28 Jan The Chicken Coop
“It’s dangerous to keep all your eggs in one basket, but it’s smart to keep all your chickens in the same coop.” – Unknown
Close your eyes and imagine for a minute that you own a dozen chickens (12). You probably imagined a picturesque chicken coop in your backyard. In that coop were all 12 fat chickens happily pecking the ground & laying fresh eggs for your breakfast.
Now imagine that you keep each chicken in a separate coop on a separate piece of property separated by several miles. You probably can’t imagine that, because it would just be stupid. You’d have the expense of buying 12 different pieces of property. You’d have the expense of building & maintaining 12 different coops. You’d burn a lot of gas & spend an enormous amount of time driving to 12 different locations to feed your chickens & gather their eggs. It doesn’t make any sense. Only a fool would put 12 chickens in 12 separate coops on 12 separate pieces of property.
Now let me ask you a question. How many banks do you do business with? How many insurance companies? How many stock brokers? How many financial advisors? … ?
Most of you are nodding with a slight smirk on your face. You’ve already figured out where I’m going with this.
So, if it’s foolish to keep 12 chickens in 12 different coops, at 12 different locations; what is it when you keep your bank accounts at different banks, your insurance policies with different insurance companies, your investment accounts with different advisors?
Consider your time. How much time would you save if you did all of your banking with 1 bank? How much is your time worth? The average American earns $22.96/hour. If you would save 2 hours per week, it means you’re spending $2,388 of your time doing business with multiple banks (2 hrs x 52 wks x $22.96). Is it worth it? Probably not.
Let me tell you what I usually see. Someone has a $25,000 cd. It’s getting ready to mature, so they go to every bank & credit union in town to find out the rate on a 12-month cd. They go to their bank, cash out the cd, then drive to another bank, spend 30 minutes doing paperwork, and abracadabra, they’re now earning an additional .10% on their cd. They spent about 6 hours to earn an additional $25/year. What they’re telling me is that their time is only worth $4.17/hr ($25/6 hrs). But it’s actually worse than that, because they used a half-tank of gas doing all of this, $25 extra interest – $25 gas = $0. Is your time really worth $0/hr? If so, please email me your resume ASAP! I’d like to visit with you about working for me.
How much time do you spend shopping for car insurance or homeowner’s insurance? How much time do you spend owning accounts at different investment advisors? Now divide your cost savings by your time. That’s not much of a savings. How about those of you that calculated a negative number? A negative number means you’re paying to spend your time. If you’re going to pay someone to use your time, I really, really, really want your resume!
How about real dollars, because some of you actually do value your time at close to nothing.
Every insurance company I know offers substantial discounts to customers who consolidate all of their insurance business with them. Your policies are scattered, because you probably bought them one-at-a-time. You bought a car, so you called around to find the best rate on that car. You bought another car, so you did it again. You bought a house, so you did the same thing. And on & on it goes. Why not get a quote on all of your insurance needs? I believe you’ll find that 1 insurance company managing all of your insurance needs will offer you a better deal than you’ll ever get from several different insurers.
Do the same with your banking. Most banks offer better deals to their loyal customers. By consolidating accounts, you’ll save time, but you may also qualify for free accounts, higher deposit rates, & lower loan rates. Basically, the bank will pay you more & charge you less.
Stock brokers & financial advisors also offer discounts to loyal customers. The discount is usually called a breakpoint. Basically, their commission or fee gets smaller as your portfolio grows in size. And every advisor I know will consider your household relationship when offering breakpoints. A household relationship includes you, everyone who lives in your household, your business, your trusts, & other accounts controlled by you (or members of your household). A .25% discount on a $250,000 portfolio is a discount of $625/year. Why wouldn’t you go for that discount?
So now you’ve saved time and you’ve saved money. What about the other perks that come with being a loyal customer? Businesses know who their loyal customers are and they are generally loyal in return.
When I was in banking, a large part of the loan process was a person’s existing relationship with the bank. Those that did all of their business with us were much more likely to get a loan, and get it at good terms, than those who did business at multiple banks. Common back-office discussion was; they have to move all of their business here as a condition of making this loan or, let them go get their loan at one of those other banks. Existing relationship still plays a large role in the lending process. It also goes a long way towards having problems satisfactorily resolved, what kind of customer service is received, and so forth. You’d better believe that when a large, loyal customer needs attention, they get it; often at the expense of those with split loyalties.
Personally, and my staff has heard me say it a gazillion times; “We are their only advisor. They are 100% dependent upon us, so we’re going to do this right now at no additional charge.”. Or “We are their only advisor. They are 100% dependent upon us, so we are going to drop everything we’re doing & take care of this right now.” Etc … You get the idea. We know who is dependent upon us. We know who is loyal to us. We know where our priorities lie.
Insurance companies have similar internal practices. They know who their good customers are and they will usually bend over backwards to take care of them.
And if you’re a business owner, don’t forget that bankers, financial advisors, and insurance agents can also become customers. When possible, I do business with my small business owner customers and I encourage my staff to do the same. When I was at the bank, the Purchasing Department kept a special list of commercial customers who did all of their business with the bank and those customers were always the first (and often the only) businesses to receive RFP’s & RFB’s. Like I said, businesses are loyal to those that are loyal to them.
So you consolidated your business. Now you’ve saved time. You’ve saved money. You’ve qualified for better service. Tell me again why it was a good idea to keep 12 chickens in 12 different coops on 12 different pieces of property?
Sapiat Asset Management is an independent registered investment advisor, specializing in financial planning based, asset management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.