EAST LANSING, Mich.-Paper losses of $2 trillion may have caught some wary investors in the proverbial fly paper after the stock market's sudden reality check of April 14th, but the cold shower could lead many credit union members back to their time-tested and trusted service providers for financial planning and brokerage advice. At least that's what some of those providers are hoping. Upset and worried enough to be concerned by the ongoing feud between the old economy (as in Dow Jones) with its Blue Chip leaders and the new economy (NASDAQ) with its high-tech Internet offerings, many investors are seeing too many animal crackers in their portfolio soup. Between Bulls, Bears and Dinosaurs, no one wants to overreact. And guess what? Some analysts are even saying that those other dinosaur investments-like money market accounts and certificates of deposit, (CDs) and gasp! U.S. Savings Bonds-may prove a safe harbor, even if only a temporary one, for those skittish members who retreat from riskier vehicles and wait on the sidelines for the shakeout to settle down. Going liquid with some of that portfolio may not seem like such a bad idea. And when members look to their CUs for financial planning and investment advice, they may want to see that the CU is aligned with a name brand Wall Street firm, said Mark Wickard, senior vice president with Paine Webber Credit Union Services Group here. "I have always thought that credit unions, in order to be their members' primary financial institution (PFI), needed to offer brokerage services to members. But I don't think the traditional sources will be the ultimate providers. I think they'll want to see a major Wall Street name because it will give members the confidence they need to bring all their resources to one place," said Wickard. Wickard believes that the affinity relationship most members have with their CUs can be a big advantage if credit unions want to recapture some of the money lost to disintermediation over the last decade. "It's a tall order now because you've got some big names like Citibank, Bank One and the super-regionals chasing the money too, and credit unions need to be ready, and name recognition counts," he said. According to Callahan and Associates, the Washington, D.C. credit union consulting company (www.creditunions.com) only 8.5% of credit unions offer investment services to members. With fully half of American households involved in the equities market, that means a lot of members have to look elsewhere for help in managing their portfolios. As margin calls from brokers may have forced many investors into selling to cover losses on holdings they borrowed to buy, those buyers may be a bit more chastened in the future. "What tolerance will individual investors have? This sell-off is mostly from institutional investors. Not everyone is an expert," said Wickard. "If you look at the crash of 1929 and the crash of 1987 you learn that there will be a big opportunity when there is a tremendous correction." The confidence in the markets may be shaken, but with everyone seemingly consumed by financial and business-related news and advice about becoming millionaires-and net assets in mutuals exceeding $6.4 trillion-no one will want to be last in or out of the market. Economists are predicting that if inflation indicators keep rising (the core inflation rate's rise helped contribute to the market's latest decline) then consumer confidence will drop, more investors will sell, spending will be curtailed and the market will continue to plunge. Those triggers (in any order) would likely spur the Federal Reserve Board's Open Market Committee to start cutting rates, it is believed. That would be a reversal of the trend affected for many months now, which has been to bump rates up in an effort to forestall inflation. Just how investors (both institutional and individual) would read that is an unknown. Fed Chairman Alan Greenspan has warned that the central bank would respond to a real threat to the economy while looking away from a decline in the asset values of stocks. He spoke sternly about all this "irrational exuberance" over a year ago. Or the Fed may see that the paper losses will be sufficient to curtail the consumer spending spree and decide to leave well-enough alone. Speaking on the Sunday (April 16) edition of ABC's "This Week with Sam Donaldson and Cokie Roberts," Treasury Secretary Lawrence Summers said "What we should all do is keep focused on the real economy and the real economy in the United States is very good. Consumer spending has been increasing at very rapid rates. And even if there were to be some impact relative to the rates of the last several months, consumer spending would still be a very, very important contributor to the expansion." So no one is ready yet to call in the Cavalry. And most third-party vendors to credit unions are still taking an `advise and consent' approach to financial planning for members. "We take pride that we have very experienced financial planners," said Duane Shoop, vice president of the financial institutions division of Financial Network, one of the top three providers. "We hire a large percentage of Series 7 professionals or CFP's (Certified Financial Planners)," said Shoop. Financial Network may not yet be a name-recognized by many in CU-land only because the company has undergone a makeover of its own of late. Previously known as FINC, it has begun a brand image campaign to market itself as a bigger player at the table, said Shoop. They know they have heavy hitters with which to compete, he said. Those include CUNA Mutual, through Members Financial Services, CUSO Financial Services, L.L.C., and LPL Financial Services, to name only a few (see chart for share percentages in the CU market). But Shoop thinks that Financial Network offers a difference, and a big one is the fact that none of its representatives needs to offer a proprietary product. "We have no political motivation," he said. And advisors always take a long-term approach when speaking with CU members. "It's not about trying to time the market." That may be a tough call, however, because even Shoop allowed that "People have unrealistic expectations today. People aren't scared of the market anymore, and that is scary." While it may not be a time of "Be afraid, be very afraid," advice, Shoop, Wickard and other experts definitely feel that educating member/clients is the prime directive to be followed. "Wherever they go for advice, they should be able to rely on it, and that means consulting with a reliable source," he said -
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