The 10% Solution – Growing Profitable Credit Union Investment and Insurance Sales Programs

I have written frequently about the correlation between member participation in the credit union investment and insurance sales program and increased revenue. While that may seem intuitive the question remains, “why don’t more credit unions make the effort to increase member participation in this time of increased need for revenue?”

According to the recent Ken Kehrer and Callahan Credit Union Investment Program Benchmark Reports, the average member penetration is around 5% compared to 10% for banks. According to Ken Kehrer, one of the reasons for the discrepancy between banks and credit unions could be that banks have offered investment services for about four years longer than credit unions. So they have had a head start on developing household participation in their programs. Another useful benchmark for determining how much attention management should pay to their investment programs is profitability. Many CEOs state that it doesn’t make sense to throw more resources at the Program if it isn’t profitable. My response is, “well, then let’s make it more profitable.” Before we can do that we have to gauge the profitability of the program. Let’s look at two ways to gauge profitability.

Revenue Margin

This is one of the more universal ways to gauge profitability in the brokerage business. It takes into account gross revenue minus direct and allocated expenses before corporate overhead allocation and taxes as a percent of gross revenue. This is sometimes called contribution to overhead. Since allocations for the investment program vary so much throughout the industry this measurement has become somewhat standard versus comparing income. In the recent Kehrer report the average credit union Program contributed 19% of its gross revenue to the overhead of the credit union.

Brokerage is a volume business which is another reason credit unions need to increase participation to enjoy higher revenue margins. The more the credit union can spread fixed costs over a larger sales force and revenue base the more contribution it can make to the bottom line.

Profit Penetration

This is perhaps a better way to measure the profitability of the Program. According to the Kehrer report, the average credit union Program contributed $444 of pre-tax profit per million of share deposits.

What are the key drivers that will help grow the profitability of Investment ans Insurance Sales Programs? As I have discussed in my previous articles and White Papers there are two factors, credibility and awareness. Ken Kehrer has broken those factors down into four drivers that credit unions need to constantly address to achieve and surpass the 10% member participation threshold.

Key Drivers

Financial Advisor Coverage – this benchmark has been debated for many years. There is no one standard for every Program since geographic and socioeconomic factors of the credit union must be taken into account when determining how many advisors a Program needs to provide optimum service. The numbers range from $150 million in deposits to $350 million. The average credit union in the Kehrer study had one advisor for every $313 million in member deposits. Again, I would not recommend using that as the standard for your credit union. That figure tells me that there is room to increase coverage by adding more advisors and still increase revenue and profitability. Most advisors will resist splitting territories but the Program management has to constantly consider the question, “are our members being optimally served with the current coverage?”

Referrals– This is a good gauge for the effectiveness of the Program. If the branch teams are fully engaged in a robust referral Program then that is a sign that the Program is well integrated into the credit union; a key determinant of Program success. It is difficult to establish a benchmark for this since every Program seems to have a different definition of what counts as a referral. This has to be determined by such things as closing ratios of referrals submitted and cross-sell success i.e. is the credit union receiving referrals from the financial advisors?

Product Mix – What is the mix of products that the Program is selling to its members? Credit unions typically sell less fixed annuities, individual securities and managed money products than their bank counterparts. According to the Kehrer study the difference in fixed annuity sales can be attributed to the fact that credit unions are still struggling to embrace Platform Programs where licensed employees are trained to sell fixed annuities and mutual funds. The Platform reps tend to focus on selling fixed annuities. Financial Advisors have also been somewhat slow to the game of managed money. Historically bank and credit union advisors have been more transaction focused. This is a result of a lack of training and a lack of hiring advisors who are knowledgeable about managed money products. This is changing as members become more concerned with commissions and fees.

Sales Assistants – The proper use of sales assistants can make the Program run more efficiently and profitably. Unfortunately there has been no universal benchmark to determine when a Program needs to add an advisor. Much depends on the individual advisor’s organizational skills. I have managed programs where as soon as an advisor reaches $200,000 in GDC they request an assistant while I have had advisors doing over $500,000 in GDC without the benefit of an assistant. As with most situations there is a happy medium. According to the Kehrer study credit unions have been more generous than their bank counterparts on average using one sales assistant for every 2.6 advisors while banks have an assistant cover an average of 3.6 advisors. Again, there are differences in advisor organizational skills but Program managers should be looking to spread the cost of an assistant over as many advisors as makes sense. The process can also be used as a training opportunity. If the assistant is supporting 2 advisors then those advisors should be doing in excess of $500,000 each or you are not getting your money’s worth. Perhaps spending time to develop organizational skills may be a better investment.

What Next?

Increasing awareness of the Program and establishing credibility will move the investment and insurance sales program closer to and beyond the hallowed 10% member penetration benchmark. CEOs tend to focus on the revenue number and then decide whether or not there is merit in throwing more support behind the Program. I contend more attention needs to be placed on the revenue margin and profitability potential of the Program. Sometimes this can be achieved by simply determining what meaningful revenue does the credit union need from the Program? Once that is determined then the executive team should engagee outside expertise to help determine if that goal is achievable and how. Once there is agreement of the viability of the Program then it needs to receive a seat at the management table, become a core product and receive all the support that any other core product receives. Then and only then will the Program become a significant contributor to the institution’s non- deposit income.

What percentage of your members are taking advantage of this important member service? Is it 10% or more? If not, then why not? Your members deserve to know.

3 Reasons to Buy a Repossessed Car From a Credit Union

Are you shopping for a deal on a vehicle? Have you ever considered purchasing a repossessed vehicle but didn’t want to pay to locate repos? This article will provide you with information on understanding what a “repo” is, the benefits of buying one directly from the financial institution, and where you as a consumer can locate repossessed repossessed vehicles locally.

1- Value:

Much has been said about buying repossessed vehicles. While most of it has focused on the great deals you get, it’s important to understand what a “repo” is, and why you get a better deal. Calling a car a “repo” doesn’t automatically make it a good deal. A lot of the used cars you see at dealerships were once repos too. Most of the larger Banks will send their repos to “Dealer Only” auctions. Here Dealers will buy them at wholesale, clean them up, and then sell them to consumers for a commission. Once a Dealer adds a commission or fees to the wholesale price, it is now a retail price and the term “repo” is inaccurate. Dealers may still call them “repos”, but in reality this is nothing more than a sales gimmick.

Many of the smaller Credit Unions deal only in lower volumes, and get better results from selling their repos to the public. Typically they will post a link on their website that provides information about their current inventory. By skipping the Dealer and buying directly from your local Credit Unions you avoid paying and fees or commissions for a bona-fide “repo”. Credit Unions are anxious to sell these vehicles and can make added concessions that a Dealer or other private party could not.

2- Trust:

There seems to be a stigma with the term “Used Car Salesman”. Although most Dealers are honest, consumers become somewhat guarded when negotiating a vehicle purchase. Nobody wants to get buyers remorse after they find out they were mislead.

When you buy a repossessed car directly, you can be assured that they are not paying a sales commission or any hidden fees. Credit Unions want nothing more that to retain your trust. The Credit Union motto is; “not for profit, not for charity, but for service”. The Credit Unions have no incentive to sell you on a vehicle you don’t want.

3- Financing:

Credit Unions are not Car Dealers, but they can still sell cars and provide onsite financing. Perhaps the best perk of buying from a Credit Union is the financing. Ask any Car Dealer about financing and they will most likely tell you the Credit Unions are the best. Credit Unions can do things that larger Banks can’t.

Many Credit Unions who sell “repos” will even provide special financing terms as low as 0% financing. When buying these vehicles you can negotiate both the price and the financing terms. If the they can’t budge on the price, try asking for a reduction in the interest rate.

The next step is to start looking for a repo deal. RepoFinder’s website was designed and built with deal-seekers in mind. The website is 100% free to use and is the best place to start your repo search. RepoFinder connects you directly to the Lenders.

Credit Union Basics – What Is It And How Does It Compare To A Bank?

The credit union is a less talked about alternative to a bank. It provides very similar basic financial services to customers. You can find checking, savings, and money market deposit accounts as well as mortgages and other loans there. Below is an explanation of what they are, and how they are different from banks.

Organization

Credit unions were originally created as a way to serve the financial needs of a specific community. These communities can be the residents of a city, employees of a certain company, students and faculty of a school, etc. Besides being customers, the members are also its owners. They elect a volunteer board of directors and have more say in the investment decision process. This is because the purpose of the organization is to directly benefit the members.

Membership

Joining one nowadays is not as difficult as it used to be. Most extend their membership beyond those whom they were originally intended to serve. Generally, even if you don’t belong to a certain community, you can still become a member. Some will ask you to make a donation to a certain charity they support. If you belong to an associated organization, are related by blood or marriage to a member, or even live near a branch, you may be eligible to join.

Not-For-Profit Model

Unlike banks, credit unions operate under a not-for-profit format. Because their main purpose is to serve their members, they use their profits just to cover the costs and reinvest the rest to offer members better deposit account rates and lower borrowing costs. Banks, on the other hand, turn profits in order to answer to their investors. Because of this, however, credit unions tend to provide more basic financial services instead of a larger variety by banks.

All in all, credit unions are very similar to banks in that they’re great providers of basic financial services. Like banks, your deposits under $250,000 are insured by the United States government. Instead of being insured under the Federal Deposit Insurance Corporation (FDIC), though, it is under the National Credit Union Administration (NCUA). I hope this makes it clearer what credit unions are and why they exist. Be sure to take them into consideration the next time you are looking to take out a loan or open a deposit account.