to lenders answering the multitude of questions that have arisen to clarify how lenders should implement the regulation. I believe it would be appropriate to delay the implementation date until the Federal Reserve Bank issues FAQs and examines closely the unintended consequences and negative effects of the regulation as currently written.

Should the regulation be implemented on April 1st as is? Should it be delayed and modified to eliminate known problems and issues?  Should it be delayed until a single officer compensation regulation be implemented that includes the Dodd-Frank Act? What do you think?

I now have about 170 apps. My apps include the common and practical ones – email, calendar, contacts, weather, clock, and camera. Some of the apps are business-focused – a “time tracker,” WSJ Mobile, WebEx, Skype, Travelocity, and Kayak.   Other apps, like FIOS DVR Manager, are extremely clever, enabling me to easily manage cable recordings remotely.

I use lots of travel apps, including ten I just downloaded for an upcoming trip to Germany and Austria.  I have found that travel apps are extremely helpful when planning and while on location.  I use apps to choose cities, hotels, restaurants, things to do and flights, check the weather and exchange rates and so on.

I love to eat out.  Yelp and tripadviser are two apps I consistently rely on to find good restaurants.  Last weekend I visited a new region of Connecticut and ate at three great restaurants using the apps.

The iPhone has transformed how I connect with the Internet, obtain information and interact with colleagues and friends. I use it at home and on the road in the U.S. and Europe. My life has become more efficient and better with the iPhone. It’s the most versatile technology I have owned since the 1970s.

Let me ask you the same question – what is your favorite technology? How has it made a difference in your life?  And, if your choice is a smartphone or tablet, what are your favorite apps?

For bank boards and executive managers, several strategic issues are important.  Here are my near-term views on the implementation of Dodd-Frank.

• Short-term uncertainty will dominate as hundreds of rules are written and new agencies are launched.
• Bank compliance and reporting costs could double over the next several years as banks implement the new regulations.  Compliance costs will be the fastest-growing expense category for banks during this time.
• The often discussed reduction in revenues for some product lines and loan types may materially affect financial performance.  Banks will need to counter the loss of these revenues with substitute strategies that increase revenues, and it will not be easy.  Overdraft protection programs, interchange fees and mortgage related revenues are three areas of immediate risk.
• The Dodd-Frank Act drives mortgage lenders to the “middle of the field” and will initially severely limit product options and loan officer compensation strategies.  The cost of originating mortgages will increase due to dramatically greater compliance requirements.  Secondary market options, including Fannie Mae, Freddie Mac and other investors, will continue to tighten and offer banks fewer choices for their customers.  Fewer customers will qualify for secondary market mortgages.
• Bank consolidation activity will increase.  A number of bank boards will conclude that their best option is to merge and create larger organizations. It’s conceivable that we will have 1,500 fewer banks in a few years – a 20 percent reduction.
• Too much time will be spent by directors and executives and line managers to implement the new requirements.  This will limit the ability of banks to devote time to other important initiatives, including new products, technology investments (other than regulatory and reporting) and customer acquisition and retention.

So, what can banks do? I believe that banks need to continue to strongly advocate independently and through their trade associations to Congress and their regulators to achieve a better balance to the Dodd-Frank implementation. The battle for more reasonable regulation needs to be fought on two fronts: with Congress and with regulatory agencies.  I am a strong believer in the concept of “regression to the mean,” the tendency for events to move to the middle over time.  I anticipate that as the negative drag of overregulation and unintended consequences become obvious that the worst aspects of the regulation will be eliminated. This, however, will take months and years.  One of the bankers’ most important initiatives during this time is to advocate on behalf of their banks, the industry, and their customers.

Here are a few insights I picked up during the day:

From our SurveyMatters^TM polling session of attendees:

• 2009 has been a good year for new customer acquisition for the banks in attendance
• The majority of banks, six out of ten, added more customers this year as compared to 2008
• Half the bankers grew core deposits more than 6 percent as compared to last year
• The vast majority of bankers also project higher core deposit growth in 2010
• Community bankers’ concerns include deposit price competition, big banks’ technology advantages and extensive branch and ATM networks and the risk that Gen X and Y consumers will pursue high-tech banks

Here’s an important “decision maker” I heard about from our end-of-day banker panel: women, specifically their role and influence during the bank and deposit product selection process.   One banker shared his bank’s focus group research findings that indicated that women are responsible for 80 percent of all financial decisions made by households.  Another banker said that a survey of her bank’s junior board of directors, high school students, indicated that 80 percent of the junior directors opened up their first bank account because of their mothers. Mothers selected the bank and the timing of the child’s first deposit account.

I, not having children, was unaware of the primary importance of mothers in the Gen Y bank selection decision.  For Gen Y prospects, it appears that there are two consumers making a buying decision – the high schooler and the parent.   I suspect the parent is the primary consumer for this sale.  Banks would be wise to figure out the deposit account features that most appeal to the parent – electronic linking to the parents’ account, transaction and balance alerts and electronic transfers between accounts are three that come to mind.

One natural strategy, based on this parental dynamic, is to focus on marketing to and regularly communicating with mothers of middle and high school students to obtain more Gen Y customers.  Forms of communication could include branch, drive-thru, online, event and other types of marketing outreach.  The second natural strategy is to emphasize marketing to and providing practical value to women of all ages to acquire new customers and grow core deposits.  These strategies may guide a bank’s channel investments, service levels, product features, messaging and other elements of delivering financial services to consumers.