Looking Forward to Another Good Year

If mutual fund salespeople were to vote on a theme song characterizing 1999, the winner might very well be the Frank Sinatra ballad, That was a very good year.


This article reprinted from the 2000 Mutual Fund Provider Directory. Receive this publication free with the purchase of the 2000 CUSO Directory! Click here for details.

A Record Year The Credit Union Perspective
Member Psychology Four Options
Full Service vs. Do-It-Yourself Growing a Mature Program
The Upside of Mutual Funds Realistic Expectations
New Technology Member Education
What prompted such a good year?  

f mutual fund salespeople were to vote on a theme song characterizing 1999, the winner might very well be the Frank Sinatra ballad, "That was a very good year."
What's more, they figure the refrain is likely to apply during 2000.

Many say it's a case of a rising tide lifting all boats. The strong stock market and robust economy created a pool of investors seeking options beyond modest fixed-rate accounts. That's dandy, but salespeople stress those investors need to realize the potential for loss when the market sours.

A Record Year

Thomas Taylor, director of sales and training for the financial institutions division of Financial Network Investment Corp., points out 1999 was a record year.

"FNIC was up just over 30 percent," he notes. "We did $1.3 billion sales volume. I think the reason customers are continuing to flow to us is related to the relationship they develop as a member of the credit union. Members really have a comfort level with talking to somebody inside the credit union; somebody the credit union has brought in to assist them.

"There's also the privacy issue. I believe they feel a little bit more secure their information isn't going to be shared and they're not going to be marketed to by another company."

What prompted such a good year?

"It was another solid year of mutual fund returns, making people -- rightly or wrongly -- more comfortable with mutual funds, specifically equities. I don't know if that is necessarily a good thing. There are a lot of people getting in and starting to have expectations of 15 to 20 percent returns and no realization of the potential loss. We're doing everything we can to make sure we're disclosing the down side -- because there will be a down side," Taylor says.

FNIC representatives working inside credit unions did see more movement toward equities and not necessarily an overwhelming surge toward sexy technology stocks. Taylor figures many people still hesitate to move into that volatile sector.
A large task, he indicates, not only for FNIC but also for the industry as a whole, was integrating technology into the overall business plan. Taylor includes within technology everything from Internet training to back office functions.

"Technology was easily our greatest challenge in 1999 and will be, I think, going forward the next couple years," Taylor says.

"Our hope is 2000 will be another record year. January was a record month. We'll continue to integrate ourselves with the Internet and put more tools in the hands of our credit unions and reps so they can better serve members."

Member Psychology
Jim Fulp at Raymond James Financial Services Inc. also saw business in 1999 very much buoyed by the overall market. He comments on the psychology he sees at work.

"Really, credit union membership is as diverse as the entire U.S. population," Fulp says. "You have people ranging from fairly affluent to hardworking people doing their best to meet their obligations. Investors are people who have discretionary capital and are looking to put it to work.

"Today I would say because you don't have the saver mentality as much as you do an investor mentality at work in our economy, monies that might in the past have gone to a savings account will more likely go into a mutual fund or other investment vehicle."

"Another thing that's giving rise to investing is retirement. As baby- boomers like myself get closer and closer to retirement, you start thinking about it. You start focusing on curtailing your outlay of income and start trying to save more money. If you are an investor, you are going to put that money into investments. If you actually reach retirement age, you have these rollovers coming out of qualified corporate retirement funds. You ask, 'What am I going to do with this amount?'"
Technology stocks are on the tips of the tongues of investors, Fulp says. However, when you look at the breakdown of the mutual funds actually sold, people buy growth and income funds.

Full Service vs. Do-It-Yourself
Fulp sees a great demand for financial planning advice during the next decade or two. The biggest challenge for the investment services industry, he continues, is helping people understand the difference between a do-it-yourself approach and using a professional. People are always attracted to getting something cheap. The long period of market growth has boosted confidence in handling one's own portfolio.

Looking ahead, "I think it (2000) will be another good year for investors, barring unforeseen world events. We know it is so important that all of the professional financial advisors who represent our firm and work with credit unions be on top of all current issues and be continually educated. We're doubling up our time and energy to help everybody stay on top of the market curve. We want our advisors to guide people to the best way to make their retirement monies last long enough so they can enjoy a full retirement without financial worries," Fulp says.

The Upside of Mutual Funds
During 1999 mutual funds accounted for a large portion of business at CUSO Financial Services. Valerie Seyfert, the president, has watched the market continue rising in early 2000.

"Will it last? Nobody can say. Certainly those of us who have been in this industry for many years know what goes up must come down," Seyfert says.
At the same time, there's a lot of capital out there searching for a home. She notes what members have been seeking - higher earnings.

"Investors wanted to improve returns over those they could have gotten in a fixed income or other more conservative investment. We've had a very long-running bull market. At this point returns on mutual fund investments have been so good for so long it is an attraction most people just can't ignore," Seyfert says.

Index funds are popular. However, she adds, because many people have not been active in the market during a downturn they think -- perhaps falsely -- mutual funds are a safe investment destined to keep going up.

New Technology
Seyfert suggests the biggest challenge firms face today is meeting investor expectations for the delivery of information about their investments.

To meet that demand, CUSO Financial Services offers an on-line web site called e-vision. At the web site members can get complete details on an investment they're considering, such as Morningstar reports providing historical data on returns.
A push during 2000 will be linking credit union and brokerage capabilities so members can instantly settle their investment transactions.

Sales at financial institution clients of LPL Financial Services jumped 25 percent to more than $900 million during 1999. Vice President James Norwood echoes others in citing a growing consumer thirst for investment advice.

He sees more and more credit unions looking to associate with broker-dealers furnishing full-service advice and financial planning. Credit unions also want to allow members to look up their accounts on-line.

The Credit Union Perspective
Credit unions themselves as well as broker-dealers describe 1999 as an excellent year for mutual fund sales to members.

At First Technology Credit Union in Oregon, Kelly Corah labels last year "excellent." She's FTCU director of CUSO services.

As for the current year, "I'm cautiously optimistic," Corah says. "When you come off such a wonderful year you wonder if it's going to continue or whether investors will change their attitudes. The perspective I have is more from full-service and financial planning. As members become investment-savvy, will they go direct?
"While we have on-line trading programs, they're still in their infancy. It's kind of hard to gauge how our business is going to change. We know it's going to change. We know we are going to have more members utilizing our services. We just don't know what that will mean in dollars."

Four Options
To attract as many members as possible, FTCU offers four different investment options from full-service advice to member-directed. To accomplish this the credit union has partnered with several broker-dealers.

Corah believes there's no way to keep up with growth without broadening the choices available to members. Her goal during the current year is to boost member awareness of the services available.

Growing a Mature Program
SAFE Credit Union in California has a mature mutual fund sales program, in place since March, 1989. Curtis Miller, the program manager, sees many members coming into more money.

"We're doing a lot of rollover business for people moving around in the workplace,' Miller explains. "We have a kind of special situation. One of the military installations closing down, an Air Force base, has been a source of membership. Confidence in the market has also helped, even in the face of Y2K.

"For me, the biggest challenges in 1999 were keeping equanimity with respect to bond returns and the rising stock market. Some people started off with bond investments. We had bonds going down in value or just maintaining their value. Watching the stock market go crazy, it's hard for people to stay on course."

Even so, 34 percent of Miller's business was repeat business. SAFE CU's FNIC representatives moved about $25 million into investments last year. They're now managing about $150 million in mutual funds and other investment products. Some 50 percent is outside money.

"We don't want to make mistakes and follow trends too much. We don't follow hot tips. We worked with the tried and true approach of diversified asset allocation. People still want to have some advice. We do all the paperwork and the coaching," Miller says.

Realistic Expectations
He puts on his 2000 wish list the Federal Reserve lowering interest rates, less market volatility than some people are predicting, and rising bond prices. He would also like to see more down-to-earth investor expectations. After all, anticipating 40 percent return on average isn't realistic.

Brenda Peddycoart is vp, supervisor and principal of Tinker Financial Services at Tinker Federal Credit Union, Oklahoma City. Even a brief slowdown caused by a change in broker-dealers didn't stop 1999 from outperforming 1998, she notes.

Member Education
Looking ahead, she joins others in expecting another good year overall, even with some ups and downs. Member education will continue to be a major focus. The broker-dealer will release on-line trading for pre-qualified clients. If the credit union does offer this to members -- and that hasn't be decided yet -- TFCU will have to figure out how to best utilize it.

In addition to confidence inspired by the stock market and overall economy, Peddycoart notices baby-boomers putting money into the market as they prepare for retirement.

"Members are looking for guidance more than specific products," she observes. "Part of that is the responsibility of the rep to talk to them, find out their circumstances and place them in the right product. Much of our business is mutual funds and annuities. I did see a little bit of a pickup in fixed annuities last year," Peddycoart says.

What brings members into the credit union for investments when other options are a phone call, mouse click or short drive away?

"Primarily I think it has to do with their loyalty to the credit union, plus the convenience of one-stop shopping," Peddycoart says.




July 24, 2000



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