This case study is excerpted from the 2000 Mutual Fund Directory published in March 2000.
Citadel Federal Credit Union in Thorndale, PA, recently took a novel approach to starting our credit union service organization (CUSO), Citadel Financial Services – buying a pre-existing business. We at Citadel have already had experience with CUSOs.We have long had a 60% ownership of a check processing organization and 100% ownership of an indirect lending CUSO that works through 165 auto dealerships in Pennsylvania and Maryland. But when the credit union wanted to offer investment advisoryservices, we turned to a pre-existing 401(k) company. Why?
A Handful of Good Reasons
Citadel’s reasons for buying an already established investment advisory business were numerous. But the first was survival-we felt we had to meet more needs of our members and sponsor company. In addition, we wanted to grow new members and sponsorcompanies.
Ownership
In addition, we wanted to position the credit union’s investment advisory products on an equal footing with the other traditional products and services we offered. We decided the best way to do so was through a whole-hearted endorsement of thenew venture and with the complete flexibility that a third-party partnership venture might not provide.
Experience
The existing company brought with it professionals with experience and expertise. These professionals help us improve our image. There is a lingering supposition that credit unions are blue collar. We explode that myth by showing thatwith our new entity we are a savvy, full-service, financial services provider. Additionally, by buying the company, we acquired $120 million in assets under management and a different set of members that might not otherwise have considered ourcredit union as a financial alternative.
Relationships
The acquired firm had already developed its reputation in the financial services community. By purchasing the company we believe we have put Citadel two to three years ahead of where we otherwise would have been in establishing relationships withother firms. These relationships are part of the package that we hope to leverage with the community to enhance our image, attract new members, and gain more business from current members.
Membership
Some 50% of Americans invest in mutual funds. Citadel viewed the investment advisory service as a matter of survival. Buying the pre-existing company gave us a new source of membership (the company’s existing client base) and at the same timeit is allowing us to offer our members the kind of services they demanded.
What Are We Trying to Accomplish?
In the long run, we hope to leverage both the credit union and the CUSO to better understand members’financial needs. Also, we are addressing our members’ desires for one-stop financial services and, we are planning to eventually create a consolidated statement for all a member’s financial dealings with us and the new CUSO.
