A former First Interstate banker and an attorney want to help credit unions run their investment product programs.
Through a new venture dubbed Cuso Financial Services Group, Valerie Seyfert and Amy Beattie are looking to form limited partnerships with credit unions that have shown a commitment to hawking mutual funds and other investments to their members and other consumers.
Unlike traditional third-party marketing firms, Cuso Financial plans to share its profits rather than just flat fees with its credit union partners.
"What particularly attracted me to this is that there is an absolute need for it," said Ms. Seyfert, an attorney specializing in credit union issues. She formed San Diego-based Cuso Financial with Ms. Beattie, a former operations executive at First Interstate Securities Inc., late last year.
The country's largest credit unions have been slowly but steadily moving into investment product sales, said Keith Peterson, an economist with Credit Union National Association, a Madison, Wis.-based trade group.
While just 8% of the nation's 1,190 credit unions are in the business now, these institutions account for 35% of the $335 billion of assets at U.S. credit unions, Mr. Peterson said.
A few credit unions have formed broker-dealers within their credit union service organizations - the for-profit units in which credit union investment product programs must be housed. Most, however, use outside third-party marketers.
Cuso Financial plans to deal with credit unions that have more than $200 million of assets and have been selling investment products for at least two years. The company doesn't want to deal with institutions not firmly committed to the business, Ms. Beattie said.
Part of Cuso Financial's mission, both founders say, is to educate credit unions on the dangers surrounding investment product sales. Credit union trade groups are so focused on core credit union issues that they spend little time and know little about investment programs, Ms. Seyfert said.
A Cuso can only do 50% of its business with non-credit union members. Without tight controls over an outside marketer, that rule can be violated, she said.
"One of the strengths that we have is that we will have our compliance structured to meet the requirements of credit unions," said Ms. Seyfert, Cuso Financial's president. Most recently a partner in the San Diego law firm of Barker, Thomas, McColloch & Walters, Ms. Seyfert has more than 20 years' experience representing broker-dealers, investment advisers, and financial institutions.
Cuso Financial can't set up any partnerships until it receives its broker-dealer license, which it expects to have later this quarter. Several credit unions are already contemplating an arrangement with the new company, including $350 million-asset Rockwell Federal Credit Union, Downey, Calif.
"It's going to be designed to support credit unions," said Keith P. Bengtson, president for Rockwell's Cuso. "If it's successful, you get a share of some of the profits of a broker-dealer. Right now, if a third- party marketer has a really good year, the credit union just gets the flat fee."
Mr. Bengtson has used two different third-party marketers since Rockwell first offered investment products in 1990.
Selling investments is "an important part of the service mix of a credit union that wants to present itself as a financial supermarket," he said.
Most credit unions adopt defensive approaches to the business, said Geoffrey H. Bobroff, a Greenwich, R.I.-based mutual fund consultant. While many larger credit unions have tried a variety of ways to sell investment products "the success of credit unions as a storefront has not been explosive," he added.