Last week we ran the first
installment of Financial
Services Management Group
Alternatives For Investment Programs
There are alternatives to the TPM road that so many credit unions are traveling.
Some TPMs are listening and trying to adapt. At Harborstone, we decided that
creating a new alternative was the only way to meet our long-term goals of
transforming our core business and retaining member relationships. Whereas
working with TPM programs over three years we reached only $70,000 in total
revenue, in the first full year of working with FSMG, we generated over $700,000
in revenue, and in 2001 the revenue number exceeded $1.3 million.
Alternative, or self-directed, structures allow the credit union to have
a greater say in the direction of the program and control of the relationship
with the member. It's your program. With a self-directed program, you can
select the best partners who offer the best deals for your members: broker-dealer,
investment management firms, insurance providers, mutual fund companies, annuity
providers, with no proprietary pressure to sell any one of them.
Summary: Reality Check
Remember it's all about relationships - your member relationships - and how
best to manage them in a future financial world where everything is available
from every provider. In reviewing your investment program, consider these
three reality check questions:
Are you confident your current course of action will allow
you to keep your member relationships across future generations; especially,
as the population ages and their needs change accordingly?
Do you consider investment services a core product?
Are you protecting your member relationships and the value
of the trust placed with you from business partners who are potential competitors?
If you can knowledgeably answer yes to each of these, you are on solid ground.
If you are uncertain or answer no to any one of them, your investment program
strategy needs attention.
The management and staff of credit unions and their investment and insurance
operations need to understand and accept the fact that professionals "raised"
in the securities and insurance industries will likely handle change, communications,
priority-setting and problem-solving in a unique way from that of the typical
credit union employee.
Credit unions notoriously move slow to action, and prefer to be sure what
they are doing is exactly right and in the best interest of all the members
before taking any action. As the pace of change increases, along with the
volume of competition, securities and insurance professionals can be one catalyst
to help credit union executives step out of the box and take more risk, often
to the benefit of the credit union's members. FSMG has brought a new level
of entrepreneurial spirit to Harborstone, encouraging us to pursue all types
of non-traditional products and services.
Control over the Program
The credit union needs to always have a say in the strategic direction of
the program and the overall objectives, whereas day-to-day operations should
be left in the hands of investment professionals.
Credit union executives may find it a hard pill to swallow that investment
representative's compensation may exceed that of the CEO. Take the time to
understand the compensation structure and that it will not mirror that of
a financial institution.
Credit union management and staff support through referral accountability
for front-line employees and a variety of contests and incentives is key to
a successful program. In 2000, Harborstone provided over 2,000 referrals for
the investment program, which resulting in 1,600 appointments made, 1,300
appointments kept, and approximately 400 closed sales.
Investment and insurance services require a different marketing approach than
traditional credit union products. The compliance issues can be more time
consuming and the audience may be a different segment of the membership than
whom you usually target.
A poor quality compliance program can bring down a program faster than perhaps
anything else. FSMG provides a very strong compliance program, including thorough
training of both reps and credit union employees which ensures clients understand
what to expect from their investments, gives them an appreciation for the
risks of investing, and reduces their concerns over volatility.
The above Case study was taken from Callahan’s
2002 National Guide to CUSOs and Investment Program Providers
Union Service Organizations (CUSOs) continue to increase their role in the credit
union system. The number of CUSOs profiled in the Guide totals 681; 546 wholly-owned
and 135 multi-owned. CUSOs serve credit unions and their members by providing
improved operational efficiencies through data processing solutions, greater
market coverage through shared branch and ATM networks, wider product offerings
through credit card, auto and mortgage lending programs, and complete member
financial planning solutions through insurance, investment and trust services.
In short, they have become a critical component of many credit unions’ efforts
to become the primary financial institution for their members.