Investing In Investments

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Investment services remains an untapped source of income for many credit unions, according to two financial institution consultants.

Gary Raddon, chairman of strategic marketing research firm the Raddon Financial Group, and Kenneth Kehrer of Princeton, N.J.-based Kenneth Kehrer Associates, told attendees of an educational session at the recent National Association of CUSOs (NACUSO) annual conference here old fears that offering investment services to members would cause disintermediation have proven to be unfounded.

Instead, Raddon said, households that use investment and/or insurance services at their credit unions generate 34% of income at an average CU.

"Households with investment services have larger deposit balances, the highest loan balances and a stronger relationship," he said. "Those are the numbers we strive to achieve. There are promising opportunities. How to get more households to participate? That is the challenge we face."

Kehrer, whose clients include two-thirds of the 100 largest financial institutions in the U.S. as well as numerous credit unions, said his organization surveyed 447 credit unions in 2005. The study found the average credit union's investment program produced $187,724 in sales revenue, while the bank average was $232,830.

"Why the disparity? It is not size," Kehrer said. "The deposit size of the financial institution makes little difference. However, banks deploy more brokers than credit unions, relative to size."

Only 2% of households are using an investment service at a credit union, Raddon said. Raddon Financial Group's member survey data shows credit unions control only a fraction of total investments: 11%, compared to 89% going to other entities. "That's way too low," he declared.

One reason credit unions-and banks-struggle to attract investment services business is low awareness, Raddon continued. Nationwide, 51% of households do not know if their primary financial institution offers investment services, and only 9% have used their PFI to purchase investments.

"The opportunity is in the people who aren't aware," he said. "Banks and credit unions are stronger than brokers in convenience and number of offices-which is why brokers are building locations. If something goes wrong, investors want to be able to talk to a person face-to-face."

The downside of the RFG study: 41% of investors said they are "satisfied" with their current providers, and many have a perception that banks and CUs either do not have the expertise or a large enough number of offerings compared to brokerages.

Raddon's advice: "Financial institutions must change the awareness and perception levels of customers and members to succeed in investment services. This is a difficult business to be in."

Added Kehrer: "For a credit union, the primary objective of an investment program is serving its members."

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