Bank Fee Standards: Decisions, Negotiations, and Savings

Speaker 1  00:04

Welcome to the Treasury Update Podcast presented by Strategic Treasurer, your source for interesting treasury news, analysis, and insights in your car, at the gym, or wherever you decide to tune in.

 

Craig Jeffery  00:18

Welcome to the Treasury Update Podcast. This is Craig Jeffery. I’m your host. Today, we’re talking about bank fee standards. And the title is Bank Fee Standards Decisions: Negotiations and Savings. I’m here with Christin Cifaldi. Christin, thanks for joining me.

 

Christin Cifaldi  00:34

It’s great to be on the podcast, Craig.

 

Craig Jeffery  00:36

Bank fee standards, decisions, negotiations and savings. The idea of understanding bank fees really helps the corporations make informed decisions, avoid hidden charges and negotiate fair terms. As we look at bank fees, the audience may or may not want to know that we have a Feenix book of bank prices where we’ve captured information, but in terms of background for the discussion about standards and decisions, etc. Why? What’s important about understanding the industry standards for bank fees and some of the elements that may not be so standard?

 

Christin Cifaldi  01:15

So it’s important to understand industry standards because it can help you as a consumer make informed decisions about which financial partner you wish to contract with, if you’re going through an RFP process or even just an internal review. It can also allow you to compare fees and services across different banks and financial institutions. You can check on the pricing, for example, at a global bank versus maybe a regional domestic bank that you may be considering doing business with. Understanding can also help you avoid hidden fees and charges. You can discover unused services in your account analysis statements, such as paper account statements, faxes, things that you would think, Oh, that’ll just get turned off. Well, it hasn’t. There’s still something getting mailed into your mail room or sent to your fax number that you don’t necessarily want to be paying for. You can also consider moving or canceling low volume services if you’re understanding your fees and annually reviewing them.

 

Craig Jeffery  02:19

Sometimes there’s a huge driver to save money. I’m fine compensating my banks, you know, in the right range, but I may not know what that range is and that, how does this, how does this help on the fee and the cost and compensation level?

 

Christin Cifaldi  02:37

Yeah, you’re right. Craig, opaque pricing leads to miscommunication with your banking relationship manager could lead to accurate, ill informed decisions, and we recommend when you’re doing these annual reviews to understand your rates, to help you negotiate better rates or terms with your financial partners. And this could even lead to locking in into a two or three year contract with them. We also recommend reviewing earnings, credit rates regularly as well.

 

Craig Jeffery  03:08

I know some of these terms. For some of the audience, they’re going to know exactly what you were talking about. Others may say you just made up a bunch of words there. I think we know it. You know, you have a contract that has fixed pricing for a certain period of time, and the only thing that varies is volume. So that’s pretty clear, but you mentioned earnings credit rate as an example. I don’t know that everybody knows what an earnings credit rate is. I know some must, if you’re if you’re listening to a topic on this, some will know, others won’t. What are we referring to when we say earnings credit rate?

 

Christin Cifaldi  03:46

Yeah, so historically, banks have been barred from offering an interest rate on a demand deposit account, and so how they worked around that was to offer clients an earnings credit rate where you would earn some money that would be credited against your account analysis fees. But I understand the market’s been shifting in a different direction lately. Craig, do you want to talk a little more about that?

 

Craig Jeffery  04:12

Yeah, sure. I know people who might be in other countries are like, What do you mean? You can’t pay interest these crazy Americans, but that, that was the that was in place for a long time. So, you know, earnings, credit rate was that, as you said, that way to provide value, or, you know, compensate you for your balance and use that value to extinguisher, knock off some or all of your your charges, they’d be called analysis charges, basically your invoice. It would allow you to pay for that invoice. So some banks offer different options, where you can earn hard interest, and so you get a regular charge and you pay hard interest. Other ones might offer an ECR rate or an earnings. Credit rate up until the point that it pays for all of your services. If you have excess balances, then they pay you hard interest. If you you’re short, you know, let’s say you had a $5,000 monthly bill or and you earned $4,000 worth of ECR or earnings credit based off your ECR rate, and that remaining $1,000 you would pay, you would pay directly, and if you had a higher earnings, then you would receive hard interest above that amount. So there’s different options there, but it’s important to know that things have changed. You want to make sure you do what makes the most sense. Oftentimes you’re not earning as high of an interest rate on a hard dollar, you know, dva. Hard dollar interest on a dva account, you can usually earn a little bit higher on sweep, sweep to an investment account, but usually have fees associated with the investment account. So all that’s to say is there’s a number of moving parts. Pay attention to what those options are, and you know you can do what makes the most sense for you. You mentioned about opaque pricing, or this confusion with pricing. You know, analysis statements do seem to be confusing. They have a number of components of them, so your your points were well taken. I do want to mention everybody that we have a webinar on Thursday May 9. Recording will be available if you’re listening to this after the fact. You can find that by going to strategictreasurer com, slash webinars and hunt for it, or you can follow the link in the show notes. The idea of learning this material, I don’t know if it’s just pedantic. Why should a treasury manager, a cash manager, want to know this? Why would a treasurer want to make sure someone on their team understands elements of analysis, statements and fees?

 

Christin Cifaldi  06:51

Now, getting a general view of your bank fees and other expenses just creates an educated consumer, and educated consumers make the best Treasury managers and can make more informed decisions, and can negotiate from a position of knowledge, rather than being in the dark when you’re talking to your banking partners.

 

Craig Jeffery  07:11

Yeah, that makes that makes the most sense when you don’t know something, it’s not going to be efficient. That’s think that’s true in like almost every area of life, there’s another topic, AFP codes, the Association of financial professionals. AFP codes. What are AFP codes? And as you described, that, does that solve all the world’s problems with analysis statements?

 

Christin Cifaldi  07:35

Wouldn’t that be nice? So no, it does not. AFP codes are a loose, general guideline created by the Association for financial professionals, and they’re not always provided, particularly at smaller banks. So if your company has a policy you know, or prefers to do business with local, regional banks, these banks might not even be using them at all. Larger banks can tend to code things into, I call it the 999 bucket. They just code it with with six number nines, and call it a day. So you can’t really compare that item to the same exact item at a different bank, where they might actually be using the full AFP code. So they can be helpful, but I don’t recommend relying on them to categorize all of your bank fees if you want to take a true apples to apples, look at what you’re paying across financial partners. Yeah.

 

Craig Jeffery  08:36

So they might, they might provide some some advantage, but it doesn’t solve everything. Is what I’m hearing because you run the system that tracks that. What do you what do you do? Do you use them? Do you rely on those?

 

Christin Cifaldi  08:50

No, I don’t rely on them. They are great, as I mentioned. They’re a good general guideline. They provide a starting point if they are provided. But here we take a white glove approach on my team to analyzing bank fees. Every line item that we look at is reviewed and categorized by one of our data analysts, so a human being is looking at it. We do look at the AFP code. We also utilize heavily bank provided service definitions, bank provided product families, and sometimes we have the ability to get additional clarifications directly from product managers at banks. So we like to do a lot of research on things so that we truly are categorizing these line items similarly for our database.

 

Craig Jeffery  09:41

How do you normalize what’s going on and how do you make it so you can compare them as best as you can? That that certainly makes sense. Christin, I want to go through some examples, people that are listening on bank fees and and this, you know, this discussion is why. Should you do that? We talked about it. You want to save on fees. But there’s, there’s other areas where analysis and review can make a difference. I thought maybe go back and forth on some examples, or maybe it’s, I’ll do a couple, and you do the bulk of the work. I’ll start off with an example of what do people normally do? And then, where can you find other issues? You know, one of the elements of reviewing your your invoices or your analysis statements is to say, did we get charged what we’re supposed to be charged? So the bank can be charging the exact right price. But you may be doing something that you can cancel a service. You don’t need a service. You may be generating some errors. So an example with, you know, just, just one example. This happens in different ways. We looked at, we analyzed our team, your team analyzed what was going on, you know, across the board, and found out there’s a lot of wire repairs. What’s the cause of that? That seems an unusually high percentage. And there’s some process failures. And so there was problems with the setup on, you know, repetitive templates, which sent incorrect information, which meant the banks had to repair it, which they charged a fee. And this saved 1000s of dollars annually. And so this was the bank was charging the right thing. They were fixing the problems that existed.

 

Christin Cifaldi  11:21

Yeah, another one that I think is pretty interesting is during one of our reviews with our client, we discovered an account in a South American country that the client had recorded as closed internally seven years prior. And it turned out, you know, through staff turnover and things that it never actually was closed, and we were able to catch that, highlight it for them, and then they went back, were able to successfully close the bank account, and then they were also able to recover 12 months of fees, because on their end, they had retained the documents where they initially tried To close the account, and they were only able to recover 12 months of fees, because that’s that’s pretty standard in your banking contracts.

 

Craig Jeffery  12:10

Yeah, if you if you don’t, if you don’t catch it soon enough or report it, but you should certainly verify and here’s a good example, just because you sent a letter in to cancel, it doesn’t mean it gets canceled. You may say, close an account. They leave a balance in the account. They can’t close it until the balance is there, and then it gets forgotten. You’re like, this is example of seven years. You know the other the other challenge, you know, companies acquire other companies, and that’s always a good opportunity to look at fees and price. I know you have some examples there. What are? What are some examples of where you can find value in, you know, looking through your whole, you know, comprehensive list of your activity, yeah.

 

Christin Cifaldi  12:54

So oftentimes, when a company makes an acquisition, they acquire those banking relationships. And let’s say you have your your new acquisition has some accounts at bank one and so so do you well they might be charged charging different fees because the volumes are different. Perhaps you acquired a smaller company with lower volumes, which oftentimes can lead to slightly higher fees because the bank is expending more energy, you know, to put out those lower volumes so they do price based on, for example, how many wires you’re sending, sending tons we’re going to give, give you a lower price. So when you make an acquisition, you want to review those banking relationships, especially at the same bank, just to ensure the most favorable pricing is applied to all of your relationships.

 

Craig Jeffery  13:43

That idea of looking at the comprehensive count of activities is higher volumes should lead to better prices, or better tiers of pricing. That sounds.

 

Christin Cifaldi  13:53

And sometimes I forgot to mention it, and it’s important, when you make an acquisition, you might have two combined volumes that push you up into an even better pricing tier. So it’s a great opportunity to open those lines of communication with your banking relationship managers and just make sure you’re getting the most advantageous pricing.

 

Craig Jeffery  14:12

Yeah, that triggers the other thought too. When you’re reviewing, yeah, there’s an event, like a acquisition, as you said, but also tracking like, if you’re moving more towards a certain type of electronic method or a more favorable price items, over time, you may be hitting new levels that maybe there’s an existing tier that automatically moves you there. Maybe it’s time for a new discussion. So those are, those are some other other elements about that companies want to review on a regular basis. I know we’ve got lots more examples there, but we also have a limited time to have a conversation. Anything else you want to share? Any other examples?

 

Christin Cifaldi  14:52

Just to point out that, you know, we mentioned, you can find pricing discrepancies across the same banks when you make a sale or acquisition. Option also to be paying attention to your pricing if you are a global entity, across country lines, at the same banks. So we want to look at similar regions. So if you’re looking at Europe and you have one banking partner that handles those relationships, take a look at what they’re charging in each country, and oftentimes there’s some room to align pricing, just depending on the country’s regulations and tax structures, but generally fees like account maintenance, you can get some alignment there, and that can also help achieve savings and give you some visibility into how you’re using your foreign accounts.

 

Craig Jeffery  15:41

That’s great. You know, as we talked about bank fee standards, decisions, negotiations and savings, I do think it’s, it’s it’s so interesting that you can usually save quite a bit of money if you pay attention to what you do. It’s not all about negotiating a better price, though, if you have awareness and visibility, those things matter. I know you’ve seen that many, many times. Christin, thanks so much for your time. Insights and comments on on today’s podcast.

 

Christin Cifaldi  16:11

Thanks for having me on Craig.

 

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