Seven fatal practices in production: plans to get a bigger piece of the pie ride on the success of your origination staff. Yet some very common misconceptions handicap chances for getting the most out of your producers.

TODAY, SALES MANAGERS FALL INTO TWO CAMPS WHEN it comes to managing current mortgage market conditions: tweakers or radicals. The tweakers think a refinance market is always just around the corner and incremental change is all that's needed. The radicals feel the last few years were the exception, not the rule, and that minor changes will no longer work. So what is the right strategy? [??] Certainly, arguments can be made for either strategy. They both seem reasonable. But there's the rub--what appears sensible may not be smart in the long run for mortgage lenders. My viewpoint is similar to that of Thomas Kuhn, American philosopher and historian of science, who famously stated that science advances not gradually, but by jolts. Simply put, mortgage sales organizations need a revolution. [??] After authoring two best-selling mortgage sales books in the last six years (Reaching the Top of Your Game and Winning Strategies in Commission Sales) and working with sales organizations to improve performance, I see first-hand the difficulty managers and mortgage companies have making radical changes in how their sales staffs sell and execute. [??] More often than not, sales managers opt to tinker versus overhaul, believing that "a little change" will do the trick. Luckily for them, the market has been kind to those practicing the tinkering strategy. [??] A lack of courage in making the tough decisions has not penalized the tweakers in recent times. As one top-ranked sales manager at a top-50 mortgage company recently remarked, "How hard is it to manage when we've had 10 years of refinancing business?" But more than luck will be needed to successfully navigate the return to the traditional mortgage business.

The seven fatal practices in mortgage sales that I see are:

1. Making top producers managers

2. Managing to the weakest link and not paying enough attention to the "A" players

3. The overuse of "averages" to determine production goals and staffing needs

4. The belief that it is cheaper to pirate than train sales staff/managers

5. Sales positions are not professional in mortgage banking

6. The continued use of volume and units as the key success/measurement tool

7. The view that origination is a transactional business

Making top producers managers

At many sales organizations, it's standard practice to promote the top producer to manager as either a recruiting tool (as a way to justify the money given) or as a retention device to keep a top sales producer from leaving a firm. The truth is, the skill sets for a producer and manager couldn't be farther apart. Clearly, the only commonality is that both positions deal with people.

Based on the year-and-a-half study of the best sales managers in mortgage banking that my company has conducted, there is abundant evidence that the positions are not alike at all. In fact, the best practices and habits of top managers are completely opposite those for top producers. The research will be published in fall 2005, but suffice it to say our findings clearly show there are certain competencies that successful managers have that lower performers do not.

This practice of turning best producers into managers ultimately dilutes the producer's effectiveness and adds to poor management in the industry. The manager plays a significant role in the success of a production staff, starting with the ability to select and hire producers. Being a top producer does not qualify someone to hire other producers or, for that matter, train other loan officers. Top producers are "doers" who often lack the patience to effectively perform these types of nonsales functions.

To remedy the situation, companies must establish a career path that taps into what top producers are seeking: an opportunity to satisfy their need to achieve and to persuade. Monetary rewards or adding titles to a person's name are not enough to address these needs. The reality is that the job of manager fits best with individuals who have a talent for identifying a producer's strengths and coaching them to the next level.

Key lesson: Managers and producers use two different skill sets and are not interchangeable positions.

Managing to the weakest link and not paying enough attention to the 'A' players

In analyzing the time managers spend on different types of performers, underperformers invariably receive far more attention and guidance than better performers.

Why do companies target the "C" producer or manager with precious time and training dollars and virtually ignore the better producers and managers? Just as troubling is the rationale behind this strategy: "If we get one more loan from the C producer/manager, the company will achieve superior performance."

From research studies that I have conducted, the time spent with C players is a poor investment that does not deliver an adequate return for dollars invested. A company's time and money should be used more wisely than trying to correct poor hiring selections with more training efforts that ultimately will not improve performance.

The underlying assumption of spending more time with the C player is a concept based on treating each producer and manager as equal. This personnel management approach is flawed. As human beings, emotionally we think that if we could only motivate the loan officer or manager to change, better performance would follow. The Pareto Principle, created by Vilfredo Pareto, an Italian economist, in 1906, tells us a different story.

As it applies to sales, the Pareto Principle is a pattern of imbalance between the best producers/managers and others. The imbalance often is described as the 80/20 pattern, but the principle can be any set of numbers greater than 51 percent. The Pareto Principle holds that a minority of causes, inputs or efforts lead to a majority of results, outputs or rewards. Pareto's application to origination is that resources (including people) should be invested in a way that will produce the greatest return: C players do not give an adequate investment return.

So, who loses out when the primary focus is on the underperformer? The A and B producers/managers--the same individuals with the innate ability to reach the next plateau in production volume--are the ones who lose out under this scenario. Often, senior management thinks that award trips compensate for their lack of attention to the above-average performer. The rationale is that the good/great performers should be left alone to "do their own thing." As discussed in Reaching the Top of Your Game, award trips and money are consistently overvalued by senior management and undervalued by the top performers. Top performers feel that incentive trips really don't recognize their efforts because of the wide range of producers who are allowed to go on the trips, and also because from a practical standpoint the top producer can afford to pay for a trip without the company. Top producers see the trips as a "boondoggle" for management.

What the top performers desire most is what they often don't get: the guidance and expertise of a senior manager group leading them to the next level. Better performers are eager and respond the best to training. Top performers offer companies the greatest chance for upside, and are frankly the most ignored.

As Katie Jones, senior vice president at Sun-Trust Mortgage, Richmond, Virginia, says, "At Sun-Trust, we feel it is a basic strategy to manage out the low performers; the real opportunity and challenge is to develop and invest in the top performers, who are more demanding, but help us to meet our growth goals faster."

When lack of attention and guidance continues, the individuals the company values most are also the ones most likely to leave.

Key lesson: Direct your company's attention and investment dollars to the A and B players--not the C players--for the greatest return.

The overuse of 'averages' to determine production goals and staffing needs

Firms either take the average loan volume per loan officer and multiply the number of loan officers to determine volume goals or reverse the formula, dividing the total production budget by the average volume per loan officer, to arrive at number of loan officers they will need to generate production goals. Although frequently used, these formulas are faulty.

The problem lies with using averages as the basis of the calculation. Averages don't tell the complete story. In analysis after analysis that I have done at medium-sized to large mortgage companies, originators' production numbers again follow the Pareto Principle.

The truth is that a much smaller percentage of individuals originate most of the volume. This was even the case at the height of the refinance boom. A small tier of people did a majority of the business.

Similarly, the Pareto Principle applies to sales managers--a small number of branch and regional managers outperform their competing managers by a large measure. Is this by chance? No.

As a result, the Pareto rule is a key management tool for mortgage companies in setting volume and personnel strategies. Without this tool, companies will retain excess sales staff--a strategy that drains resources and leads to costly, unnecessary expenses that can compromise company finances over time.

Key lesson: Having a smaller staff of top producers is better than having a large number of originators who can't sell and sales managers who can't manage.

The belief that it is cheaper to pirate than train sales staff/managers

In our industry there is a widespread misconception that hiring already-trained originators is cheaper than hiring the right person and training him or her. This trend continues even though analysis shows the break-even point between the experienced producer versus the rookie loan officer is only two months (see "Solving the Sales Hiring and Training Challenge, Mortgage Banking, May 2003).

As Phil Fontaine, a recruiting specialist at Decision One, Charlotte, North Carolina, says, "We have learned that the identification of great sales ability matters, and that our annual growth rate of 60 percent-plus has been because we recruit talent over industry experience. By doing this, we have created a great deal of loyalty."

The upside from training rookies is greater retention of new hires. Higher retention rates are key to improving sales performance numbers and lowering production costs. As Kirk Redding, chief executive officer of Ameripath Mortgage, Irvine, California--one of the fastest-growing nonprime originators in mortgage lending--says, "We are committed to hiring only 'A' players. We see it as a raw talent game and not just a skill-set situation. If candidates don't have the skill set, we will train them to have the skill set. While it is expensive, it is the only way to meet our long-term growth goals. It is an investment that we feel is critical to our success. Our results justify the commitment."

Too many sales organizations believe loan officer/account rep positions are innately turnover slots. In reality, we know that turnover is really a function of an employee leaving a poor manager rather than a company.

Key lesson: Sales rep loyalty has a direct impact on sales results.

Sales positions are not professional in mortgage banking

Pirating producers is transforming the mortgage industry into the McDonald's of the financial sector. Taking a nod from Ronald McDonald, many management teams have thrown up their hands at their sales staffs and factored turnover and poor performance into the cost of doing business.

The outcome? When companies fail to raise hiring standards and resist a systemized approach to sales-success training, they are doomed to wait for the easy business of a refinance market to bail them out. A turn in the market sends these firms out to pirate sales talent from each other, which sets up a cycle in which they never truly accomplish change.

Time and time again, senior managers complain about their sales staffs and managers--but they are unwilling to invest in raising the standards for these positions. The failure to set high standards continues to haunt many firms. Mortgage companies should raise their standards and demand that their representatives and managers act and be professional. The mortgage industry should emulate IBM Corporation and other "built-to-last" companies and establish professional sales hiring and training programs.

There are many who talk the talk, but few executives who walk the walk in putting in place strong hiring standards and sales success training programs. Sales rallies and product training meetings do not change performance; they are events with no ability to improve sales results. Real change can only occur when it is part of a process approach.

The fascination with quick solutions will not generate improved results; what changes results is hiring the right people and giving them the sales and management skills to be successful. This is a long-term effort that senior managers need to support. These activities have large payoffs when the CEO stays behind the effort for longer than a nanosecond and believes that people are a company's competitive advantage.

Key lesson: Hiring smart and training for excellence generates long-term success in production.

The continued use of volume and units as the key success/measurement tool

The industry still defines sales success as a function of dollar volume and units produced. In the days when management reporting performed by a company's computer systems could not quickly identify an individual's contribution to the bottom line, it made sense to use the simplistic criteria of volume or units. With technological improvements, this should no longer be the case.

The problem with the volume/unit measurement system is that it rewards producers for loans that are not as profitable as other loan types. As a result, this approach encourages a sales staff to invariably originate the easy loan types and not the most difficult loans that tend to be the most profitable for a company.

It is interesting to note that studies I have conducted show that better producers will originate larger numbers of more-difficult loans. Difficult loans require a higher skill set and motivation levels. Average producers focus on less-complex and less-profitable loans for a reason. Again, treating all loans as equal is counter to what most companies experience in their bottom lines.

Key lesson: Producers and managers should be measured by the profits they generate.

The view of origination as a transactional business

In analyzing thousands of producers and managers in mortgage banking, what the very best do is to have a systematic, consistent way of handling people--whether they are customers or employees. Average or marginal performers don't have a system, and therefore cannot repeat it on a regular basis. Random performance results are hidden in hot markets because the market is carrying them. The very best have a systematic approach that works in any interest-rate environment or geographic market.

The "very best," according to Mike Tumbarello, a marketing consultant and president of First Service Financial Group, Ellicott City, Maryland, "take a holistic approach to their positions and practice a consultative, value-added selling process which is the anchor to their success."

The core of the system used by the great producers and managers is based on the simple fact that they are masters at handling people. They are able to convey they care, are open and honest, and as a result they generate trust and respect. This approach is reflected in their results--having a large amount of referral-based business when originating and having lower turnover numbers when they manage.

In my view, what separates the great performers from the others is they understand mortgage sales are about relationships and service. Too often, the relationship part of the equation is ignored and service is defined only as the time taken to close the loan.

In my opinion, the real issue in establishing successful relationships is making the customer/employee feel special and unique. Only people can do that. Technology should always be a support system, and not an end in and of itself.

Finally, when selling service or teaching others to sell service, the best performers know the critical factor is their skill in developing relationships with others based on trust and rapport. In the end, the outstanding performers in mortgage banking reinforce that this is still a people business. Top producers/managers know that at the end of the day, pricing, products and technology don't generate sustainable success. It's the people who make the difference in whether a customer sends a referral to a certain originator, or an employee stays with a lender and is committed to going the extra mile for his or her clients.

Key lesson: Relationships are what matter in mortgage banking.

Patricia M. Sherlock is president of QFS Consulting Group, a sales consulting firm based in Medford, New Jersey. QFS provides selection and development tools for loan officers/account representatives and sales managers, and customized training programs based on their sales research. She can be reached at [e-mail].