By Hendrix Niemann
Over the years, I’ve wondered why credit unions don’t make a big deal about their investment and insurance programs, since the benefits of doing so are obvious. Let me give you a few examples.
First, multiple studies confirm that a strong, healthy, and vibrant investment and insurance program pays dividends in multiple ways. According to a recent Raddon Financial Group report, credit unions lose an average of (-$165) on CDs but make an average of +$177 providing investment products to their members. This means converting CDs to investment accounts can potentially result in a substantial increase to bottom-line revenue, while simultaneously improving the capital ratio.
Second, investment and insurance products are the largest potential untapped source of member-friendly non-interest income, according to Filene Research Institute. Credit unions only attract around 3 percent of their members’ investment dollars, while almost half (46 percent) of members have investment accounts elsewhere.
Third, recent studies from Strategic Business Insights and Kehrer Saltzman & Associates confirm that members who purchase investment and insurance products from their credit union are more loyal than those who do not and are more likely to consider the credit union their primary financial institution. The importance of this “stickiness factor” cannot be overemphasized.
Despite these benefits, many investment/insurance programs are not viewed as core components of the credit unions’ mission. Why? A healthy fear of Wall Street shenanigans is part of it. Losing deposits that might be needed for future lending is another explanation. And some credit unions just don’t want to establish a sales culture they believe goes hand-in-hand with providing (“selling”) investment and insurance products.
Nevertheless, there are two primary reasons for a strong investment and insurance program. First, Baby Boomers, the largest generation in our country’s history, are about to shift in massive numbers from accumulation–depositing, saving, and investing–to spending down their assets, which means their money will be leaving.
Second, Generation Y, those born between 1982 and 2002, will constitute 50 percent of the U.S. labor force by the end of this decade, which means they’ll be the ones depositing, saving and investing. Gen Y distrusts big banks and Wall Street, so their money is in play. A strong financial planning offering, which leads directly to providing investment and insurance products, will be a primary reason Gen Y might look to credit unions as their PFI.
I believe these statistics and demographics favor our industry. Whether or not we will take advantage of this opportunity is yet to be seen.
Hendrix Niemann is managing director of practice & wealth management for CUNA Brokerage Services, Inc., Madison, Wis. He can be reached at 608.665.5130. Hendrix is a featured speaker at the 4th annual Online Discovery Conference on Oct. 1.
"Unconventional Thinking: Early Withdrawals" is a Credit Union Management magazine article about managing certificates of deposit. Also read "Facility Solutions: Growing Wealth Management."
