Beware the Credit Unions

Davis says Addison and its financial consultants have been contemplating a move toward a fee-based platform for more than a year. “The consultants have been involved in the development and design of the fee-based products,” he says, which will initially include ETFs, separately managed accounts, and actively managed mutual funds. Providing a fee-based platform like this is necessary to stay competitive, Davis argues. Addison’s 125,000 members have “relationships with wirehouses or regional firms that have these types of products,” he says. “We’re trying to gain a larger share of our members’ wallets by rolling these products out.”

Mark Tibergien, partner-in-charge of the Securities and Insurance niche at Moss Adams (and an Investment Advisor columnist), says more credit unions should follow Addison’s lead in offering broader financial planning services. Credit unions “could truly add value to their members if they offered a more comprehensive financial planning solution,” since most credit unions serve middle America. Considering their saving, borrowing, and investing habits, “financial planning might be even more important than more investment choices” to this demographic, he says.

Those credit unions with a more sophisticated membership base like Addison, would do well to add more investment products like managed accounts, Tibergien says. The trick is doing so while staying true to credit unions’ reputation as low-cost providers. Since they pay no taxes, credit unions can offer members much cheaper rates on loans, investments, and other services than banks. Without providing any numbers, Davis says he’s confident that Addison has “been able to structure our managed accounts program very competitively.”

Unfair Competition?

Banks have complained for years that credit unions’ tax-free status gives them an unfair advantage, particularly since credit unions offer the same types of services as banks. The American Bankers Association (ABA) has prodded Congress for years to revoke credit unions’ tax-free status. Banks also claim that credit unions’ fields of membership aren’t as limited as they used to be. Credit unions can be chartered to serve communities, associations, places of employment, and even religious establishments. Over the years, the NCUA has allowed credit unions to broaden their charters. For instance, a credit union that was set up to serve employees of a particular company could have its charter expanded to include everybody living in a particular county. Davis concedes that credit unions’ membership rolls have been allowed to stretch, but “we are still restricted,” he says. “We don’t have the same marketing opportunities that other financial services firms do. We can’t go out and offer our services to anybody.”

Now that credit unions are starting to get serious about offering financial planning and investment services, independent advisors may want to take notice. Besides regulation, legislation, rising costs, talent shortage, and the graying of the advisor population, “strategic positioning” is one of the “big five future issues” that advisors should be thinking about, Tibergien says. Independent advisors are trying to “stake out the same territory” as banks, wirehouses, regional brokerages, and credit unions. There are so many choices, “it makes it very difficult for consumers to discern the difference” between these financial services entities. “Throw credit unions into the mix, and it further dilutes the offering.” The good news: advisors who have strategically positioned their firms and are offering stellar services will have no problems attracting the right clients.

Washington Bureau Chief Melanie Waddell can be reached at [email protected].