Risk-Averse Members Crave Reassurance
Toxic assets, bailouts and stimulus are words we have heard almost every day in 2009 from the broadcast news outlets, on the Internet and in our newspapers. The good news is that CUSOs, and credit unions, generally, were not heavily involved in the types of products that caused the problems, nor do we deal much with products that weren't regulated before and now are. We maintain strict compliance procedures. More important, CUSOs are just what our name implies-service organizations that serve the nonprofit credit union industry, and we know that to serve credit union needs well, we must function as partners and be a resource for credit unions to grow their businesses even when economic times are challenging.
Well-supported investment programs are a good source of noninterest income. However, we recognize that in the aftermath of the last 18 months, some members may have become risk averse-and that has made CUs more risk averse as well. After all, none of us want to have reputation issues or see our members suffer financial losses. That's why we have trained our investment advisers to take a more comprehensive approach and to look at each member's situation holistically, recognizing both short- and long-term needs. We are advising reps to do reassessments with every client and, for those who may have changed their risk tolerance, to introduce more conservative products that have little or no exposure to market risk. People are recognizing that investment advice is something that everyone can use no matter what their financial needs may be.
Although there are many types of CUSOs-operating services, loan and investment-I will focus our remarks on financial service CUSOs since that is the area in which CUSO Financial Services LP operates. In recent years, CFS has been the beneficiary of changing attitudes in the credit union industry. Right now, there is a lot of money in motion, especially with an increase in rollovers and early retirement packages.
We have found it important to introduce additional deposit products and broader solutions, not just traditional investment products. Brokered CDs, capital transfer strategies, insurance annuities and wealth protection programs for members are just a few of these.
As a broker-dealer that also happens to be a CUSO, we also have experienced a renewed interest in managed investment programs, from both new customers and those that previously ran dual-employee programs. Managed programs may solve some current pressing issues for credit unions. For example, budgetary constraints or hiring freezes are less of a problem if an investment adviser is an employee of the broker-dealer rather than the credit union. Our recruiters take on the risks and responsibilities of finding the right people and, therefore, eliminate recruitment costs for the credit union. Our sales team can ramp up faster, experienced program managers wield more control in sales management, and compliance responsibilities and the costs related to them are handled by CFS. Yet, we still help the credit union to capitalize on the flight to quality opportunity.
The trend toward electronic access to services is critical to address and provides new opportunities in the area of investment services. Members are becoming increasingly comfortable with online banking, so the need to add investment asset visibility has become paramount. Online banking support also addresses a new audience, one that is typically younger and less likely to come into the credit union branch.
One way that CUSOs can represent a huge value for credit unions is by finding ways to share expenses, risks and responsibilities. There is resurgent interest in collaboration and new opportunity for investment in partnerships that can add value for members and an income stream for the credit union. The shared service CUSO can reduce expenses by spreading them across a number of credit unions. It can also be used to spread the risk of developing a new business or product among a group of credit unions. The concept has proven effective in several areas such as operational services and financial services.
Valorie Seyfert is president/CEO of CUSO Financial Services LP. She can be reached at 858-530-4400 or firstname.lastname@example.org