Investment Services Cement Member Relationships

They pave the way to increased profitability and stronger member ties.

July 13, 2011
Investment Services


  • Before offering member investments, understand how to set up, maintain, and nurture a program. Or find a provider that can.
  • A one-stop shopping approach helps CUs retain and grow member assets.
  • Board focus: There’s a great need for investment services—25% of baby boomers lack retirement savings.


Retail investment services can strengthen a credit union’s relationships with members by providing access to the advisory and brokerage services members say they need.

But before entering this realm, credit unions must understand how to set up, maintain, and nurture a retail investment services program—or find a provider that can.

Member business grows

When Workers’ Credit Union, Fitchburg, Mass., introduced member investment services more than 10 years ago, concerns over disintermediation—the withdrawal of core deposits to the investment side—weighed heavily on Doug Petersen’s mind.

“We wondered if we were going to lose our certificate money to investments,” says Petersen, CEO of the $800 million asset credit union.

But those fears weren’t realized: About 85% of members’ investments come from sources outside the credit union, and any funds gleaned from certificates have been replenished and then some, Petersen says.

“We do even more business with our members as we get to know them better,” he says. “As the program matures, we’re seeing more success. Last year was our best year ever.”

The credit union earned $960,000 in gross dealer concessions in 2010, up from $940,000 in 2009 and $750,000 in 2008. This total represents 26 basis points in noninterest income. Assets under management have grown from $70.6 million in 2008 to $111.6 million in 2010, Petersen reports.

Maps Credit Union, Salem, Ore., also finds investment services don’t take away from credit union deposit accounts. In fact, the opposite is true at the $390 million asset credit union, which offers a full line of investment and insurance products.

“The investment department adds far more to traditional credit union deposit accounts than it removes. On average, our investment department brings
$5 million into the credit union each year,” says Wayne Muller, chartered financial consultant for Maps. “Credit union accounts are used as the conservative portion of the investment portfolio because of their safety and relatively favorable dividend rates.”

The credit union’s investment and insurance offerings have allowed the credit union to serve as a one-stop financial solution for its members, he says.

“Providing investment services allows the credit union to be the only financial resource members need,” Muller says. “The investment department has built up a reputation for great service and integrity, and that encourages new members to join the credit union.”

Next: Retain members and assets

Retain members and assets

Consumers like the convenience of conducting their financial business at one place. And this “one-stop” approach helps credit unions retain and grow member assets, says Jake Palmer, a chartered retirement planning counselor and chief compliance officer for SWBC Investment Services. SWBC offers investment products to credit union members and institutional investment advisory and brokerage services directly to credit unions.

Research has shown that members who use credit union investment and insurance services have higher deposit balances than members who don’t, says Jim Metz, president/CEO of CUNA Brokerage Services. Credit union households have an average deposit balance of $9,571—versus $26,748 for members who use credit union investment services and $24,075 for members using both credit union insurance and investment services, according to a study by Raddon Financial Group.

Plus, these members are more likely to stay with their credit unions, especially “affluent retirees” and “upscale empty nesters,” Metz says. “Members who have both an insurance and investment relationship with credit unions are nine times more profitable to credit unions. Those with only an investment relationship are six times more profitable, and those with only an insurance relationship are four times more profitable than members without these relationships.”

Metz says there are two main types of investment programs: managed and dual. In managed programs, the financial advisor is an employee of the broker-dealer. As such, this person’s salary—typically a commission—is paid by the broker-dealer.

Most of the “risk of underperformance” then rests on the shoulders of the broker-dealer because if its commissioned adviser doesn’t produce, it loses out on income. The credit union might not make any money, but it won’t lose any either.

In a dual program, the credit union bears the risk of underperformance because of the management overhead that’s associated with the program. In this situation, an adviser might be paid a salary, but not often. If the adviser doesn’t perform, he or she wouldn’t get paid, but the credit union manager overseeing the program would still need to be paid.

Payments to the credit union vary depending on the offering, the broker-dealer, and level of service, Metz says. Managed programs, for example, typically pay 15% to 36% of the commission earned by the program. After expenses, this flows to the credit union’s bottom line.

The amount a credit union can make on retail investment services depends on the type of arrangement it has with its broker-dealer, Palmer notes. With SWBC’s program, credit unions receive a percentage of the revenue.

“While most partners prefer to let us deal with all aspects, including human resources and benefits,” he says, “our partners have the flexibility to take on more of the responsibility and get a higher percentage of the payout.”

Cultural issues

Ultimately, it’s the adviser’s success and productivity that determines how much fee income the credit union earns. This success comes from training, marketing, support, and commitment to the program by the credit union and broker-dealer.

Don’t expect an investment program to be “turnkey,” Metz warns, where the credit union sets it up and expects things to happen on their own.

That’s a lesson Workers’ Credit Union has come to understand. “Starting from scratch is a difficult task,” says Petersen. “It’s different than a deposit and loan environment. There are cultural issues to work through. When we first started doing seminars, we’d have only three or four people sign up and we’d have to cancel. In contrast, last year we delivered 20 workshops for 330 members.”

Initially, the credit union had difficulty finding investment reps who fit the credit union’s culture and desired level of expertise, he says. “Our branch staff are very member-focused. The reps had to earn the trust of the branch staff so the branch staff could refer members with confidence. It took over a year to find the right investment people.

“It’s also important to educate staff about how they’re helping members by making referrals, and to overcome the idea that the stock market is risky,” Petersen continues. “Staff had to learn that having too much in a certificate might not be helping a member, and that it all depends on the member’s profile.”

Conversely, the investment reps had to see the branch staff as part of their team, he adds. “Many of our staff members now have their own accounts with the investment reps. And now most of our seminars are sold out.”

Staff education also plays a role at Maps. “It’s difficult for other credit union employees to understand what we really do and how we fit into the big picture,” says Muller. “The problem isn’t solved yet, but we’re working on it.”

Next: Consider vendor options

Consider vendor options

The credit union/broker-dealer relationship is an important one. “When we reviewed broker-dealers, we did a broad search and narrowed the choice to four programs,” Petersen explains. “We decided on CUSO Financial Services, and they do a terrific job. We now have a player/coach investment manager who supervises a department of five.”

A few years ago, the investment area lost its manager and Workers’ Credit Union outsourced the service to keep it functioning. “In hindsight, that ended up being a good thing,” Petersen says. “That company—a credit union service organization called Gateway Services Group—helped us with sales goals and with recruiting and hiring the right manager. Having that company here also gave the new manager the luxury of getting his feet wet while that company continued to manage the investment business.”

When considering third-party providers, Palmer suggests credit unions analyze the companies’ training, recruiting, and integrity. “Ask for copies of their Financial Industry Regulatory Authority report, which shows any major issues they might have had with state or federal regulators.”

Metz also suggests looking at flexibility in case you want to switch to a different provider at a later date. In addition, make sure the company has a strong support infrastructure to provide guidance and troubleshoot issues, a multifaceted training program, thorough compliance oversight, a solid technology platform, and marketing support.

Toes back in the water

Demand for investment services continues to grow, says Muller, particularly for retirement planning as baby boomers prepare to leave the work force.

There’s a great need for these services: More than 40% of baby boomers haven’t saved enough to meet basic expenses in retirement, according to the Employee Benefits Research Institute, as reported in CUNA’s 2011-2012 Credit Union Environmental Scan  Report (“Total household retirement savings,” p. 38). And 25% of boomers have no retirement savings at all, according to a recent Harris Poll.

Petersen has seen increased demand for variable annuities and mutual funds. “Members are starting to put a toe back in the water when it comes to the stock market. They’re going into investments with a little more certainty and are extending themselves on the risk curve a little more.”

Once members learn their credit union offers investment services, they embrace the fact that they’re available from an institution they trust, says Metz. “There’s a large wave of people nearing or entering retirement. Most of them know they need guidance.

“Saving, protecting assets, and investing have become more complex,” he continues. “There are more options: target date funds, target risk funds, exchange traded funds, guaranteed minimum withdrawal benefits on annuities, indexed annuities, Treasury inflation protected securities, whole life versus term life insurance. Working with a financial professional can help guide members through this complicated maze to a more secure financial future.”

Stay Involved, Even If You Outsource

Even if a retail investment program is outsourced, credit union management and staff must be involved to ensure its success.

“These programs take time to build, and require care and nurturing,” says Jim Metz, president/CEO of CUNA Brokerage Services. He says that involves:

  • Training staff. Help the entire staff understand what the investment program does and how to identify referrals. Show staff that senior management fully supports the program.
  • Offering referral incentives. A small amount paid to a referring teller or member services representative for qualified referrals will reinforce the importance of promoting the program.
  • Scheduling seminars and events. Host seminars such as “How to Not Outlive Your Lifetime Savings,” where members can ask questions—and not just receive a sales pitch. Partner with a local accountant or estate planning attorney, or hold a financial health fair.
  • Growing awareness. Raise members’ awareness of your investment and insurance services with in-branch campaigns, mailings, and roundtable lunches for members and their guests.
  • Considering a registered member services representative program. Register some member service representatives so they can handle mutual funds and annuity sales. These “platform representatives” can handle smaller, less complicated investment and insurance services.
  • Making investments central to your service. Build your investment and insurance program into a core offering.
  • Providing adequate support and seeking advice. Support your program with appropriate resources and actively oversee it. Learn from the broker-dealer consulting team about how the program can grow.