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Brokerage services have become firmly entrenched at many credit unions, but many analysts see significant room for growth and revenue.

Indeed, several people told The Credit Union Journal, brokerage services have not only not absorbed other deposits, they've helped grow relationships.

Among those credit unions offering members a brokerage option is the world's largest CU, Navy Federal. Navy Federal Financial Group offers its Navy and Marine Corps members investment and brokerage services, including stocks, bonds and mutual funds, through a representative registered with CUNA Brokerage Services. Navy Federal Financial CEO Dennis Godfrey is among several credit union industry officials who told The Credit Union Journal that brokerage services have become a core CU offering that develops member relationships, brings more business and is a critical part of member investing.

Godfrey said brokerage services allow credit unions to bring a more holistic approach to member service, stressing that Navy Federal trains its representatives to examine each case individually. Regardless of its CUSO structure, Godfrey said he still expects brokerage representatives to adhere to the traditional CU mission of helping its membership.

"We do what's best for the member. It also allows members to consolidate their funds," Godfrey said.

Navy Federal Financial Services was launched in 2000 with four registered representatives in the Washington D.C. area. Today, there are nearly 30 representatives and the CUSO has nearly $500 million in assets under management and an additional $900 million in insurance products. Godfrey said the services have helped members of all types move closer to Navy Federal, and many seem to simply enjoy coming in for frequent visits.

"It's been a good supportive role for the credit union," Godfrey said.

In Madison, Wis., CUNA Mutual Senior VP John Henry observed that while credit unions still lag the banking industry when it comes to brokerage services, it has become a fundamental offering of many CUs' product menu. Henry, who oversees the MEMBERS Financial Services unit that places reps inside CU branches, said a credit union offering brokerage services has three advantages over a large, established brokerage firm such as Merrill Lynch or Smith Barney: trust, convenience, and members valuing other CU products. Henry also noted the strengthening of member relationships with many members bringing CDs from other financial institutions into their own credit union to consolidate funds in one location. He agreed that credit unions have only just begun in the world of brokerage services, but are fast becoming a way of life.

"There's still room for plenty of growth," Henry said.

CUSO Financial Services, L.P. (CFS) CEO Valorie Seyfort said credit unions are well along in climbing the bell curve in terms of nontraditional deposit services, pointing out that CFS clients increased their revenue in 2005 by 34%. CUSO Financial Services began its life a decade ago when funds were flowing out of credit unions and into the booming stock market driven by Internet-related stocks. The San Diego-based company began its life with just a few credit union clients; today, it has more than 20 that have brokerage-related revenues of $1 million or more, seven with revenues north of $2-million, and four that have generated revenues in excess of $3 million each.

"Clearly credit unions are still in the infancy phase of building these services," Seyfort said. "We're still just starting to scratch to the surface."

When credit unions first began exploring offering brokerage services the immediate objection was the cannibalization of deposits members already had with their CU.

But each of the analysts told The Credit Union Journal that brokerage services and deposits can peacefully co-exist and, in fact, even complement each.

"Money destined for investment is going to go there no matter what," Seyfort said.

One CU Babies The Boomers

Laurie Kresl, vice president of planning and business development at $627-million Unitus Community Credit Union in Portland, Ore., said UCCU has discovered the value of brokerage products, especially retirement services, as the Baby Boomers approach retirement age. Unitus Community has the usual array of CDs and IRA accounts, but rounds out its offerings with MEMBERS Financial Services' stocks, annuities, insurance and mutual funds. Kresl said her members were seeking such investments, and the addition helps position the credit union as a "one-stop shop." Kresl said the credit union currently has $4-million in assets under management in its first year of operations.

"Members do need things other than CDs and mutual funds," she said. "The next step will be how to distribute (retirement) funds without taking a big tax hit."

Navy Federal Financial's Godfrey said now is a good time for CUs to start their own brokerage services division, but advised being patient. He noted it takes time for CUSOs to acquire the required expertise, for members to learn what is offered, and for financial reps to be trained in the crdit union's way of doing business. "We have had to work through a number of reps," he acknowledged.

For example, with the large number of young servicemen and women coming into Navy Federal for financial advise, Godfrey said representatives need to be taught not to simply sell some stock to a young sergeant or petty officer when they don't have a good base of savings built up.

"Sometimes we tell them, 'first thing you do is pay off those credit cards,'" Godfrey said.

Members are served best when they are first taught how to save, buy CDs, and then move on to stocks, he said. In addition, members paying off credit cards are prime cross selling candidates, Godfrey said.

Navy Federal Financial Group representatives spend up to an hour and a half with new clients, all of which builds member loyalty and relationships, while increasing CU business, he added.

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