Credit unions and small banks can offer the same high level of investment products and services as other institutions, with the right type of program in place. Helping them do that is Valorie Seyfert, who notes that recent concerns about the credibility of larger institutions “has opened up the opportunity for banks and credit unions – because they do have a loyal following – to step in and fill a gap.”

Seyfert is the chief executive officer and co-founder, with Amy Beattie, of CUSO Financial Services (CFS) and Sorrento Pacific Financial, two sister firms that act as full-service broker-dealers for these smaller institutions. CFS works with about 135 credit unions while Sorrento Pacific has between 40 and 45 bank clients.

CFS was founded in 1996 as a limited partnership with credit union investors. Sorrento, founded in 2005, offers similar services to CFS and benefits from shared economies of scale but works with regional and local banks. Together the firms employ 120 people in the San Diego area.

When Seyfert and Beattie started CFS “there wasn’t anybody else that were really addressing the particular needs in this [credit union] marketplace,” Seyfert said. Many companies approached the market from the product-manufacturing standpoint and were focused on their own product lines. Others were basically just referral systems, where an interested credit union customer would be sent out to an outside independent broker for investment services.

What CFS provides, Seyfert said, is an opportunity for these smaller institutions to offer a full suite of co-branded, in-house investment services including financial planning, estate planning, insurance, and others.

Because CFS is owned by a group of credit unions, it is “very much consistent with the credit union philosophy,” Seyfert said. The participants work together to share strategies and best practices, she said.

Credit unions face some challenges in offering investment services, Seyfert said. The first is awareness. Many people just don’t think of their credit union as a place to get investments, she said, and because of that, these institutions need to work very hard to get the word out there, in the branch, on the Web, and through marketing materials.

The second challenge is one of credibility – the credit union needs to demonstrate that it can offer the same sophisticated services found elsewhere, Seyfert said. CFS helps with that by providing high-quality advisors for the branches. While smaller banks have historically trained from within, “the majority of our reps come from wirehouses and large banks,” Seyfert said. The company actively hires reps that would like to have the more personal experience of working in a smaller bank or credit union, but have the background to offer higher-level financial planning and product expertise.

Credit unions do benefit from their strong reputation for integrity, Seyfert said. Members are very willing to view their credit union “as a place for doing investments, once you make them aware of it.”

To help that happen, “typically our advisors have an office at the credit union branch location,” Seyfert said. The services have a high profile on the institutions’ Web sites and customers can see their investments integrated with other banking accounts when they go online, she said.

The advisors are offered through two different models. In the first model, the advisor is licensed through CFS or Sorrento Pacific and those firms are responsible for regulatory oversight, but the individual is actually employed by the credit union or financial institution. In the second model, the advisor is registered, licensed and also employed by the broker-dealer, so that CFS or Sorrento Pacific is also providing management oversight and the sales management program.

Which model works best “just depends on how comfortable the financial institution is with managing their own investment program,” Seyfert said. In some cases, larger institutions will have someone on staff who can manage a group of reps. In other cases, especially with very small institutions, they want to outsource that function because “it may not make sense for them to hire a full-time program manager.”

Even when the advisor is on the broker-dealer’s staff, however, the bank or credit union is very involved in selecting the right person, Seyfert said. “It’s got to be somebody that integrates well and fits with their culture,” she said.

With either model the services are branded as much as possible to the institution, in accordance with regulatory requirements.

Clients at these credit unions and smaller banks run the full gamut from first-time investors interested in opening an IRA to high-net-worth people with detailed investment planning needs, Seyfert said. “The credit union philosophy is we’re here to serve every member,” she said, so they tend not to have minimum levels of investable income. But they are well equipped to serve every type of customer, no matter what their asset size. In some programs, she said, there can be a team of advisors, with the more sophisticated advisors working with the high-net-worth clients and other advisors dealing with the less complicated cases.

Seyfert said that CFS has consistently had 20% to 30% in overall revenue and program growth each year, with an even higher level expected in 2011.

“The average person out there has five to seven times the amount of assets in investment related products as they do in deposit-related products,” Seyfert said. Adding investment services is an important way that even small banks and credit unions can add wallet-share, and provide more in-depth service to their customers.


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