Canadian credit unions are continuing to build their wealth-management divisions in an attempt to capture more of their members’ assets by giving clients a distinctive alternative to investing at banks and other wealth managers.
“Wealth management is a big opportunity for credit unions, recognizing that we started a little later than the banks,” says Don Rolfe, president and CEO of Vancouver-based Credential Financial Inc. , the CU industry’s largest provider of wealth-management products and services.
CU leaders across the country are saying that growing their wealth-management arms is a primary strategic priority, both to meet the increasing demand from their member-owners and to reverse the flow of investible assets away from CUs.
“A lot of credit union members have their investible assets with other financial institutions,” says Rolfe, who estimates only about 13% of Canadians with existing relationships with CUs also invest their money at a CU.
Ten years ago, wealth-management capability among CUs was fairly non-existent. But the past five years or so have seen CUs develop a credible platform of products and services, Rolfe says. About five years ago, CU industry leaders began to commit to developing their wealth-management arms. Now, they’re looking to expand even further.
Vancouver City Savings Credit Union, the country’s largest CU outside Quebec, is looking to increase the size of its advi-sor force by 50% over the next year, to 150 advisors from 100.
Meridian Credit Union, based in St. Catharines, Ont., and the biggest CU in the province, also plans to grow its advisor base. It is experiencing an annual growth in assets under management of about 25%. As of August 31, Meridian had $562 million in AUM.
“There’s still an opportunity to increase awareness among existing members, as well as the general public,” Meridian president and CEO Sean Jackson says of CUs’ wealth-management products and services.
Ken Robinson, assistant vice president of financial services and trust at Edmonton-based Servus Credit Union, agrees. “Initially, many credit unions stepped into wealth management with the idea that we have to be in this to be defensive. We’re losing too much money to Investors Group Inc. and others,” he says. “One of the conversions over the past five or six years is that credit unions have realized, ‘Hey, we can make money at this’.”
Servus, the largest CU in Alberta, had $490 million in AUM as of July 31, up 27% from the previous year.
While the size of the wealth-management business among CUs is tiny compared with the Big Six banks’ wealth-management divisions — Royal Bank of Canada alone manages approximately $150 billion of assets globally, whereas Credential manages $12 billion of assets on behalf of about 350 CUs across Canada — CU insiders say their institutions are well placed to develop a line of business that is dependent on relationships and trust.
“The model we’ve adopted is to work hard to uncover the needs of members long term, and then try to advocate on members’ behalf,” says Gord Huston, president and CEO of Vancouver-based Envision Credit Union, the third-largest CU in British Columbia. “First come needs, then revenue streams.”
Advi-sors at CUs, whether licensed to sell mutual fund or securities, are usually paid a base salary plus commissions — a compensation model that CU industry leaders say is best suited for the community-minded, member-oriented CUs.
“If what I eat on Friday is dependent on what I’m doing on Monday, I don’t think the advice is as objective or as neutral as it might be,” Robinson says, adding that the CUs’ type of compensation model “attracts the kind of advisors we want. I don’t want stock jockeys; I want someone who has members’ best interests at heart.”
CU advisors tend to be developed and promoted through the branch network, although some are hired from outside the CU system. And most commit for the long haul, say CU insiders.
For now, CUs are focusing on serving primarily entry-level and mid-market investors, selling mostly mutual funds, although many larger CUs offer a broader lineup of investment and insurance products and services.
Insiders say CU members, who tend to be older, are ideal customers for wealth-management services and are a largely untapped resource.
“They’re conservative, great savers and appreciate great service,” says Calvin MacInnis, director and managing partner of Vancouver-based Qtrade Financial Group, the chief rival of Credential. Qtrade manages $2 billion in assets, mostly for CUs.
@page_break@One area in which CUs have traditionally been ahead of the curve is in social responsibility; and socially responsible investment principles are integrated into the industry’s wealth-management platform. For example, the Ethical Funds Co. , a 15-year-old mutual fund firm owned by the CU system, has Canada’s oldest and most recognizable family of SRI funds, with $2.4 billion in AUM.
In January, Vancity launched its own proprietary family of funds called Vancity Circadian, which incorporate SRI principles into their mandates. According to Vancity, the funds were launched both to tap into the public’s ever-increasing awareness of SRI issues and to extend the Vancity brand, which is popular among its members.
The five Vancity Circadian funds are managed by Inhance Investment Management Inc. , a subsidiary of Vancity that specializes in combining financial analysis with social, environmental and corporate governance principles.
“We believe that by combining the two in-house, you get superior returns,” says Kerry Ho, CEO of Inhance.
Vancity is not bothered by the fact that many of Canada’s largest financial institutions are launching their own SRI mutual fund products, and says the emergence of competitors will give the SRI market more consumer presence. Besides which, says Steve Eccles, Vancity’s vice president of investment management, CUs such as Vancity have the inside track and the experience in speaking to consumers about SRI.
“Our advisors are always going to ask clients about their values and beliefs, as well as the standard KYC stuff,” Eccles says. “SRI is a huge opportunity for credit unions. They can speak with a lot of confidence because they’ve been doing it for years.
“The bad way to do this is to offer SRI products the same way as any other product, saying: ‘Would you like one of these, as well?’”
Vancity, as well as launching its own family of funds, has developed a discretionary-management service for high net-worth clients, which is attracting a great deal of interest from its members.
“We have the membership base that sustains that kind of capability,” Eccles says.
Although Vancity has the size to build a robust wealth-management platform, many of Canada’s smaller CUs have decided either not to offer wealth-management products or to look for merger opportunities with CUs with existing investment platforms.
“Our wealth-management platform is often the reason other credit unions are attracted to us,” says Robinson. Servus has completed five mergers in the past three years.
CU leaders say the keys to growing wealth management will be increasing awareness among their members of these services and hiring more advisors. They say the CU industry has already taken several steps down that road. IE
Credit unions building wealth-management arms
Existing members are ideal clients for credit unions’ wealth-management services because they tend to be great savers
- By: Rudy Mezzetta
- October 2, 2007 October 2, 2007
- 11:27