More credit unions started selling mutual funds last year, but the growth didn't live up to expectations that 1994 would be a boom year.

Though a firm count isn't out yet, Keith Peterson, an economist with the Credit Union National Association, said that slightly more than 1,000 credit unions offered mutual funds last year, 2% more than the 1993 tally, which, in turn, rose 2% from 1992.

Higher growth had been foreseen, but lackluster markets kept the gains from materializing.

"Momentum definitely slowed last year because of the volatility in the market," Mr. Peterson said.

"Many have opted to stay on the sidelines until they think the markets have calmed and it's the right time to jump in," added Joe Trapalin, managing principal for CUNA Brokerage Services, the Madison, Wis.-based association's brokerage subsidiary.

CUNA Brokerage Services had anticipated a sizable rise last year in the number of credit unions that tap it for help in selling mutual funds, Mr. Trapalin said.

But executives were disappointed when only 113 credit unions signed onto the brokerage's Plan America service, bringing the total number of credit unions using the investment marketing service to 643.

Despite what Mr. Trapalin describes as "modest" gains, one industry observer said CUNA Brokerage has an attractive franchise. He said the unit essentially has a lock on the business of managing investment sales for credit unions.

"CUNA (Brokerage) is probably the second-largest third-party marketer in the whole country," said Lawrence E. Harb, president of Lasalle Consultants, River Forest, Ill.

CUNA estimates that a fifth of Americans belong to at least one of the country's 12,619 credit unions.

Many investment product marketers planned to start selling investments for credit unions last year.

But two leaders among the companies that operate retail brokerages for banks - Portland, Ore.-based Marketing One, and Invest Financial Corp., Tampa, Fla. - made little progress among credit unions, spokespeople for the companies said.

Another factor that keeps credit unions from starting investment sales programs is their relatively small size, experts said.

"Credit unions for the most part are small institutions," said Ken Facer, executive vice president of the San Bernardino County Central Credit Union. "Many of them can't find the economies of scale to (sell mutual funds)."

Even big credit unions can feel overwhelmed when it comes to selling investments.

"We can't do it better or cheaper than the brokerages already out there, so why wade in," said Jim Blaine, president of the State Employees Credit Union, Raleigh, N.C., the country's second-largest credit union.

But CUNA Brokerage Services isn't the only company striking deals to sell investments in credit unions. Some other brokerages are getting into the business. And they are using a novel twist - having their brokers serve many different credit unions.

Such sharing is easier with credit unions than with banks, since credit unions don't normally compete for the same customers. Instead, they serve people with distinct affiliations, such as employees of a company or members of a professional association, said Jack R. Handy, senior vice president of Finic, a Torrance, Calif.-based investments marketer.

But Mr. Handy warned that outside brokers who try to sell investments in banks could find it hard to push their own company's mutual funds. This is because credit unions pride themselves on independence and the lack of a profit motive.

"I think it's part and parcel of credit union culture that reps shouldn't be predisposed to sell one product over another," said Mr. Handy. "Everything should be needs-based."

With this in mind, Kevin Foster-Keddie, president of Xerox Federal Credit Union, El Segundo, Calif., said many credit unions prefer having another credit union manage their investment sales.

To this end, the credit union has begun syndicating its investment sales services to other credit unions.

"We had a lot of interest from other credit unions that have come to us because we know how they work," said Mr. Foster-Keddie.

Xerox Federal has five investment sales specialists that serve its own clientele and the customers of six other credit unions.

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