Financial Metrics For Retail Investment Programs

Assess the benefits, features, and attributes of a retail investment program's structure to ensure you understand its function.


Choosing a retail investment program structure is a major decision that could contribute to positive performance or adverse consequences for a credit union. As outlined in “Understand The Differences Among Retail Investment Program Structures,” there are three primary structures: the managed program, the dual employee program, and the broker-dealer program. For each structure, the credit union must assume a varying level of roles, responsibilities, regulatory liabilities, and functions. Taking into consideration the variations, a credit union must decide for itself which structure best fits its needs, capacity, and available resources.

Credit Union Program Structures Share Benchmarks

Financial modeling metrics fluctuate based on which retail investment program structure a credit union employs. Regardless of how a credit union chooses to structure its services, a credit union must be able to effectively manage its program. Certain productivity and performance benchmarks and metrics are applicable to all of the structures. These include:

  • Gross dealer concession (GDC) per one million shares
  • GDC per financial consultant (FC)
  • Assets under management (AUM) per FC wallet share ratio
  • Branches per FC
  • Members per FC
  • Shares per FC
  • Referral activity

A total of 10 metrics, including those above, appear on a scorecard created by Callahan & Associates and Snyder Consulting Solutions. The article “Scorecard Analysis Enhances Retail Investment Program Performance” includes a discussion on how credit unions can use key ratios to improve the performance of their retail investment program.

Financial Modeling Metrics

Although credit unions can use the same benchmarks to measure the performance of managed program, dual employee programs, and broker-deal programs, varying revenue and expense-sharing arrangements require separate financial modeling metrics. The actual share of GDC the credit union’s contracted broker-dealer passes on to the credit union is the underlying factor that determines the structure’s financial model.

For example, dual employee programs range from 85.5% to 92% of GDC, depending on whether they internalize or outsource the Office of Supervisory Jurisdiction function. In contrast, managed programs receive a much smaller share of GDC from their broker-dealer, usually between 20%-30% of GDC. Because the managed program structure accumulates minimal expenses, the key financial metric to measure performance is the ratio of actual net income as a percentage of GDC generated by the program. Dual employee programs receive a greater level of GDC from broker-dealers in exchange for a higher level of program expenses. Examples of such expense categories include:

  • Compensation and benefits expenses
  • Broker-dealer expenses
  • Operating expenses
  • Direct expenses
  • Indirect expenses
  • Allocated expenses

Credit unions using a dual employee structure must have the appropriate expertise level to manage and monitor the program’s expense com­ponents. Each of the components must be appropriately balanced to ensure a net income margin in line with industry standards.

Credit unions that have chosen to license a CUSO as a broker-dealer typically use a financial model similar to the dual employee model. The key difference between the broker-deal structure and the duel employee structure is that in the broker-dealer structure the broker-dealer receives 100% of the GDC generated by the program while in a dual employee program the portion of the GDC paid to the program can be as low as 80% or as high as 92%.

As noted in “Understand The Differences,” the CUSO in the broker-dealer structure must perform all of the functions of a FINRA-registered broker-dealer. To satisfy this requirement, the broker-dealer CUSO normally outsources many of the operational functions to a larger broker-dealer. The cost to outsource these functions usually falls between 8% and 10% of generated GDC. Given that these programs receive 100% of the GDC and contain a greater level of expenses, broker-dealer program’s income statements generally reflect a larger gross revenue than dual employee programs, resulting in a net income margin that is typically in line with other dual employee programs.

The extent to which a program internalizes the functions of a retail investment services program also determines the potential risk and volatility that can significantly affect the program’s bottom line. All credit unions must thoroughly assess the benefits, features, and attributes of each retail investment program structure to ensure they understand the functions they must assume.