MADISON, Wis.-Credit unions should be offering more insurance and investment services and need to do a better job making members aware of these offerings.
Speaking during CUNA Mutual Group's Online Discovery Conference Tuesday, Hendrix Niemann, managing director, practice and wealth management at CUNA Brokerage Services, stressed that CUs must find ways to increase their non-interest income streams. Not only will that help the bottom line, he said, but it will help the movement better manage what he called a "demographic tidal wave" coming within the next 20 years.
"The problem, in one word, is awareness," said Niemann. He noted that even though many CUs and banks understand how important insurance and investment offerings are, not enough are doing an effective job of penetrating the group of consumers who actually hold those funds "and are therefore prone to buying investment and insurance products."
Huge Opportunity
That leaves CUs with a huge opportunity. Niemann cited research from Raddon Financial Group that found that if CUs could covert 50% of their CD accounts to investments, that would result in a $350,000 profit, improved loan-to-deposit ratios, and a 7 basis point-increase in ROA.
Niemann was quick to point out that he believes a 50% conversion is overly ambitious, but he said Raddon has stood by that figure. Niemann said he believes a conversion ratio of 20% to 25% is more realistic, and would still provide significant benefit to CUs.
He reminded that there are other, non-financial benefits to offering insurance and investment services, including increasing member stickiness and loyalty by as much as 40%, according to a 2013 study from Kehrer Saltzman & Associates.
"The baby boomers are no longer going to be saving, depositing and investing," said Niemann. "Their money is going to be leaving the credit union and banks, both large and small. They're going to be spending down those assets. ... So the question on the table is what is your plan for replacing those assets? Remember that baby boomers, by and large, will not be borrowing money."
With Millennialls set to occupy 50% of the labor force by 2020, their money is still in play because they distrust the big banks and Wall Street, said Niemann. But credit unions haven't yet closed the sale with that demographic, which plays back into the awareness issue.
Once the awareness problem is overcome, Gen Y consumers are very open to being converted to active CU members, "but you have to be quick, you have to be nimble, and you have to accommodate their demand for instantaneous access to the information they want."
The Advice Business
As for those older consumers who make up the bulk of membership, CUs must recognize that they are now more in the advice business than the product business.
Older members need help with retirement planning, and too many FIs don't adequately pay attention to how much those members will need to save for retirement and health care costs. While advice may ultimately lead to product sales, the first priority of those aging members, said Niemann, is sound advice from a source they trust.
