Long Island credit unions grow investment offerings [Long Island Business News (NY)]

Due to the lag in loan demand in a weak economy, credit unions are seeking to boost revenue by increasing sales of investment services and insurance, clashing with banks that have long been major players in this market.

Bethpage Federal Credit Union recently signed a deal with Tampa, Fla.-based Invest Financial to expand its investment and insurance offerings. And Teachers Federal Credit Union, with $4.1 billion in assets, is growing its business through a partnership with Madison, Wisc.-based CUNA Mutual Group, which helps credit unions sell insurance and investment services.

CUNA, which serves about 300 credit unions, said sales of its investment and insurance products through credit unions rose 12.5 percent, or $180 million, to $1.6 billion as of August.

"There's low loan demand, so the revenue they're getting off of loans has fallen," CUNA spokesman Mark Warshauer said. "There's an additional revenue component. All credit unions are seeking additional revenue."

Invest Financial boosted its revenue 20 percent this year to about $225 million, with about $25 billion in assets under management, as credit unions and community banks increase their focus on financial products.

"Our business is growing dramatically," said Steve Dowden, CEO of Invest Financial, a broker-dealer serving 25 credit unions and 120 community banks. "Credit union members more than ever need information and advice on how to manage their financial situation. They're in increasing numbers turning to financial advisers for retirement planning, investment advice and tools and resources."

Michele Dean, a senior vice president at Bethpage, said this is an evolution and expansion of her credit union's services, which always included helping Grumman workers and retirees with pensions and 401(k) plans. Bethpage, which has $4.4 billion in assets, has $400 million in investment assets, up from $200 million five years ago and up $50 million in the past year.

"Bethpage wants to be the premier community financial institution for Long Island. To be able to achieve that, you need to serve people's needs," Dean said. "That's why we offer investment and insurance services. Our members come to us for all of their financial needs."

She said Bethpage today can do what any other financial institution can. "We offer a full suite of products, from stocks, bonds, mutual funds, annuities, REITs, insurance."

Dowden said credit unions are cashing in on relationships with members, increasing retirement planning, wealth management, life and long-term care insurance, sales of mutual funds and stocks and rollovers of retirement plans. Between 1,500 and 2,000 of the nation's 7,500 credit unions offer investment and insurance, but the number is growing, he said.

"Credit unions are in a unique and advantageous position because of the core trust they have with their membership," Dowden said. "More credit unions are deciding they want to broaden the services they offer to their members."

But if credit unions say they're providing better service, banks argue their investment and insurance business exceeds the scope of their original nonprofit mission.

"They should be sticking to what they were designed to do in the first place, to lend to low- and moderate-income customers. That was what credit unions were supposed to be and that was the purpose of exemption," said Chris Cole, a senior vice president at the Independent Community Bankers of America. "If they want to lose their tax exemption, that's fine. Then they can get into brokerages. Otherwise I think their focus should be on lower- and moderate- income persons."

Cole said credit unions are focusing more on sales than service as they seek to grow. "They're straying from their mission. They're going after wealthy customers," he said. "That's why they need all these extra services."

But Dean said credit unions use revenue to hold down other fees, benefiting their members rather than paying out dividends to shareholders, as banks typically do. "We give it back to our members," she said. "We have the highest deposit rates on the street, the lowest loan rates in the market, the lowest fees in the market. We give back to our community in many ways."

Although credit unions can create subsidiaries that offer these services, many go the route of Teachers Federal and Bethpage, teaming with another firm that specializes in that sector.

Dean said Bethpage partnered with a third-party provider to offer services because the broker-dealer business is costly, "because of the compliance, regulatory burden and the technology needed to keep up. You need scale to make it profitable."

Although credit unions offering these services can please customers, they run the risk that members, unhappy with their investment performance, may blame them. "The only risk credit unions may get involved with is reputational risk," Warshauer said. "If an investment goes bad and a customer mistakenly thinks the credit union recommended that investment, there's a reputational risk."

Dean said there's an additional risk that "if someone feels an investment was inappropriate, or they lost money and felt it was inappropriate, there could be a lawsuit." But Bethpage hasn't faced such litigation.

In the end, credit unions may be providing these services not simply to help customers, but to make sure they don't lose them to banks, many of whom offer investment services.

"We want to be able to provide the services we know people are using without having them go off site," said Robert Allen, CEO of Teachers Federal Credit Union. "Then the banks will go after them for the rest of their business."