3 Investment Strategies For 3 Life Stages

Generations Community explains a three-pronged plan to catch members early and help them invest for life.

The stock market boom of 2014 and early 2015 might have had many investors smiling, but the economic boost likely skipped the majority of credit union members. According to a 2015 Bankrate survey, only 1 in 2 Americans own stocks. For those younger than 30, that figure drops to 1 in 4.

Generations Community Federal Credit Union ($547.8M, San Antonio, TX) sees the evidence of this trend every day.

We currently have less than 15% penetration for investments among our membership, says Marcel Theriot, the vice president of finance and the investment officer at Generations.

But it’s not just members that struggle when it comes to investments. Credit unions, too, often fail to connect with members at the right time in their lives to secure long-term loyalty.


Generations Community Credit Union
Data as of 03.31.15

HQ: San Antonio, TX
ASSETS: $547.8M
MEMBERS: 49,624
12-MO LOAN GROWTH: 4.95%
ROA: 0.26%

If you have a member who’s been with you from the beginning, it’s easier to keep them in a full-service broker relationship versus trying to get them to convert from somewhere else, Theriot explains. The problem is, we don’t typically make it affordable or provide enough value to encourage younger members to want to invest.

Lucky for Generations, Theriot has a proposed solution for this conundrum. The credit union is currently revamping its strategy of outsourcing much of its investment services, which it has done for years. Beginning in late 2015, it will work with a network of brokers to create a more custom, life-stage oriented approach to investments that catches attention early on and keeps members engaged and profitable for the long haul.

Here, Theriot talks about the details of this transition.

What has been Generations’ approach to investments? Where has it failed to bridge the gap with certain members?

Marcel Theriot: Our current program is your standard broker-in-the-box arrangement and it includes a revenue-sharing agreement. These brokers-dealers are full commission, which is a very typical arrangement in the credit union space.

Marcel Theriot, VP of Finance and Investment Officer at Generations Community Federal Credit Union

Marcel Theriot, VP of Finance and Investment Officer at Generations Community Federal Credit Union

Because brokers are typically incentivized to make as much commission as they can, they tend to prioritize financial planning for potential retirees and don’t pay as much attention to those in their 20s and 30s who are starting out and don’t have a large amount of money.

Because our mission here is to improve the economic well-being of all of our members, we need to offer investments at different price points that are skewed to their needs rather than our own.

What would this alternative model look like at an organizational level?

MT: Exclusively paying for full-service broker support is not profitable for us, it’s not profitable for the brokers, and it’s certainly not profitable for the member. So my plan is to transition to a model that focuses on investments as a volume deal, with incremental income based on assets serviced and annuitized over time. That way, we can essentially have three stages or levels of investment services.

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The first would be for those ages 25 to 35 who are starting out with, say, $50 a month. They mainly need advice, so you’d have a salaried employee who guides them through an online account setup on our website. Actual investment activity has become largely commoditized through the use of technology such as robo-advisors, which use the investors’ current life information, goals, and timelines to allocate funds accordingly. As a result, these members wouldn’t need a full-service broker, just someone to help them set up that initial process. The credit union would then make annuitized income on every trade going forward.

These members wouldn’t need a full-service broker, just someone to help them set up that initial process.

In the 35- to 50-year-old age range, a person needs more guidance. So we would have a broker who can guide them, by phone or online, and check in on them intermittingly to make sure they are where they need to be. They could pay for that service on a monthly or annual basis at a charge of somewhere between 20 to 25 basis points of their assets. You’d still see trades, but this activity would generate income higher than that among the 25- to 35-year-olds.

For the 50-plus group, our focus would still be on providing full-service support and financial planning through an on-site personal advisor. Even our more mature members don’t always realize when to take their cash flows to support the type of lifestyle they want. That’s a key time for determining what age you should take social security and how to roll your 401(k) and savings into other vehicles, so it makes sense to still focus some extra resources here.

How does engaging members early through investments help the credit union?

MT: As a credit union, lending is still our primary way to help the member. But having an investment portal can help us determine what money a member has outside of the credit union. For example, if we know a member is investing because they have a baby on the way or are saving for a house, that’s a great opportunity to cross-sell them into a mortgage or another product or service.

If we don’t catch up with them until later in life, we’ve already missed many important life stage-based needs.

What are Generations’ next steps to put this plan into action?

MT: I’m currently vetting two to three brokers who have broken out of that commission mindset and could potentially help us put the plan into place.

I’m currently vetting two to three brokers who have broken out of that commission mindset.

We’re also working with a new partner to establish a property and casualty insurance CUSO. The product line there will include home, equity, and auto as well as some ancillary services such as pet insurance and protection from cyber security damages. These premiums are typically small, so we’ll need a lot of volume in order to make decent money. The best way to do that is by focusing on electronic channels, so we’ll do business online or over the phone and not pay a full-service broker.

Once established, we’d then apply that same model to our investment efforts starting with the bridge products between insurance and investments, such as life insurance.

These are only ideas at this point, but by the end of this year we’ll have put some of them into place.

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