According to a January 2015 study by Kehrer Bielan Research & Consulting, only about 10% of people say they would consult a credit union about investing a $25,000 windfall.

That's a huge missed opportunity because people who buy investments at their primary financial institutions are far more likely to have higher deposit and savings balances, more asset management accounts, and are more likely to say they won't switch financial institutions

There are a few things credit unions can do to capitalize on the relatively untapped retail investment sector and build a more lucrative, loyal member base to boot.

“Credit unions are eager to celebrate milestones such as the first car or home, but don't put the same emphasis on creating a new investor,” Kathy Scarbrough, chief communications officer at the $300 million Navigator Credit Union in Pascagoula, Miss., which has $150 million in assets under management in its retail investment portfolio.

David Foster, vice president of wealth management at CUNA Mutual Group, said Navigator is a stand-out in the retail investment field. Having a referral goal, like a credit union might have for auto lending or mortgage lending, is a big step in the right direction. “What gets measured gets done,” he said.

“Sometimes, the investment division's kind of viewed upon as the red-headed stepchild,” Jim McCrudden, vice president of insurance and investment services at the $2.1 billion Citadel Credit Union in Exton, Pa. “One of the differences that I see is if you're in a bank program and you're an employee, whether you're an assistant manager or you're on the platform, you're required to refer individuals to the investment representative or the financial adviser in your branch. If you don't, they're going to kind of whack you over the head with a big mallet, put you on probation, whatever it might be.”

Others say tread with caution on paying the staff to refer members. Citadel's retail investment business grew dramatically when it eliminated referral bonuses, McCrudden noted.

“Once we stopped giving the people in the branches the $25, our quality of referrals went through the roof,” he said. “Here's why: When someone's trying to just throw as much stuff at the wall over to you as can, trying to get that $25 fee, then you're in a battle at the end of every month. They're not really trying to give you the qualified people, they're just trying to throw as much as they can so they can get $150 bonus at the end of the month for the six qualified referrals.”

McCrudden said once the credit union stopped doing that, people had a better understanding that the overall goal became clear.

“If we're able to enhance the relationship with the member, historically, in credit unions throughout the country and with our credit union, the average member has a little over four accounts per household. If they have an investment relationship, they have almost eight accounts per household,” McCrudden said.

Members are also four to five times more likely to have a mortgage, five to eight times more likely to have a direct deposit and a debit card with Citadel, he noted, adding, so, they're going to hold all of those more profitable products and more profitable relationships if they have an investment account.

“We had to really say, 'look, part of your job is to enhance the relationship if you are on the teller line or you're a member service representative or a senior member representative,” McCrudden said. You're required to do that.'”

Kevin Mummau, EVP of brokerage and investment advisory CUSO Financial Services in San Diego, said sometimes, credit unions worry a dollar going into a retail investment program is a dollar not going into deposits.

The philosophy goes something like this: “I can't be introducing my members to your investment program because I need deposits for loans right now,” Mummau said. “The truth is, “it's not an either/or. It's an and. I think banks probably understand that a lot better.”

Citadel, for example, grew its retail investment services without cannibalizing its deposits.

“We did about $110 million in investment last year,” McCrudden said. “Almost 90% of that came from outside of the credit union. I think in a lot of credit unions there's that disconnect. They're not talking to each other. The senior manager's like, 'Yeah, I want this to work' but the people in the branches are like, 'I don't really, I'm not buying it.' We've been able to overcome that and I think that's a big part of why we've been successful.”

Mummau suggested creating enough scale so a credit union can service members once they start coming in the door.

“The Chases or the Wells Fargos of the world,” he said, “they'll have one representative for every $100 million in deposits or less,” compared to credit unions, which might have one representative for every $300 or $500 million.

Foster said if it's a billion-dollar credit union, there might be two or three advisers but four, five or six seems more realistic.

“From an adviser perspective that's hard to grasp, because if you cover four branches and we're taking a branch or two away from you to hire another adviser, you're not going to be happy because the branches or the retail areas are a source of leads,” McCrudden said. “But in the long run, it actually helps the adviser because there's less windshield time, less travel time. The time that they're in the branch, they'll get more walk-ins because they're in that particular branch more.”

Making retail investment services accessible and comparable to what members can get at bigger, name-brand institutions is also key.

“Do you look as credible as Wells Fargo or Bank of America?” Mummau asked. “When your members sign on can they see their savings, their share accounts and their credit card accounts and everything online and their CDs; do they see their investment account? Do you have that? Do your representatives have credible technology? Can they do, at a push of a button, a full performance reporting on the person's account? It's more and more important than it's ever been in the past.”

The catch is that you need sales in order to pay for more advisers and better technology. Credit unions with successful retail investment programs have to be experts at getting the word out.

“The marketing should be very strategic,” Mummau said. “I think a lot of mistakes are made at just blanket marketing.”

Scarbrough said a credit union must build a brand that stands above the rest.

“We're up against a lot of well-established, heavy hitters, but our tradition of genuine, personalized services gives us an edge. If possible, create a niche. Become an expert in areas that others have neglected,” she said, adding that retirement planning is the most valuable retail investment service Navigator provides.

Many SEGs have outsourced employee retiree assistance, which can only be reached by calling an 800 number and some HR departments do not have the time or skills needed to discuss retirement planning, Scarbrough said.

“If a representative can unlock the mystery of a company's retirement plan options and articulate them well, they can fill a void that others have not,” Scarbrough said. “It can take a great deal of time, but the rewards of doing so are well worth it.”

Foster said offering and advertising seminars can bring a lot of members into the retail investing fold. The champion of the effort should be the branch manager, he suggested. “They have a pulse of what's going on in the community to be able to, then do that type of target marketing.”

“The banner on the branch, yeah it's good, it's great, but it's not going to get you that much business,” McCrudden said. “Obviously, the banner on the front of the credit union is a touch. The e-mail that they receive that says 'meet your local adviser,' that's a touch. But it's really when they call our call center or when they come into the branch, we really need to take advantage of that opportunity.”

McCrudden continued, “We train our folks. Look for people that are 55-65, don't just look for high balances. Look for people and say, 'Hey, I've noticed you've been a member of Citadel for over 10 years,' or however long they've been a member. 'Did you know you're entitled to meet with one of our advisers? I highly recommend you talk to Kevin. Let me schedule an appointment with him.' That's really how it works. Much more than any billboard.”

Though retail investment services contribute just 5% to the bottom line at best, according to the Kehrer Bielan study, developing investment relationships with clients increases their stickiness and makes deposit and lending products more profitable because clients will use them longer. The direct income contribution from investment services is just the tip of the iceberg.

“One of the things that you do wrong initially starting a program is trying to be everything to everyone,” McCrudden said. “I mean, for years we just opened up pretty much any account. Anybody that came through the door that was referred to us, we wanted to do business with. What happened was we spent most of our time servicing those accounts. So, we may have had two or three advisers and 1,800 accounts, and of those 1,800 accounts, you really had maybe a deep consultant relationship with 20% of them.

Eighty percent of the people weren't calling advisers back and reps couldn't get a hold of them, McCrudden said. Some clients had a couple thousand dollars with Citadel.

“If they had an IRA we were waiving a $35 IRA fee. They were actually costing us money,” he noted.

McCrudden said that things have changed in the last three years at Citadel, which now has a half a billion dollars in assets under management.

“We let the staff know our goal is not to be everything to everybody. We can't. We want to identify the certain group of people, those pre-retirees that we can build up deep consultative relationship with. And that's kind of the direction that we moved in.”

Instant Insights /

Throw Out the Rule Book to Boost Retail Investment Services

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