Today, the $853 million credit union has evolved, with a community charter in place since 1996 and an expanded membership of more than 85,000 that includes a high percentage of scientists, engineers, doctors and other medical specialists. According to Gesa President/CEO Christina Brown, the Richland, Wash., area has more doctorate degrees per capita than any other place in the country.
So it made sense for the credit union to launch an investment program to appeal to the diverse membership.
"We have members who are at the stage where they want to start financial planning," Brown said.
"We also have wealthier members who probably have more to invest."
Brown, who took the helm at Gesa in July 2007, said that having an investment program in place was one of several strategic goals even before she came aboard. The credit union had previously offered a bare bones lineup that never really took off.
To get the ball rolling again, Brown turned to Mark Hoaglin, president/CEO and founder of Above the Crowd Business Development Group (www.abovethecrowdbd.com), a San Diego-based management consulting practice. Hoaglin had previously served as president/CEO of XCU Capital, a credit union-owned broker-dealer that was acquired by LPL Financial Institution Services in 2007.
He also served as senior vice president of credit unions at LPL before leaving the firm in November 2008. Brown and Hoaglin knew each other from her days as CFO at Xceed Financial Credit Union, which founded XCU Capital.
Brown said she wanted to ensure that the new investment program had all of the services most people have come to expect: mutual funds, the ability to buy stocks, financial planning and retirement planning. She also wanted an avenue to offer trust services, either directly or through a referral to an outside firm. With regular financial education seminars, Gesa plans to incorporate investment education in the sessions.
"Coming from two other credit unions that had investment programs in place, for me, the odd thing is not having a program," Brown said.
Hoaglin helped Gesa evaluate its market for investment services. He determined that a managed program was the best route to take because of its lower start-up costs and a "cleaner [process] from a compliance and regulatory standpoint." Hoaglin suggested three representatives would be adequate to serve Gesa's membership. The credit union sent out about six requests for proposals. Two came back saying they were no longer doing managed programs. Brown said she is looking for firms with a strong reputation, expertise and a range of products not limited to proprietary offerings. A positive direct-marketing arrangement is also important.
"Babies have to walk before they run. I'm not comfortable hiring someone from the outside yet to run [the program]," Brown said. "Once we've been in the business, we'll periodically look at whether we'll continue to do a managed program rather than in-house."
Hoaglin said there are several areas where credit unions should not cut corners when launching or expanding an investment program, including the development of financial advisers. It all starts with hiring the right person. That effort can fall flat if training isn't a follow-up, he emphasized.
"Frankly, I've made hiring mistakes in the past, and I've seen how it can kill a program," said Hoaglin, who has spent more than 30 years in the financial services sector and recently wrote white papers on the reasons investment and insurance programs fail at credit unions and how financial advisers can succeed at these nonprofits.
The right person has sales skills, is licensed and has a clean record, Hoaglin said. The ability to work in a credit union environment with its teamwork structure and training models is just as essential.
"There are a lot of financial advisers on the street that have been laid off. I've seen it happen time and time again. They come to a credit union and can't adjust to working as a team. They expect people to just walk up to a desk or expect referrals to flow in."
Hoaglin is currently working with a handful of credit unions in various consultative capacities. Among his initial questions: Do members need the services? Does the credit union have the resources to support an investment program? For established outfits, Hoaglin is keen on assessing the broker-dealer relationship, including compliance, operations, sales and marketing. He plays the advocate role, ensuring that the credit union gets the broker-dealer support it needs.
Whether the credit union is just getting off the ground or has been offering investment services for years, Hoaglin said that there is always an ongoing effort to increase member awareness. At 2%, penetration is still abysmally low when it comes to members using investment services.
"That tells me that even in this economy, there's a lot of opportunity. Since credit unions have a great affinity with their members, they can position themselves to handle all financial needs," Hoaglin said.
At Gesa, Brown acknowledged that there wasn't a vice president there with the background to oversee an investment program launch. "To be honest," she noted, "there were bigger fish to fry initially," so the effort was not at the top of the priority list. It just so happened that the economy tanked and industry leaders touted the opportunities for credit unions to capture wallet share on everything from business loans to financial planning.
"I would love to say it was brilliant timing," Brown said on the launch. "I wish it were done sooner."
Hoaglin agrees that there is a window of opportunity for credit unions. He said a member who has an investment account is stickier than someone with just a checking or other account. At a previous institution, he and others tracked client behavior and found that those with investment accounts had an average of eight other accounts, compared to a checking account holder, who typically had four accounts.
"There's distrust among clients of big banks and the ways things were mishandled. You develop strategies during the worst times. You test your mettle when times are tough."