Help Members Navigate Investment Waters

Revenue from member investment programs helps CUs counteract lower interest income.

July 24, 2012
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Three main concerns

Of course, offering investment services doesn’t come without risk. Seyfert cites three main concerns credit unions have:

1. Reputation.This is the result of bad press about investment services in general. “Credit unions should find a strong partner with a strong compliance department,” she says.

2. Financial. Will the credit union make money?

3. Disintermediation, where a credit union loses member assets to the investment program. This concern isn’t as prevalent now as in the past, she says.

“These days credit unions see member investment services as a way to manage their balance sheets—they can ‘divest’ excess deposits to balance their capital ratios, increase member satisfaction and retention, and enjoy a stream of noninterest income.”

Investment services providers lend their expertise in similar ways. CUSO Financial Services, for example, recruits licensed representatives/advisers and contracts with credit unions to provide or run a member investment services program.

Tramontano says that because the industry’s preferred approach to offering member investment services is face-to-face, SWBC offers two models: an onsite adviser who’s both a credit union employee and who works with SWBC on a contract basis, or an SWBC employee who works with credit union staff.

Credit unions generally make money on investment services from revenue sharing. “A turnkey solution where we do all the work creates a minimal return for a credit union,” says Tramontano. “If a credit union takes on more responsibilities, it gets more revenue.”

First Commonwealth Federal Credit Union, for instance, earned nearly $279,000 in net income on its member investment and insurance program from CUNA Brokerage Services, says Alan Musselman, chief financial officer for the $508 million asset credit union in Bethlehem, Pa. That’s up from $231,000 in 2010—a 21% increase.

Some credit unions are unrealistic about returns they’ll receive from a member investment program, Tramontano says. “If you focus too much on the payout and not enough on necessary roles and activities that an investment services program requires, the payout amount may be disappointing. A high rate doesn’t mean a high return unless you put the work in.”

She also cautions against focusing mostly on high-net-worth individuals. “Our belief is that everybody can be an investor and needs assistance. Middle-income people are a vast, underserved investment market.”

Marketing is another key consideration, Seyfert says. “Credit unions must constantly spread the message to all members—not just those who have the wealth to be active investors—that investment services and expert advice are available. Investment services should be—along with checking and savings accounts and consumer and business loans—a core credit union product offering.”


► CUNA Brokerage Services
► CUSO Financial Services
► SWBC Investment Services

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