The Special Report on Non-Interest Income in the April 30 edition of Credit Union Journal was an excellent read. The "good ol' days" of managing a balance sheet with a measly interest spread of 600 BP, by paying 6% dividends and charging 12% for loans, is but a speck of memory relegated to the same mental closet as Ben Cartwright and his boys, the race to the moon and "Did you watch the Beatles on The Ed Sullivan Show on a black-and-white or color TV?"
Like most memories, it's nice to reminisce, but the reality of today soon brings us back to the fact that most of us realize that the days of spread income are as good as gone. The numerous comments in the Journal's Special Report from CU leaders and CFOs offered a satisfactory synopsis of both tried-and-true tactics and new opportunities, but it lacked a single mention of the product that I think has proven to be a valuable contributor of non-interest income (NII) and significant member value.
I believe that the relatively small number of credit unions that have properly positioned and fully integrated an all-channels service platform of brokerage and insurance services are a strategic step ahead.
There are many studies that indicate that the typical credit union member and his or her family have between five to 10 times the wallet share the credit union has on today's traditional balance sheet in other investments, retirement programs, insurance based investment instruments and non-insured money markets. The continuing decline of employer-sponsored retirement programs and the recent consumer dissatisfaction with our many competitors has created an opportunity for both deepening the number of income-producing member relationships and increasing the non-interest income component, across all demographics.
Today there are more than a few CUs that are building Assets Under Management that exceed 50% of their traditional balance sheet deposits and have goals to equal and exceed what they consider an antiquated measure of wallet share. Successful CU programs are generating in excess of $2 million in Gross Dealer Concessions with resulting net income of 25%-30% of GDC. There are some that have realized over $1 million in annual NII while simultaneously realizing many additional operational and financial advantages.
Valuable Tool For Many Things
Unlike most other NII solutions, brokerage services has proven to be a valuable tool for managing the credit union capital ratio, by offering off-balance sheet alternatives to traditional deposit accounts. Every credit union with brokerage services should be able to increase the depth of the member relationship while simultaneously managing share growth and exposure to the costs of NCUA share insurance.
There should be no reason for any credit union to ever drive off or decline deposits through their rate strategy. Filene, Bergeron and Callahan must be turning over in their graves when they see that happen!
These last few years, credit unions that have adopted a strategy to fully integrate brokerage services into their product offerings, have increased their penetration of family wallet share, assured themselves a role in family financial planning and future estate planning for their members, broadened their business services menu (through 401(k) and business insurance offerings), and significantly impacted and increased NII.
No Need To Limit Story
This success story need not just be limited to to large CUs. There are a growing number of small and medium-sized CUs collaborating to share a local sales representative to meet the needs of their members. For these credit unions, having a brokerage services offering is vital to their survival. Should their members take a 401(k) rollover, inheritance monies or just questions about how to plan for retirement to another provider, they most likely will find that they are soon battling that alternative provider for that member's core relationships, including any and all lending products.
It will be those CUs that have embraced the strategy that they will be the provider of their member's total financial solution that set the new standard: Assets Under Management. That goal will combine the traditional spread income of today's balance sheet and the significant opportunity of NII from investment and insurance products we help manage on behalf of our members.
Our next goal should not be $2 trillion in assets, but rather $10 trillion in total assets under management. Many of the other NII strategies are important, but I venture to predict that none can have the long-term impact on how well we meet member needs and provide significant member value, that having a strategy to provide a full menu of brokerage and insurance products through all available delivery channels can have.
Vic Pantea, President/CEO
Pantea Consulting, Inc., South Bend, Ind.
