Trust Hinders CU Investment Services
Most members don’t trust financial advisers at their credit unions because they may not know they can get quality investment advice at their local cooperatives.
That’s one of the findings from a research study from the Charlotte, N.C.-based research firm Kehrer Saltzman & Associates, which was sponsored by CUNA Brokerage Services Inc., in Madison, Wis.
Almost 63% of credit union members said they trust their credit union a great deal, far more than any other provider of financial services.
However, that trust does not translate into trusting the financial advisers at the credit union.
Only 18% of credit union households surveyed said they place a great deal of trust in credit union advisers, the study said.
The survey included financial and other data for 2,040 households with a credit union member, which are representative of the 56.2 million credit union households in the U.S., according to Kehrer Saltzman.
“Members of credit union households are twice as likely to place a great deal of trust in credit unions as banks, and 13 times more likely to have great trust in credit unions than a stock brokerage firm,” said Tim Kehrer, senior research analyst at Kehrer Saltzman and a co-author of the study.Kehrer said.
Yet, they are twice as likely to turn to a stockbroker as their primary source of financial advice instead of the financial adviser based in their credit union, said Kenneth Kehrer, another co-author and a principal of Kehrer Saltzman.
The authors suggested some reasons for the discrepancy between members’ great trust in their credit union and less trust in the advisors that work there.
“One reason may be that they don’t find them there,” Tim Kehrer said. “Our research indicates that only 12% of credit unions provide investment services to their members. And many of those that do have an investment services offering do not promote it to their members, who remain unaware that they can get quality investment advice right at their credit union.”
Credit unions have an incredible opportunity to better serve their members, who would prefer to invest where they bank, and capture the lion’s share of their members’ financial assets, said Kenneth Kehrer.
“But they have to find ways to elevate the standing of their advisers in the eyes of their members,” he suggested.
Households with a credit union member use 2.5 banks and credit unions, on average, but they also use other competing financial services providers, according to the study. Three in 10 credit union households have an account at a full service brokerage firm, and another 10% work with a discount brokerage firm. Almost one in five have a relationship with a life insurance agent. These firms are capturing investment and life insurance business that could be provided by the credit union, the study noted.
Hendrix Niemann, managing director of practice and wealth management services for CUNA Brokerages Services, disputed the findings that members distrust credit union financial advisers.
“It is, in our view, a lack of awareness. Most of the general public views credit unions as a financial institution that primarily offers deposit accounts and loans,” Niemann said. “Many are unaware of the broader services that credit unions offer such as investments, insurance and retirement planning.”
Niemann said the research study does not specifically address this issue; however, CBSI strongly suspects that many members, even those who are aware that their credit union offers investments and insurance products, retirement planning and wealth management services, may believe that financial advisers in credit unions are somehow less capable or less knowledgeable than their counterparts in banks or brokerage firms, or competitors such as independent financial consultants and financial planners.
Niemann had several suggestions for increasing awareness.
A credit union’s board and senior management must decide that financial planning, investments and insurance are core offerings of the credit union, and credit union employees must know it, he said.
The credit union should also commit to marketing the program aggressively and thoroughly, Niemann said. This should include a concerted effort to address not only the fact that the program exists, but also the qualifications and credentials of the financial advisers at the credit union. If done well, this will take care of both the awareness issues and the possible credibility issues mentioned, he noted.
“The credit union should embark on an extensive, regular program of member education in such areas as Social Security and Medicare claiming strategies, investment fundamentals, U.S. and world economic trends and other such subjects that affect the lives of their members. This builds awareness, trust and loyalty,” Niemann said.
Credit unions have a tremendous opportunity to grow noninterest income and deepen member loyalty and trust simply by structuring their program the right way and hiring quality advisers, said Michael Prior, president/CEO of the Credit Union Financial Network, a Peoria, Ariz.-based investment, insurance and trust services CUSO that serves 12 credit unions.
One of the keys to a successful trusted program is having an independent financial adviser serve members in a dual employee capacity, Prior said. In this capacity, the adviser is employed by the credit union but managed by a non-employed Series 24 compliance officer. This is the best of both worlds from a member’s trust perspective and from a compliance perspective, he said. Ideally, he added, the credit union will employ an independent financial adviser with credentials.
“Helping people reach their education, retirement, and estate planning goals is still a people business. Members will trust the adviser based on how much the adviser demonstrates a true concern in helping the member reach their goals,” Prior said.
As baby boomers continue to retire and inherit wealth, they are seeking a trusted adviser at a trusted venue to help them with Social Security, Medicare, wills, trusts, and their investment accounts, Prior offered.
Only 10.6% of credit union households have purchased an investment or insurance product at the credit union that they consider to be their primary depository institution, the data revealed. This means that a typical credit union offering investments and life insurance would have a product penetration rate well below 10%, because less than half of credit union households consider a credit union to be their primary financial institution.
In addition, since 25.2% of households with a credit union member have purchased investments or life insurance at a credit union, more of them have purchased these products at credit unions that are not considered their primary depository institution.
One would expect that credit unions that are viewed as the primary place to bank would have an advantage in winning the investment business of their members but there are other factors at play, the authors noted.
“Most credit unions do not offer investment or life insurance, so even if they are the preferred provider of depository services, they are not taking advantage of their preferred position to better serve their members and win their investment and life insurance business,” the report read.
“Similarly, some credit unions offering investment services do so only defensively, or as a minor line of business,” the data continued. “Consequently, many of their members may not even know that they can obtain investment advice from the institution they rely on for other important financial needs.”
Prior said credit union executives should ask themselves if they would trust the credit union adviser with their money if they were not located at the credit union.
“The answer is revealing and can lead to more marketing of the trusted adviser in place or lead to exploring the dual employee model and examining the compliance management in place to help develop and recruit a new trusted adviser,” Prior said.
Meanwhile, credit unions have been much more successful selling investments to households at the lower end of the wealth spectrum, the study showed. More than half of the credit union households that have purchased investments or life insurance at a credit union have financial assets less than $75,000.
The same isn’t true for Gen X and Gen Y households, according to the study. While Gen Y households would be expected to be less likely to purchase investments than older households, younger credit union households are even more disposed to look to a bank for banking services but purchase investments and insurance at a credit union.