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The growth strategy most credit unions are missing out on

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Why do credit unions think that offering retirement planning and other wealth management services might go over well with current and potential members?

Look no further than the success of the biggest of the big box stores.

“Costco, Sam’s Club, BJ’s and others have all done very well, because the ability to go to one place and get just about everything you need is appealing to a human need for convenience,” said Dennis Pellegrini, financial advisor with Peak Brokerage Services & Blackridge Asset Management in Wyomissing, Pa. “So I think people should be able to go to their credit union, where they have a trusted relationship, and get additional services beyond banking.”

Many Americans are not prepared for retirement but are looking for help in this area. The most recent J.D. Power retail banking survey found 78% of people said they wanted financial advice from their FI, but only 28% were actually getting it.

Additionally, it’s recommended that people save about eight times their salary for their golden years by age 60. That would be roughly $456,000 using a baby boomer’s average annual income, according to the American Financial Wellness Survey from Clever Real Estate. But the survey also found that the average baby boomer had around $136,000 in savings, about 30% of the recommended amount.

More than 100 million Americans have no retirement assets saved, and 40% of workers reported delaying retirement due to a lack of savings, according to Taylor Nelms, senior director of research for the Madison, Wis.-based Filene Research Institute. Only half of private sector workers have so much as access to retirement plans.

About 19% of credit unions provide investment or wealth management services, according to CUNA Mutual Group. That means there is room for more credit unions to jump into this space.

“This is an opportunity for credit unions to attract new members who are starting to think about retirement, and deepen relationships with existing members who need advice on retirement planning,” Nelms said.

In general credit union members are not wealthy, though studies show that about 40% of members have $100,000 to $500,000 in investable assets, said Rob Comfort, president of CUNA Brokerage Services, a division of CUNA Mutual. Credit unions should be able to help these members but aren’t.

For one, CUs historically have relied on traditional teller referrals in making their members aware they offer these services. This can be unreliable and may not lead to the institution targeting the right members, Comfort said.

Credit unions also often fail to make wealth management part of its core business and don’t give it enough visibility. There is also a shortage of advisors at credit unions.

“I think this is a disservice to a credit union’s mission when it does not treat this critical business as important as lending,” Comfort said. “Members that use investment services are more loyal. Some credit unions fear offering investments will take money away from deposits, but the opposite is true.”

Still credit unions can offer successful wealth management programs, experts said. Susan Mitchell, CEO of the consulting firm Mitchell, Stankovic and Associates in Las Vegas, said retirement planning for members begins with a savings program and continues through all life changes. This should include a long-term initiative that begins with the passbook account and continues through estate planning.

“Teaching team members to become a partner with members is the most important step as referrals and generational engagement will grow the credit union,” she said. “Wealth transfer is a strategic concern across the financial services industry and will have a major impact on credit unions if generational loyalty is not established.”

Wes Garner, president of TDECU Wealth Advisors, a division of the $3.4 billion-asset Texas Dow Employees Credit Union in Lake Jackson, Texas, said the decision of whether to offer retirement services depends on what the financial institution is trying to accomplish.

“In the credit union world it makes a lot of sense,” Garner said. “Some banks might look at it differently, but credit unions are not just looking at generating revenue. It helps attract new members and deepens relationships with existing members.”

Generating noninterest income is one factor in deciding whether to set up a program, but Garner suggested also considering the value retirement planning adds to members. He said if members are getting advice from the credit union, they are more likely to get other services from the institution.

“Financial advisors are net depositors at the end of the day,” Garner said. “Those members are more likely to have a credit card and a first mortgage.”

Credit unions can design delivery of retirement or wealth management products and services around life cycles, Nelms suggested. He said many CUs first should look at age demographics in their membership.

“The key is to present people with opportunities proactively as they reach life cycles,” Nelms said. “Structure the service delivery model and marketing around financial needs. Take your existing product line and turn it inside out. Start with the needs of the members, not the products and services. Placing the products and services in the background helps build the relationship.”

How to set up a program

There are two steps to setting up a comprehensive financial planning department, Pellegrini said. First, build a team and then provide education. This should include hosting seminars for members that discuss credit, creating an emergency fund and the need for life and disability insurance, Pellegrini said.

“In our society we have not given enough financial education, and that has to change,” Pellegrini said. “One of the leading causes of divorce is money problems. One of the leading causes for mortgage defaults is health issues. Unions, employers, veterans’ associations and credit unions all are trusted providers in their communities that can help.”

If a significant portion of a credit union’s membership is approaching retirement age, then it makes more sense for the institution to create a retirement planning program. Larger credit unions may also want to build their own in-house wealth management programs rather than turning to a third party. This eliminates the risk of members leaving if their wealth advisor quits his or her firm, Mitchell said.

As for smaller CUs, Mitchell said creating a partnership with a credit union service organization or a third-party vendor is one way of launching an effort.

“Another is to partner within the community with a trusted advisor that offers education and investment strategies,” Mitchell said. “However, either of these solutions will move money from the credit union deposit base to another location.”

TDECU Wealth Advisors grew as the credit union grew, Garner said. What now is an entire division began in the 1990s as an insurance sales vehicle. Today, it has eight associates going through its training program and 14 advisors.

“It is not easy to go out and hire and have the right cultural fit, so we want to train our own,” Garner said. “We have approximately 40 locations, so eventually we would like to have an advisor in every location, plus a remote advisor. We currently are evaluating if we might offer our services to other credit unions. That would be the next step.”

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