It is an oft-heard, albeit whispered remark coming from certain corners of the credit union community that the time for CUSOs has come and gone and that we are at the dawn of a new age of expanded powers for credit unions, ushered in by the relatively recent advent of incidental powers bestowed on federal credit unions by an enterprising regulator. In this new order of things some say that the role of CUSOs has been effectively relegated to a decidedly secondary one, and that many that arose to house financial services of necessity can now have their offerings returned to the credit union fold, and the complexity of dual operations jettisoned for more focused management from within the credit union. It is this latter premise, that everything is best kept within and controlled by the credit union that bears some further examination. Business management gurus of all stripes and from a variety of industries often share one abiding dictum, that business focus is of paramount importance, that diffused efforts lead to correspondingly diffused results, that concentrating on core competencies, what a organization does best, is far more productive and effective than broadening the scope into areas that lay far a field from the strengths of the organization. This model plays itself out in the credit union world as well, where placing products and services outside the essential and traditional strong suits of credit unions, deposits, loans and the financial services that support those activities, into a CUSO, where more appropriate attention and concentration can be mounted, is the preferred business strategy for many credit unions. Insurance services, investment advisory, car buying, all manner of ancillary services outside the realm of conventional credit unions are better placed in a service organization that focuses on these services, acquires the specialized talent to best operate them and that works in close harmony with the parent organization to market them, and to position them within the larger context of the credit union’s mission. It has been noted that many CUSOs populating the credit union world often have a decidedly entrepreneurial bent, which is just as it should be, for CUSOs should be considered as laboratories for experimentation, research arms perhaps, for the credit union. Offerings flowing from the CUSO, one step removed as they are from the parent, bear less need to fit into the preconceived notions that members may have as to what constitutes a normal menu of products from a credit union. Thus the CUSO provides the credit union with a closely held innovator, yet one which provides sufficient distance to allow for some institutional stretch and a certain willingness to push the member service envelope. This complex stance, whereby the CUSO can at once both focus on the specialties it is best positioned to harness for the good of the credit union membership, as well as explore and exploit opportunities beyond the norm, is what makes the continued existence of CUSOs so essential to credit union vitality. And in a somewhat related matter, let’s not forget that CUs cannot serve non-members, and though expanded charters, serving underserved communities and more and more community charters are continually reducing the ranks of those who cannot be members, enough of a potential non-member market remains to be an opportunity worth preserving. Leveraging the creativity of an adventurous CUSO, it is not unreasonable to suggest that at some future point a product or a market can be created that has potential far beyond the credit union membership alone. Housed within a CUSO, such a new offering could then be offered to the public at large, additional revenue generated that then flows back into the CUSO for more product development and/or back to the credit union to bolster non-interest income, and thus afford the credit union an enhanced ability to discharge its mission. Overlooked in the rush to pronounce CUSOs as superfluous, is another element that should be duly considered and weighed: does the credit union really want to assume the risk inherent in offering investment products, and, almost inevitably, investment advice, without benefit of the buffering insulation that housing the investment services offerings in the CUSO affords? There exist very real liability and exposure risks to the credit union setting up such business within its own structure that are as yet unplumbed and untested. There is no getting around the legal necessity for the delivery of some services, notably in the insurance arena and perhaps most significantly, prospectively, in the huge market that trust services will bring to credit unions. Better to be safe than sorry, might be the watchword here. And though the risk management motivation may alone lead to a conscious business decision to domicile the services in a service organization, this alone might not be enough to make the maintenance of a CUSO the proper course of action. But combined with the other aforementioned advantages of having a separate entity to concentrate on the things that the credit union doesn’t do best, a compelling case for CUSOs builds considerable momentum. Risk aversion alone may be enough to initiate CUSO formation but is probably not enough to sustain it. If this forgoing rationale is not sufficient to make the CUSO case, consider that having such a wholly-owned partner subsidiary also can position the credit union best for joint ventures across multiple credit unions, much as has been done for many years in mortgage lending, car buying services of one kind or another and in data processing and other related services that help the credit union to serve itself as well as others. This capacity is not one readily transplantable to the regulated world of credit unions, so the existence of the CUSO alternative offers the forward thinking credit union a competitive advantage that might otherwise be beyond its reach. That’s a pretty tall order, demanding many resources, some within the credit union and some lying readily at hand for those credit unions that can see beyond the looming SEC ruling, beyond current financial market strife, down the road to a future where much of the value of what is brought to members is brought to them through a vibrant, prosperous CUSO working hand in hand with the organization that gave it life and fostered its success. Different construction, diverse materials and distinct design usually produce different results. And so it is for CUSOs. Know what you want to produce outside the credit union walls, yet which is still for its benefit, and you’ll probably find the blueprint for a CUSO.

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