The country's largest credit union has announced its first CUSO. The $11-billion Navy Federal Credit Union will open Navy Federal Financial Group effective April 3. The new CUSO will initially offer brokerage services and insurance products to its 1.9 million members.
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Navy Federal has contracted with CUNA Brokerage Services, Inc. to offer investments (including insurance and annuities) in-branch, online and through a dedicated call center, and with GEICO Insurance to provide car insurance. Services for other CUs are also being planned.
Navy Federal has long had the financial wherewithal, the membership base and a corporate culture of wide product offerings to support a CUSO. But CEO Brian McDonnell explained NFCU's board has been fairly conservative.
"We've looked at this several times in the past but the board decided against it," said McDonnell. "But in the last couple of years, and specifically in the last year, we've had to rethink our strategy with respect to the future. It's not so much that our board has changed as it is the competition has changed with the non-bank banks and the on-line competitors. We decided to take a second look."
That second look led to the creation of Navy Federal Financial Group and the hiring of Dennis Godfrey as its new president. (McDonnell is chairman of the CUSO's five-person board). Godfrey said the first registered representatives from CUNA Brokerage (a subsidiary of CUNA Mutual Group, Madison, Wis.) have already been hired and will begin to appear in Member Service Centers (MSCs) in the Washington metropolitan area first. Plans call for expansion to follow in markets with high member concentration, including San Diego, Seattle, and north Florida.
At the same time the representatives begin appearing in branch, online securities trading similar to that found at E*Trade will become available to members on April 3, as well. Members will access the on-line trading by clicking on an icon on Navy Federal's website, www.navyfcu.org, that will click them through to www.navyfsg.com.
Godfrey said pricing will be higher than that found at E*Trade, but comparable with similar services offered by competitors like Charles Schwab and USAA. "And we will not require the deposits or other ancillary income that E*Trade requires, so I think we will be competitive from the standpoint of the overall relationship," said Godfrey. Noting that NFCU does not anticipate the new services will cannibalize deposits, as those funds are already flowing out to "the Merrill Lynch's of the world."
"We plan to tie all of this back to a good financial plan," Godfrey said. Navy Federal has long had in place programs for assisting members in building or rebuilding their financial position. "This is not just trading, but also investment counseling. We will let people know they should keep some money in savings."
The registered representatives are employees of CUNA Brokerage, although Navy has the right to review and reject applicants. The four people currently in training are getting a "thorough indoctrination" in NFCU's service culture. One of those new hires is a Navy FCU member of 25 years and a registered rep, along with being the wife of a Navy admiral.
Godfrey said Navy Federal chose GEICO insurance for two reasons: it is well-known for its level of service and attractive rates, and the company's own history (GEICO originally was the Government Employees Insurance Co.). The new CUSO will be facing plenty of competition in auto insurance from USAA, a major competitor also well-known for its levels of service and with which many naval officers already have insurance.
The third component of the new CUSO is services to be offered to other CUs. According to McDonnell, it's likely the CUSO will leverage one of NFCU's strengths: mortgage servicing-it services 72,000 member mortgages.
"There are a lot of credit unions that have gotten into mortgages but they stumble around on what to do about the servicing," said McDonnell. "We can help them solidify their relationships with members in two ways. First, for larger credit unions, we can do private labeling of the servicing program so that when the member calls the phone is answered, 'XYX Credit Union.' Or second, for smaller credit unions, we can just answer the phone, 'Mortgage Department.'"
McDonnell said Navy Federal will continue to look at other areas where the CUSO might expand services.
