CEOs Get Frank Assessment

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A trio of financial institution advisors had a sobering message for CEOs at a CUES-sponsored meeting here: they are largely unprepared to deal with many of the new regulations and competition they face.

Sharing that message with the CUES CEO Network here was a panel that featured Steve Williams and Terence Roche, principals of Phoenix, Ariz.-based Cornerstone Advisors, and Michael Mavaddat, managing director of West Conshohocken, Pa.-based Decision Strategies International. Bernardo Sichel, director of the Latin America department for Decision Strategies International, served as facilitator.

The three panelists opened with their views of the immediate future of CUs-the next five years. Williams, a frequent speaker on the credit union conference circuit, said the key will be managing complexity and competing for simplicity.

"It's kind of a yin-yang thing," he said with a grin.

Williams said the complexity for credit unions comes from their moves into previously uncharted territory such as mortgage banking, insurance and business services. "Credit unions are expanding their fields of membership and are competing with community charters. They have been branching like crazy over the last 18 months. Add on the regulatory burden, which currently is the highest I've ever seen and..."

"I love you guys so much," he continued after a pause. "But many of you are not ready to manage all of this."

Williams said CU executives should delegate more and make better use of technology. And, he added, make things easier to understand for staff and members. "Credit unions must compete for simplicity. They cannot avoid complexity, but had better deliver simplicity."

Roche said CUs must leverage the existing relationships they have with their members, which differentiates them from banks. "Three years from now, credit unions will comprise 25% to 50% of midsized financial institutions-from $500 million to $3 billion in assets," he predicted.

Roche said credit unions must also prepare themselves for a slowdown in the booming housing market. Without a continued influx of new mortgage loans, borrowing capacity will change, he said.

Mavaddat said no discussion of credit unions can take place without considering the overall economy. He said the consumer is "tapped out," leaving credit unions and other financial institutions to deal with the aftermath. "The mortgage market is slowing down, and there are many other dark clouds," he declared. "What are credit unions doing to prepare themselves?"

Sichel asked the panel what CUs' main competition would be going forward: "Will it be large banks, or other credit unions?"

According to Williams, credit unions should not attempt to compete head on with large banks.

"Once big banks build a retail convenience network, with ATMs and free checking and online banking, customer inertia sets in," he said. "Credit unions won't be able to be as convenient as Bank of America. And, don't forget, mutual funds brokers are coming back."

Roche said the answer is community banks. "For those credit unions competing on a cost and efficiency model, know what is out there," he advised. "Long-term, market convenience by letting people know the credit union will be there when they need a loan, because that is what convenience really is to people."

Differentiation

In response to an audience question regarding differentiation, Roche said there is a difference between "niche" and "value." "It is important to figure out what is a credit union's niche," he said.

Williams said people enjoy working at credit unions, which has helped them attract talent, and that CUs need to use that workplace environment-plus a twist-to take themselves to a different level. "Too little compensation in credit unions is performance-based. There is a perception that credit unions are a family, so everyone has to make about the same amount of money. There are a lot of entrepreneurs out there-let them make money for building the credit union's business."

Roche and Williams agreed more attention must be paid to tellers and other oft-overlooked people who deal with members. Roche said technological advances have changed the way frontline staffers do their job, but not enough has been done to integrate information, documents and other intelligence.

"When I talk to these people, over and over they tell me they want one screen that shows them every account a member has. That's where we were a couple of years ago, but we've made it harder."

Added Williams: "The frontline has to differentiate credit unions. If there was a test given to see what products management thinks it is selling, it would be embarrassing. There is a definite knowledge gap on the frontline. We must make things simpler and easier to understand."

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