Rethinking Your IRA Growth Strategy in ‘06

IRAs represent a potentially big opportunity for credit unions, both as a much-needed deposit gathering instrument and as a core member relationship product.

 
 
IRAs represent a potentially big opportunity for credit unions, both as a much-needed deposit gathering instrument and as a core member relationship product. As tax season approaches and members reassess their individual retirement plans, now is as good a time as any for credit unions to reevaluate their IRA growth strategies.

Small Fish in a Big (and Growing Bigger!) Pond

According to the Investment Company Institute, the IRA market is large and growing rapidly. Americans saved $12.9 trillion in assets through tax-deferred retirement savings plans by the end of 2004. Assets in IRAs and defined contribution plans grew 13 percent last year, with IRAs making up the single largest component of the entire U.S. retirement market at $3.5 trillion. (1)

The credit union industry’s $48.9 billion in IRA deposits represents just 1.4 percent share of the IRA market. But with the national IRA portfolio projected to grow 10% each year to $4.8 trillion by 2010 as U.S. demographic shifts continue, credit unions need to determine how they can gain their fair share of this lucrative market currently dominated by mutual fund companies and investment houses.

(1) I.C.I. Research, August 2005

The Credit Union Advantage

Credit unions are uniquely positioned to assist their membership with retirement planning in general and IRAs in particular. Retirement planning products and services such as IRAs fit with a credit union’s service-oriented philosophy and efforts to provide financial education to their members. Further, given the public’s perception of credit unions as trustworthy and safe institutions, credit unions are ideally suited to help oversee a member’s long term financial needs. Finally, credit unions can offer highly competitive products. Since approximately six percent of IRA assets are in guaranteed return instruments such as CDs, credit unions have a competitive advantage over many of the larger players in the industry.

Given the size of the IRA market and the unique value proposition credit unions can offer their members, there appears to be a sizeable opportunity for credit unions to exploit. The challenge, according to several industry experts, is educating credit union staff to recognize the opportunity when it presents itself and train them to advise the members appropriately.

Case Study: The Need for Expertise and Training

With a 10.5 percent IRA growth rate as of September, 2005 data, ORNL Federal Credit Union ($853M, Oak Ridge, TN) began offering insurance for accounts over $100,000 three years ago. Believing “expertise” to be one of the things that distinguishes ORNL’s IRA program from the rest, CFO Dennis Bowker stresses the importance of a knowledgeable employee base. An IRA Specialist is available in each of the credit union’s branches, while an employee Intranet keeps IRA product specifics top-of-mind for staff through a series of learning modules.

ORNL is not the only credit union employing successful IRA strategies. Several others in the industry have also posted significant IRA growth. The table below highlights 15 of the fastest growing credit union IRA portfolios.

Top 15 IRA Growth Rates for Cus over $100M in Assets
for all Credit Unions with minimum $10M in IRA Accounts, data as of September 30, 2005

Credit Union

State

IRA ($) Growth

IRA ($)

Assets ($)

Fitzsimons Community

CO

86.50%

$10,951,243

$143,526,024

Selco Community

OR

78.19%

$31,112,221

$645,052,201

Carolina Trust

SC

56.45%

$10,489,469

$111,331,276

United

MI

50.94%

$19,532,577

$213,216,336

Family Security

AL

50.21%

$39,233,885

$303,211,953

Abbott Laboratories Employees

IL

41.37%

$10,985,896

$335,400,333

Oxford

ME

40.62%

$11,240,907

$106,526,989

State Farm West Central

NE

40.55%

$10,725,786

$170,703,908

Nassau Financial

NY

32.74%

$24,071,609

$256,058,608

Eagle Community

CA

31.62%

$20,765,210

$215,396,751

Mizzou

MO

31.39%

$16,017,918

$169,411,564

Dupage

IL

29.55%

$12,450,253

$230,110,083

Marine

WI

25.97%

$16,473,428

$188,252,179

Valley First

CA

25.89%

$16,375,048

$253,492,168

Delta Community

GA

25.85%

$243,915,079

$2,621,298,180

Source: Callahan's Peer-to-Peer Software

 

 

 

Jan. 2, 2006


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