Financial Services Management Group: Developing Alternative Choices for Investment and Insurance

Investment and insurance services, two key non-traditional products emerging in credit unions today, can help credit unions achieve a variety of new revenue goals and member service needs. Find out why one credit union has instead turned to a new and more flexible solution for its investment and insurance program.

Part one

Investment and insurance services, two key non-traditional products emerging in credit unions today, can help credit unions meet a variety of ends including: generating increased non-interest income to offset squeezed net interest margins; meeting the needs of an aging population shifting from borrowing mode to retirement saving and investment; and retaining long-term, profitable relationships into the next generation.

The investment and insurance services solutions offered to most credit unions are turnkey investment programs from third-party marketing firms (TPMs). The turnkey part is attractive, yet Harborstone Credit Union has found a better way, especially for retaining long-term member relationships. It has instead turned to a new and more flexible solution for its investment and insurance program, Financial Services Management Group (FSMG).

Time for a Change
Harborstone began offering investment services through one of the larger TPMs in 1995, and fairly quickly realized it had little flexibility to customize the program to fit its strategies. The salespeople were transaction versus relationship focused, and rarely considered the needs of the member over what products would earn the highest commission.

Fairly early on, Harborstone realized it wanted its own program, with the autonomy to set the priorities of the program, brand the services how it wished, and design the investment advisors compensation to be more in line with the financial objectives of the member. The Credit Union also recognized the shift in the securities industry from commission to fee-based services and knew the ability to offer fee-based portfolio management would be critical.

FSMG Program Fills Need
Harborstone has worked with a group of experienced investment and insurance professionals to put together the infrastructure necessary to support the kind of investment and insurance services program not previously available. One where the member comes before commissions, no proprietary products are offered to bias the advice provided by the investment advisor, the credit union can apply their brand to the program, making that all important link back to the complete financial relationship, and ownership of the relationships and the program by the credit union goes without saying. FSMG provides that kind of program.

The creation of FSMG and the infrastructure to support it required the investment of $1.5 million and 3-years of hard work. The end result in place today includes a Registered Investment Advisory Firm for fee-based portfolio management, a broker-dealer relationship for a full-line of securities offerings, a life and health insurance agency offering fixed annuities, long term care, life and other key insurance products, as well as a property and casualty insurance agency for auto, homeowners and business insurance.

It’s Your Membership Base
The traditional TPM model includes features that can affect your long-term relationship with your member. Many TPMs hire inexperienced reps, creating frequent turn-over. The rep often has minimal incentive to manage the credit union’s relationship with the member, versus building their own book of business. The relationships members forge with the rep may be with a non-credit union/CUSO employee and company. When reps leave, your member’s investment business may leave with them. If so, there goes your long-term relationships and hope for transforming your long-term business focus.

As the financial services market rapidly changes, we will all soon be able to provide access to every form of financial service. Larger banking institutions and non-banking companies are already there. Simply put, you may be in business with your future competitors, so I would tread lightly before giving away your relationships.

Next week the second part of this case study will cover Cultural Differences, Descision Making, Compensation.

The above Case study was taken from Callahan’s 2002 National Guide to CUSOs and Investment Program Providers.Credit Union Service Organizations (CUSOs) continue to increase their role in the credit union system. The number of CUSOs profiled in the Guide totals 681; 546 wholly-owned and 135 multi-owned. CUSOs serve credit unions and their members by providing improved operational efficiencies through data processing solutions, greater market coverage through shared branch and ATM networks, wider product offerings through credit card, auto and mortgage lending programs, and complete member financial planning solutions through insurance, investment and trust services. In short, they have become a critical component of many credit unions efforts to become the primary financial institution for their members.

April 12, 2016

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