Partnering with the right investment organization enables credit unions to offer complex investment products to members, without developing the expertise in house. These three credit unions share best practices for outsourced investment programs.
Jumpstart the program
When credit unions contract with outside investment advisers, employees need to be familiar enough with investment product offerings to hear members’ cues. Then they can direct members to third-party advisers. But employees don’t need complicated technical knowledge.
That’s why $100 million asset Peninsula Federal Credit Union, Escanaba, Mich., has partnered with Members Financial Services, Madison, Wis., since 1996, when its investment services program began. Now the program includes more than 135 member enrollees, more than $9 million in assets under management, and more than $3 million in life and health insurance products.
The most popular investment products, currently, are fixed annuities and stocks. But an individual member’s age, risk tolerance, and economic outlook, affect investment preferences, says Jim Veneskey, president/CEO.
About one year ago, due to a retirement, a new Members Financial Services adviser was assigned to Peninsula Federal. “Largely because of that transition, our new representative has been working to establish relationships with members and our program hasn’t performed up to expectations this year,” Veneskey says. “That being said, the new rep is full of energy and ideas for jump-starting the program.”
The credit union is proactively contacting member investors and running several promotions, including a “Where’s Waldo” type campaign, where the representative’s picture appears somewhere in Peninsula Federal’s newsletter. If members locate it, contact the credit union, and visit with the investment representative, they receive chocolates from a local candy store, says Veneskey.
“We’ve started a targeted marketing campaign to some of our larger depositors,” he adds. “We plan to further educate our employees to improve cross-selling, so they encourage members to talk with our representative.”
It’s important to actively promote the program so members fully understand the credit union’s value proposition, he says. “There’s a lot more demand for deposit products than loans because
of the economy. And investments give additional value beyond shares and CDs [certificates of deposit]—the products financial institutions usually offer.
“And if it does well enough, we earn a little income along the way,” he adds. The program was close to break-even in 2010, and he expects continued improvement this year.
Listen for cues
Credit Union of Texas, Dallas, has offered investment services for about 15 years, contracting with several different providers. The $1 billion asset credit union has outsourced to CUSO Financial Services (CFS), San Diego, for about 15 months.
“We outsource mostly because of compliance requirements, so employees recommend the overall program and don’t discuss individual products they don’t have the expertise to recommend,” says John Lederer, president/CEO. “Otherwise we’d need a licensed employee.”
CFS helps train employees—giving them the tools to cross-sell the program. “We educate them about what the program does for members and for the credit union, and then CFS comes in with a little more technical spin,” explains Derek Beard, the credit union’s vice president of sales and service. “Together, we teach employees to listen for cues that members have money to invest, and then send the members to the CFS representatives in our branches.”
The credit union uses newsletters and statement stuffers to promote its investment program, and CFS representatives speak at some of its financial education seminars. “We promote the program because we want to keep our members with us and not drive them to other financial institutions,” Beard says. “It’s a service we provide, even though their money is kept with CFS rather than with us.”
Promoting investments is particularly important now because rates on other deposit products, such as CDs, are very low.“We can offer them alternatives and still keep them as members,” says Beard. “We don’t want them to pull their CDs at renewal time and run down the street to Chase.”
The number of members participating varies with the economy. “Right now it’s tough because of the economic hits people took in 2008,” Beard notes. “People are leaving their money in savings accounts or money markets because they’re safe. Ten years ago, everybody wanted really big returns and mutual funds were popular; now they want tax-deferred, guaranteed benefits. Annuities are our top product now.”
Lederer foresees increased program growth as the economy improves. “We’re at about 1% member penetration now, and we’re targeting about 5% over the next couple of years,” he says.
Track your success
UMassFive College Federal Credit Union, Hadley, Mass., with $325 million in assets, also partners with CFS and has since its program began in 2003. “A consultant helped us conduct an RFP [request for proposal] process to select a partner,” says Kathy Hutchinson, the credit union’s president/CEO. “CFS understands the credit union marketplace as well as the investment side. We felt they were a good match for us right from the beginning.”
While CFS is the credit union’s broker/dealer, UMassFive College Federal manages its own investment program. “It has always been our goal to ensure the program is integrated into the credit union—where our board, management, and staff understand that even though the program is somewhat its own entity, it’s part of our overall strategy,” says Hutchinson. “Employees go through training with our staff financial advisers annually to understand how investments fit into the plan.”
The investment program has seen steady growth, with about 800 members currently participating. The credit union offers stocks and bonds, but mutual funds and annuities have always been the hottest products. Also popular are more traditional products, like money market accounts, short-term CDs, and high-interest checking accounts.
“We listen to our members, and if traditional products don’t fit their strategies, such as their retirement plans, we try to steer them to our investment department,” Hutchinson says. “We don’t favor one over the other; we send members in the direction that fits their needs.”
UMassFive College Federal started with one staff financial adviser and recently added a second, along with a part-time assistant. The credit union has actively promoted its investment program since its inception. “It has always been part of the budget process, and our branches have goals for referrals to investment advisers,” says Hutchinson.
Investment and retirement-planning workshops have helped draw potential investors to the credit union. “We have good attendance, usually about 20 to 25 people, and they’ll often come in later and sit down with our advisers,” Hutchinson says. “We’re talking about doing a better job tracking whether they actually become clients.”
The investment department will implement its first formal marketing plan this year. “It’ll be our first full year with a second financial adviser, so we’ll be in a better position to help more people,” she says.