Financial Services Management Group II

In our second installment, read how Harborstone Credit Union increased their investment and insurance revenue from $70,000 to $1.3 million and the adjustments it made to make it work.

 
 

Part Two
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:

  1. 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?
  2. Do you consider investment services a core product?
  3. 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.

Cultural Differences
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.

Slow Decision-Making
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.

Compensation Issues
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.

Referral Programs
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.

Marketing Styles
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.

Compliance
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. Credit 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.

 

 

 

 

Aug. 12, 2002


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