Can Banks Earn Revenues Helping Customers Reduce Property Taxes?

BankBosun Podcast | Banking Risk Management | Banking Executive Podcast

Topic: Can Banks Earn Revenues Helping Customers Reduce Property Taxes??

Date: May 24, 2017

Attendee and Guest: Kelly Coughlin, CEO, BankBosun; Jason Ziccarelli, CEO, StrydeSolutions,

Intro:

Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, BankBosun.com. Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. On the podcast Kelly interviews key executives in the banking ecosystem to provide bank C suite officers, risk management, technology, and investment ideas and solutions to help them navigate risks and discover rewards. And now your host, Kelly Coughlin.

Kelly Coughlin:

Greetings. This is Kelly Coughlin, CEO of Bank Bosun, helping community banks with risk, regulation, and revenue creation. Community banks face enormous threats today. And I put these threats into three primary categories.

I call them the three R's. Risk, regulation, and revenue. I've spent much of my 25-year career participating in the first two R's, risk and regulation. I worked for PWC and their internal controls and risk consulting area in the ‘90s. I was director of risk management for a number of subsidiaries of Lloyd’s Bank out of London in Minneapolis, and this included a trust company, mutual funds, broker dealer, investment management, and dealing with regulators in the US in the UK.

But today I'm focused on the third R - Revenue. While banks face enormous threats and challenges from a risk management and regulatory perspective, the biggest threat they face is on the revenue side of the balance sheet. Rather, the income statement.

Banks generate revenues and profits from two primary categories. Net interest income and non-interest income. The net interest margin has dropped from nearly 5% in the mid-90s to less than 3% in 2015. I don't need to tell you bankers that these fees are being compressed. Add to this compression the unfair competitive advantage that some non-bank financial companies get - credit unions and Internet companies. Every day I see expensive ads from Lending Tree and Quicken.

Well, this just adds to the revenue threat. I am committed to helping community bank executives manage this. We set up a management consulting firm, BankBosun, with this singular purpose. There really is a two-pronged approach. One, get more market share of the deposit and credit business. And all the related revenues you can get from that without getting in the jam that Wells Fargo did. Those of you that are familiar with my vision and mantra is using audio messaging, especially locally based syndicated podcast programs, is the most effective and efficient way to get your message out.

The second prong is generating more non-interest other income, and you can do this two ways. Generate more revenues from existing business lines or generate more revenues from new business lines. Certainly, generating more fee income from depository banking is a help. Those of you that have wealth management and trust know this is a big bonus to your revenues and profits, and capturing greater market share certainly will help with those business lines.

Today’s interview is with Jason Ziccarelli, CEO of Stryde Solutions. In full disclosure, I've not met Jason personally, but I've talked to a number of companies and individuals that are using his solutions to generate fee income. Some of what Stryde does might not fit into the banking business model, but some of it will. I don’t think much of what he does competes with banks. Rather, it complements what banks do, and more importantly it allows the banker to get a few more crumbs from the client’s cake.

I like the Tom Wolfe description used in describing his job as a securities trader. “We simply take a few more crumbs on the plates of our customers.” Stryde has business lines that sound like this: Credit card merchant audit. Work comp audit. Waste and recycling audit. Cost segregation. Property tax mitigation. WOTC, welfare work tax credit.

Now, I'm not sure bankers really want to get into reviewing whether a company recycles and how much waste they generate. I'm just speculating on that, but helping some of their merchant clients that accept credit cards reduce their expenses and earn a fee to help without taking on any overhead to do this. Well, I'm speculating again. This might be something to talk about. So rather than to speculate further, I've asked Jason Ziccarelli to get online to talk about some of this.

Jason, are you there?

Jason Ziccarelli:

I am, yes sir.

Kelly Coughlin:

How are you today, Jason?

Jason Ziccarelli:

I am well, thank you.

Kelly Coughlin:

Great. Jason, where are you right now? Where do you live? Where do you work?

Jason Ziccarelli:

I'm in Buffalo, New York right now. We live in Buffalo, New York. I'm kind of back and forth between our Buffalo and Fenton offices in Fenton, Michigan. So, I'll spend about one in three weeks in Fenton and the remainder of the time in Buffalo. Then on occasion, we get up to our vacation home in Alaska.

Kelly Coughlin:

Boy, you like the northern latitudes, don't you?

Jason Ziccarelli:

Well, when you're as round as I am, you like it where it's cold here. You get hot fast.

Kelly Coughlin:

That's great. Well, let's get right into it. Jason, you've got a bunch of different business lines. What is your mission and vision for Stryde, and is there a common value proposition for all of these different, somewhat unrelated business lines that you have?

Jason Ziccarelli:

Well there is, and the underlying concept or idea is simply opportunity. We work with lots of different individuals in a lot of professional backgrounds. They could be financial professionals. You mentioned of course the focus of your show, the banking world, and commercial realtors, business brokers, business consultants, legal professionals, tax professionals. They all see value in what we do and the opportunity to differentiate both they themselves from their competition and the services then that they're bringing to the table. Opportunity is the underlying idea behind everything that we do. When you see how we combine everything, what you'll see is the most comprehensive, synchronous service that exists in the business consulting community today.

Kelly Coughlin:

So, they all seem to be somewhat underserved service lines I should say. Credit card merchant audit, waste and recycling audit, cost segregation. I've been in consulting for better part of 20-plus years. I don't think any of us ever looked at these business lines. Are these kind of underserved, hidden sources of revenue for consultants?

Jason Ziccarelli:

Well, they are, and beyond a shadow of a doubt. In fact, it's not just the consultants that are missing the boat, of course. Then, it's the consumers that the consultants represent or work with that are missing the opportunity. If we look at the various categories, you mentioned a few of them. Let's talk about the merchant audit. I think that sometimes at first blush, folks can get confused and think that what we're going to do is come in and identify savings opportunity and change vendors. We're not a vendor. We don't change vendors. We don't associate with vendors. We are true business consultants and auditors. What we're going to do is, we're going to go in and do an 11-point, proprietary audit on the merchant processor that's being used and the fees that are being applied.

We are almost universally darn near 100% of the time going to find errors, inconsistencies and even abuses as identified by the federal government approximately six years ago when they kicked out their last study on this topic and suggested that somewhere between $60 and $80 billion a year are erroneously taken from business owners by their merchant processors. We go after that. We get them their money back, and when we're successful as we are 100% of the time to date after 16 years of doing this, when we're successful we keep a percentage of our success, and that is exactly how we're paid in each and every platform. When you look at applicability and you reference an underserved market, we can go topic by topic and point out that in a work comp audit, we find opportunities 72% of the time.

If we look at cost seg studies, these for example, less than 8% of all businesses out there that can engage in a cost seg study have actually taken advantage of it. R&D is less than six percent. It is absolutely an under-served market, one that we developed and exploded as a business consulting firm and have been servicing with the highest level of success, again, for the last 16 years.

Kelly Coughlin:

Okay. I want to dig into that a little deeper. Or as the media likes to say, I want to unpack that somewhat here. Let's make sure we're clear with our terms here. I'm a CPA, so I'm always sensitive to the use of the term audit. You're not doing an external accounting type audit. You're doing more or less an internal audit on behalf of the company, correct?

Jason Ziccarelli:

Yes sir, that's correct. We're were nonintrusive, non-disruptive in nature. The audits that we do tie up very, very little of the business owners time, that or of their staff or other associated professionals such as their tax firm. We're not looking to supplant or replace or usurp any of their current representation.

We're going to work in conjunction with the representation. We're just going to do what they don't do. When we talk about opportunity, what it comes down to is this. Every single business owner in America, and there's 28 million privately held businesses in this country before we talk about publicly traded and Fortune 500 and so on and so forth.

Twenty-eight million privately held businesses in America, and all the folks out there competing with one another to sell product or to do this or that. The one thing that every one of those business owners are after and for which there is little to no competition, is Refined Profit. Refined operational cost, tax mitigation, which then result in refined or enhanced profits. That's exactly what we bring them, and we do it on our dollar at no risk to them through our contingency based model.

Kelly Coughlin:

You used the term refined profit. Explain that a little better.

Jason Ziccarelli:

When we look at the businesses that are out there today, there's only a couple of ways to make more money. One way, of course, is to try to grow, and there is risk associated with that. There's downtime, there's infrastructural cost, there's all sorts of things that get in the way of that. Again, there's a substantial degree of risk.

The other way to make more money is to refine costs. Now, there can be risks associated with that because sometimes the way we refine costs are layoffs and things of that nature. With our program, we're able to refine costs, mitigate taxes, accomplish all of that in that non-risk based scenario as a result of our contingency-based fee structure. One, we're not disrupting anything. Two, we're not changing the business model or business practices. Three, what we do in being non-disruptive, non-changing of vendors affords us the opportunity to provide the benefit at no risk to them.

Kelly Coughlin:

Got it. You threw out the term 72% when you guys do an internal audit of a work comp deal. Seventy-two percent have some money coming back to that. Let's say we've got a bank with 1,000 clients. Lend them some money, they do some traditional depository traditional banking services.

How would a bank work with Stryde? I think I've seen some video that shows the primary way one of your customers works with you is, you have an app where many of the business lines are on this app, and the banker kind of answers a handful of questions on the app and basically, this qualifies the client as a good candidate for one or more of these services. Then, your team takes it from there. So, the bank doesn't really have to staff up for this. Is that a fair statement?

Jason Ziccarelli:

Oh, absolutely. It's a very accurate statement. Our platform is app centric. When we look at that, it's all based and built around our app which is our proprietary software. We built that in-house. It's not a modification or a white label of another system. We built it based on our years of experience and doing what we do. There's hundreds of thousands of in-house studies that went into the algorithm tied into that, and also in real time ties in with federal state and regional tax databases. It is a real time responsive interactive tool. There's a lot of stuff that goes into it. I won't bore you to death with that.

Fundamentally, what we'll do is, we'll work with the bank to educate them solely on the application and use of the app. The app is a very, very simple tool to use. In fact, it was it was built with the idea that it had to be so simple that a child could run it. It actually is built such that a child can run it. You do not need to be an expert or even have moderate experience in the various services that the app represents to be able to run the app and to do so professionally.

That's the key to all of it, to be able to do so professionally. What the app does, it uncovers various opportunities relative to the dynamics of the business and the activities that they're engaged in. It walks through what the opportunities look like or what the benefits could be to that business by engaging us, then moves into a discovery call option where they have the opportunity to work with our staff.

In doing that, they can schedule real time right on the app. What the app does is, it looks at based on the answers to the questions, it looks at everything that that client will qualify for. It then looks to all of our in-office experts that would be appropriate to put on that call to address any potential questions, overlays all their calendars in real time and issues times for which all of those individuals will be available.

So, at the click of a button. There's no multi-calendar coordination or anything like that. It's instantaneous and real time. It then goes back and walks through each and every one of the services with regard to what they are, how they work, what our fee structure is, images of existing and past clients, and then the dollar figure that's associated as far as the potential savings.

Then, it moves into the contracting and document collection pages again, all of it fully automated. So you see, once you become familiar with that structure you don't have to be an expert in what we do. You don't have to step up. We support everything. All components of the application and execution and maintenance of our program and the service for the client.

Kelly Coughlin:

Okay. We've got a community bank, regional bank. The bank has 1,000 business clients. From what I can tell, many of your services are focused on cost reductions, expense reduction, correct?

Jason Ziccarelli:

That is correct.

Kelly Coughlin:

Okay. They have 1,000 clients. They meet these clients periodically throughout the year. Maybe they're doing deposit business, lending. They would just meet with them on their recurring cycle. In this scenario, the bank would find the relationship, do the qualifying through the app and through discussions. You do some training with them, obviously. They complete the questionnaire and then they identify a property expense category. We come up with a $25,000 property tax expense reduction. Would that be looking backwards that they were overcharged and they are now entitled to a payment from the county for those property taxes?

Jason Ziccarelli:

No. Property tax is one that's on a go forward basis, so that's non-retroactive. Work comp is look back as well as go forward. Things like WATC are go forward. Cost seg studies, cost segregation studies. We can look back a little bit as well as go forward. R&D, we can look back a little bit as well as go forward, so it all depends on which services we're looking at as far as applicability and associated timeframe.

Kelly Coughlin:

So let's say it's a going forward one. How do you get paid on that? How does the banker get paid? How do you get paid? Let's say it's a cost reduction to $15,000. You get paid on the savings that they would experience over the next five years? How long does that last?

Jason Ziccarelli:

It's based on service. Each service is a little different and we have a very clear and outlined compensation schedule. Of course, working with an organization like a bank, we custom design exactly what products we're going to offer as well as the associated compensation schedule within our existing schedule.

It's based on the service that's being offered. For example, if we did a cost segregation study we're never going to charge greater than 10% of the benefit to the business owner. A merchant audit, for example. We're going to charge 50% and we're going to do it for three years. And the associated advisor's going to get 30% of that.

It all depends on the service, the service it’s going to impact. Is it a one-time fee, like a property tax audit? That's one time? Is it several years of repetition or is it is it perpetual in nature will it go on as long as a client? Each service has its own set of rules, guidelines, regulations, and then associated fees.

Kelly Coughlin:

Obviously on a property tax expense, if you find a $15,000 annual reduction, they're not going to pay that for 10 years. They might do it one time, I'm thinking, right?

Jason Ziccarelli:

That's correct. And what you look at there is, it's a fantastic return on investment. If for example we have somebody’s property tax reduced by $50,000 and you look at the fee doesn't come out of their pocket. They're already realizing $50,000 in savings, so they give us back $25,000 of that. In that example, 50% first year. It is not a burden for them, but if you look at that over say a 10-year time period, $50,000 savings over 10 years is a $500,000 benefit for an upfront cost out of the savings that we created. It's truly not even an out of pocket cost.

Kelly Coughlin:

You mentioned cost segregation. Tell us what that is.

Jason Ziccarelli:

Sure. Cost segregation is something that the IRS says, anybody that invested in, built, renovated a commercial property, if I if I bought a commercial property, if I built a commercial property, if I leased a commercial property and have modified it, I've spent money on engaging in enhancements, the monies I spend will traditionally be depreciated in a straight line model over 39.5 years. What the IRS says and what a cost segregation study says is that everybody should engage in one, and that's itemized deductions.

What we're going to do is say, instead of depreciating the entire building, the gross costs associated with same over a straight line 39.5 years, we're going to segregate the components of that building into their own itemized appreciation schedule. One of the examples I give very frequently is that I pace a lot when I'm talking. As I'm talking to you right now, there's actually a pattern in my floor that you can see as I'm pacing. It's just my style. I like to move around while I'm speaking, and I wear out carpet very quickly.

Well, here's an example of the argument. Carpets in general are going to last three to five years. If it's me, it's going to last a year and a half. But the point is, let's say it last three years. Within 39 years you then mathematically have replaced that carpet 13 times. Yet, if you depreciate the building as a whole, you're still depreciating the dollars allocated to that first round of carpet even though you're now on the 13th round.

What we're saying with a cost seg study is, carpet is not going last 39.5 years, so we're going to put it on say a five-year depreciation schedule. Then, I'm going to look at your partition but I'm going to look at your plumbing and your wall, and PVC will go on a shorter depreciation schedule than copper will. Different grade wiring will go on a different depreciation schedule than one another.

So, every item, every aspect of that building goes on its own depreciation schedule, and by virtue of that, you drastically accelerate the depreciation and put a great deal of money back in the clients’ hands today. It's something that has proven very, very successful for us over the last 16 years and every one of our clients have participated in it as we've put hundreds upon hundreds of millions of dollars in their pockets through this and others of our tax strategies.

Kelly Coughlin:

Now, that cost seg project, that seems fairly labor intensive, isn't it? You've got to really look at the granular assets that they have and in essence, what you're trying to do is reclassify them as expenses, right? Or instead of a five-year depreciation, three-year, but doesn’t that require quite a bit of detailed analytics to do that?

Jason Ziccarelli:

Very detailed analytics, and it's done on our side, on the client side.

We're looking at getting copies that depreciation schedule and having some dialogue with their tax planner. On their side again, we talk about being non-disruptive nature. You're talking about a handful of minutes of time of that business owner and their staff. Whereas it's a lot of time on our part.

But again, we go back to being non-disruptive for all the work that needs to be done. It doesn't tie up the time or energies of that business owner and/or their resources, their staff. So, all of that work is done on our side. Again, when you look at our structure and contingency based model, that's where we see such a high-level of adoption of our services within the business owner community.

Kelly Coughlin:

Right, but you guys do all the heavy lifting there. That’s part of the model?

Jason Ziccarelli:

Absolutely.

Kelly Coughlin:

Okay. Let's talk about worker’s comp audit. How do you find value there?

Jason Ziccarelli:

Well, there's a lot of different things that we're going to look at, but a good example, a very, very easy to understand example for anybody that's listening just not familiar with that is that all too often, you'll get an insurance agent because of the commoditized nature of the industry that really just wants to get a contract signed and move on to the next. They don't want to overly analyze it and jeopardize losing the opportunity. I'm not suggesting for a moment that they're not doing their job. But again, they specialize in the product, and there's a lot more to this as there is to anything else than just the product at hand.

What can happen all too often is, you can get, again, it's just one example of many that we'll look at. You can have employees carry one classification that may or may not be appropriate and/or an employee carrying a classification wherein they should carry several. One of the examples I very frequently give is, let's look at a construction site. Construction is generally considered higher risk of various professions, so tends to be more cost associated with workman's comp.

With that, we could have Mr. John Smith who's out in the field today. The work comp, the agent comes in and says, he's a laborer. Well, he very well may be a laborer, but he may be a labor for hours a day out of a 10-hour day, and another two hours he may be in the office bidding on work, and another two hours he might be in training to become a supervisor. Whatever the case may be, where he or she should carry multiple classifications that by virtue of that reduces the overall costs on he is an individual.

Then, you extrapolate that out across all of the employees and all of a sudden, you find that you've been overpaying for an extended period of time, and not just overpaying for a period of time but that you will continue to overpay until these reclassifications are established. Again, as I said, that's but one example of the of the types of stuff that we'll look at. Again, in that case, I mentioned merchant audit this is darn near 100% of cases that we find inconsistencies, errors, and even abuses. In this case, it's approximately 72% of the time that we see overcharges occurring.

Kelly Coughlin:

So, you uncover that, and then there's sharing for a period of time. Either one time or a period of quarters or years. The entity is on its own. They get to keep all the savings from that, correct?

Jason Ziccarelli:

Exactly. Correct. As with all of our services, everything again is contingency based and performance based. We can go to work for the client on any one of these topics, and if we don't find a benefit, there is no cost.

Kelly Coughlin:

Okay. Then, the final one that I'd like to talk about is credit card fees. I don't know how many of the community banks and regional banks that are out there are actually earning credit card fees themselves. So, they could be a target of your internal audit. Or if they're not earning fees from it and they use credit card processing companies to do that work for their customers, then they or their customers could benefit from that. What's your take on that?

Jason Ziccarelli:

Well, you'll see in the banking world as you just said, there's various realities for the different banks and institutions that may be listening to this call. Some of those realities are that they're providing these services, at which point our offering same would be a conflict of interest. Under those circumstances, it would simply be omitted from the audit so it wouldn't come up.

You'll have other institutions that are not offering those services and then could look at it as one of two things. One is, it is a good service to the client to find opportunity, provide savings, and again, facilitate benefit for that client. If it's an institution that does provide the service but is not doing so for that client, it's also a great opportunity to uncover and demonstrate that the folks they are using are not treating them as fairly as they should. And it then creates an opportunity for that bank to win over that business.

Kelly Coughlin:

Got it, interesting. Let's say a banker listening to this says, yeah, I'd like to get onboard with this or I'd like to explore it. I think you charge them $99 a month upfront on a recurring basis. They need to more or less assign a point person at the bank to be responsible for this business line. It seems like that point person could be a new banker - one or two years out of college or something like that. It doesn't have to be the executive senior guy there, but you could appoint someone that would learn the product, get proficient in it, and then work with more senior bankers to get it rolled out to their customer base. Does that seem like a logical way to approach this?

Jason Ziccarelli:

That's the logical way. It is an incredibly easy thing to run. If it's a junior, brand-new member of the bank, they will have absolutely no problem. You see all ends of the spectrum and everything in between. Whatever the dynamics, whoever the personnel, the system will accommodate incredible opportunities and will be something that anybody can successfully learn, do so very quickly, and then exercise on a regular basis.

Kelly Coughlin:

That's terrific. I think that covers pretty much what I would like to do on this podcast. I'm going to recommend that any banks interested in this get in touch with me, and I'll help them navigate through you and Heather to make sure we advance this thing.

Jason Ziccarelli:

That would be fantastic.

Kelly Coughlin:

Okay. Jason thank you very much for your time. I look forward to working with you guys in the future, and let's see if we can help these banks generate an additional source of revenue so they can more effectively compete against the big banks and the big brokers out there. Sound good?

Jason Ziccarelli:

It does sound good. I look forward to working with you and all those on this call, and appreciate the opportunity.

Kelly Coughlin:

Thank you. Bye.

Outro:

We want to thank you for listening to the syndicated audio program, BankBosun.com The audio content is produced by Kelly Coughlin, Chief Executive Officer of BankBosun, LLC; and syndicated by Seth Greene, Market Domination LLC, with the help of Kevin Boyle.

Video content is produced by The Guildmaster Studio, Keenan Bobson Boyle. The voice introduction is me, Karim Kronfli. The program is hosted by Kelly Coughlin.

If you like this program, please tell us. If you don’t, please tell us how we can improve it. Now, some disclaimers.

Kelly is licensed with the Minnesota State Board of Accountancy as a Certified Public Accountant. The views expressed here are solely those of Kelly Coughlin and his guests in their private capacity and do not in any other way represent the views of any other agent, principal, employer, employee, vendor or supplier.