RALEIGH, N.C. -- Seeing an opportunity to further meet the needs of what it considers the neglected investor, the $15 billion State Employees Credit Union has bought the remains of XCU Capital Corp., a credit union-owned broker-dealer and investment advisory firm that was acquired by LPL Financial Corp. in August 2007.
SECU, which had been a client of XCU Capital for the past five years, purchased XCU Capital in October 2007 for $40,000, said Jim Blaine, president/CEO of the credit union. Rather than transition over to LPL Financial, SECU decided to buy the CUSO bringing the credit union's 6,000 accounts totaling roughly $30 million in house.
"The $40,000--it's just a legal shell," Blaine said. "Instead of paying attorneys that amount, we went this way so that we can integrate it into our structure."
The XCU Capital purchase is in keeping with SECU's mission of developing programs and staff internally. SECU's 150 representatives are currently obtaining additional licensing and training. Through the new entity, members are referred to Vanguard for mutual funds as well as a new brokerage account that is indexed to the S&P 500.
Blaine said skeptics say adopting a model with salaried staff as opposed to commissioned is impossible.
"In this type of environment, people want to work with people they trust," Blaine explained referring to the country's economic downturn. "Members love it when you don't have to pass them off. We're going with the middle market--the teachers and the correction officers--those that aren't typically served by traditional broker-dealers."
Of XCU Capital's 24 clients, SECU was the only one that didn't make the transition after the LPL Financial acquisition, Blaine said. According to SEC company filings, LPL Holdings Inc., a wholly owned subsidiary of LPL Investment Holdings Inc., entered into an institutional transfer agreement with XCU Capital on Aug. 9, 2007 to transfer and assign existing institutional relationships for a price of $3.62 million. Mark Hoaglin, former CEO of XCU Capital, now senior vice president of credit unions at LPL Financial, said the acquisition was a necessary move to bring more services to its clients. (CU Times, May 7, 2008).
Going forward, the goal is to have a representative housed in each of SECU's 225 branches, Blaine said. A new name is also in the works and will incorporate the credit union moniker. SECU plans to offer services to its sister credit unions, the $736 million Local Government FCU and the $56 million Latino Community CU, Blaine said. To be in a position to offer members additional services through this new model may be the fuel to drive more long-term relationships, he pointed out.
"We wanted a group of credit unions to learn from. That's why we went to XCU Capital," Blaine said.
While many of SECU's members that come in for financial analysis tend to favor federally insured individual retirement accounts or certificates of deposit, Blaine said, an education and awareness process is underway to introduce more heady investments such as stocks. A key piece of the literacy effort involves educating members about the potential for losses. SECU's newest investment division also offers a multitude of ways to build more relationships.
"We can ask 'What percentage are you paying on that subprime mortgage?' or 'How does your auto insurance look?'" Blaine said. "We want to be able to provide a valuable, long-term savings option."