While CUSOs wait for formal word from the SEC whether the agency will continue financial service CUSOs' license exemption under the Chubb Letter, now is a good time for credit unions to determine whether they will roll the CUSO's investment services back under the credit union's roof, or consider another alternative. For most CUSOs, integration within their branch networks is a key element of success. Bringing investment services under credit unions would obviously enhance integration from an organizational perspective. There are other potential advantages to offering investment services directly through credit unions. Registered Representatives would become credit union employees making them full fledged members of the branch team. Investment products and services would be a more direct extension of the of the credit union's traditional product line. This could help credit unions in their efforts to gain a greater share if their members' wallet. In communicating with members about investment services, there would be one less entity to explain. In many cases, CUSO employees are not only required to explain that investment products are uninsured and subject to principal risk, but that their investment services are offered through yet another company that is a registered broker dealer. Registered Representatives must explain that they are both employed by the CUSO, which is a wholly-owned subsidiary of the credit union, and are also registered through another company. It sometimes looks like required disclosures take up more space on brochures than the description of products and services. The new simplified structure would potentially be less confusing for members, easier for Registered Representatives to explain and free up space in brochures to highlight features and benefits. One of our greatest challenges is raising the awareness among members that they don't need to go to an outside company for investment services. As an example, about 68% of our upscale members have investment relationships, but only 2% invest through us. Closing this "awareness gap" will not be easy. The possibility of more extensive privacy laws going into effect in some states will make it even more difficult. In California, there are a number of consumer groups and politicians who do not feel the Graham-Leach-Bliley Act is enough. In fact, there is a movement underway by some local jurisdictions to impose their own privacy laws. Merging CUSO's into their credit unions would potentially eliminate restrictions imposed by privacy laws that limit the information that can be shared between affiliated companies. However, a simple, merged structure can raise some red flags. Member confusion over insured and uninsured products represents one of the greatest risks of offering investment services through credit unions. To some degree, the lengthy description of the various entities involved in delivering investment services helps reinforce the distinction between investments subject to principal risk and insured deposit accounts. Most banks offer retail investment services through separate subsidiaries to help avoid this confusion, despite the fact that they are permitted to offer investment services directly. CUSO's are usually set up as limited liability companies or corporations, organizational structures designed to reduce some of the risks to the parent. The degree of protection a CUSO provides depends on a number of factors, including the extent to which the CUSO board members interlock with the credit union board, the number of shared managers and officers between the two organizations, and the amount of operating independence between the entities. Maintaining a level of insulation between CUSOs and their credit unions is important to most board members. Another factor to consider is arbitration. Retail brokerage clients are required to sign arbitration agreements. This provides protection to broker dealers from punitive damages and other potential losses from litigation brought forward by individual investors. There may be circumstances under which investors could avoid arbitration if the investment services are offered directly by a credit union rather than a separate CUSO. A structural change would require a review and modification of agreements into which the CUSO has entered. For example, Wescom Fiancial Services has set up a number of "networking" arrangements with other credit unions to provide investment services to their members. This has been an effective way for smaller credit unions to offer a full range of products and services to their fields of membership without incurring the expense if hiring dedicated registered representatives. Without the CUSO, we would have to restructure these agreements. Credit unions also have the option to provide investment services through a separate CUSO registered as a broker dealer. The common advantages of owning a broker/dealer include lower clearing costs through a direct relationship with a clearing agent, more control over products and services, and retention of 100% of the revenue. However, most CUSO's are not large enough to get a great economic deal going directly to a clearing agent. While CUSO's might have to give up a percentage of revenue to out source their broker dealer functions, they also avoid the additional overhead of a back office and compliance department. Each credit union will have to evaluate its own business strategy and plan before deciding whether to integrate its investment services into the credit union. There are advantages and disadvantages of both sides of the argument. In the coming months we are likely to learn more specifics about the SEC's position and the timeframe for transition. While integration is a vitally important to the success of investment programs, a change in corporate structure will not drive the process or generate more referrals. Integration is achieved on the front lines – on the platform, teller line and call center. Relationships in the branches are built on trust, which must be earned and maintained under any corporate structure.