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MADISON, Wis. – For the first time since the last quarter of 1999, the Nasdaq, S&P 500 and Dow Jones Industrial Average have seen gains of 5 to 17% thanks in part to several Fed cuts, a liquidity surplus and the move of some investors out of cash and into stocks. For many, that means relying on mutual funds which make up 37% of credit union members’ total non-retirement investment dollars, according to a survey by CUNA and PSI Global Retail Financial Services, compared to 39% of non-members’ total investment dollars in these same holdings. Those figures are close to the makeup of all household-owned stocks and may be even higher in credit union homes, said Larry Halverson, president of MEMBERS Mutual Funds and senior vice president of MEMBERS Capital Advisors, the investment arm of CUNA Mutual Group. “Credit union households that own stocks are seeing more in-shelter retirement plans, while brokerage activity remains down nationwide with index funds seeing net liquidations,” Halverson said. “The 1990s saw a lot of the `do-it-yourself’ investors and now more people are working with advisors using managed investment products.” Indeed, Halverson said investors have been making use of securities such as mutual funds, but their numbers are down about 15% in its distribution system. Still, the sales of MEMBERS mutual funds are double what they were in 2000 with $500 million invested and $9 billion in managed credit union assets. The shift towards mutual funds is also evident at Jax Navy Financial Group, LLC in Jacksonville, Fla., where the credit union service organization is seeing investors steer toward fixed and variable annuities, said Scott Mainwaring, president of Jax Navy. In spite of the CUSO opening its doors for business in January during a volatile market period, Mainwaring said business has picked up because members are looking for better returns in money market accounts and certificate of deposits. Jax Navy has $7.5 million in assets and has a target number of $20 million by the end of the year. “The majority of money is going into mutual funds, fixed and variable annuities and we expect some growth with the individual retirement accounts given the new rules,” Mainwaring said. The current law sets the IRA contribution at $2,000 for traditional and Roth IRAs. Under the new legislation, the contribution would increase to $5,000 ($3,000 in 2001, $4,000 in 2002, and $5,000 in 2003) and indexed for inflation thereafter. Taxpayers age 50 and above would be permitted to contribute $5,000 to an IRA immediately beginning in 2001. These catch-up contributions would enable older taxpayers to more fully prepare for retirement. Meanwhile, jittery investors are turning back to CDs and money market accounts with an emphasis on the short term as they sit on that bonus earned from work, for instance. That’s the case at Wescom Financial Services (WFS) in Pasadena, Calif., particularly for many Generation Xers and Generation Yers, said Darin Woinarowicz, president of WFS. WFS recently partnered with Unocal Federal Credit Union in El Segundo, Calif. to offer investments and planning services to its 9,000 members in 32 countries and 17 states. “They’re looking to pull back,” Woinarowicz noted, “they have hit a level where they don’t want to lose any more money and they’re moving into cash. Woinarowicz said as with many others, “trading volume is down dramatically,” but WFS continues to see the bulk of its revenue in retirement planning, 401(k)s and IRA rollovers. “Some members are looking long term in equities, mutual funds, and letting it ride for six, eight or 10 years,” he added. Approximately 68% of credit union members own some kind of retirement account, according to the CUNA/PSI Global survey, with traditional IRAs used by 45% of households. The average balance in these accounts is $69,088 with ownership peaking among members ages 55-64 at 64%. While the numbers at Desert Schools Financial Services, LLC are solid at $15 million in assets under management over the first quarter, the current market trend has affected sales, said Becky Nilsen, president/CEO of the Phoenix CUSO which serves members of Desert Schools Federal Credit Union. “We haven’t had the year we hoped to have and of course, if it was a great market, we could be doing a lot more,” Nilsen said. Still, the two-year old CUSO has $25 million in securities transactions, managing assets for 2,000 credit union members with the help of six full-time representatives. While the “fear of disintermediation” continues to banter about among credit unions, Nilsen said the panic might be unfounded. “Last year, many credit unions feared that when CUSOs opened their doors, the money would go directly to the CUSOs and not the credit unions,” she said. “We’ve referred $500,000 in sales back to the credit union. Members have 30% or less of core products with banks and credit unions so there’s 70% of money still floating out there.” -

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