Canada’s credit unions are working together to try to find ways to boost growth in their wealth-management businesses, an area in which they have long lagged the banks.

“We know our members require wealth-management services and products, and if credit unions don’t provide them, others will,” says Sean Jackson, president and CEO of Meridian Credit Union in St. Catharines, Ont.

A committee of CEOs from the country’s largest financial services co-operatives has been discussing how the credit union system can strengthen its collective wealth-management business and drive growth and profitability.

Although that committee has yet to report to the wider system, there is agreement that credit unions need to find ways to work together to attract more of their members’ investible assets, provide more proprietary products and support advisor efficiency by encouraging best practices throughout the system.

“A big thrust of this initiative is to propose areas in which credit unions need to standardize,” says Jackson, who is a member of the committee looking at wealth management. “But it’s not just about driving profitable earnings. More important, it’s about being able to deliver better information, advice and products to our members.”

The credit union system, which entered the wealth-management business in the mid-1990s — 10 years after the big banks — trails the banks, both in terms of ability to capture customer assets and in awareness among its customers as a provider of wealth-management services.

A study commissioned by the credit union system released this year reported that credit unions are capturing just 13% of their customers’ investment dollars, while banks are landing between 30% and 50% of customers’ investment wallets.

As well, while credit unions, as a group, are realizing an estimated profit of 20 to 60 basis points on their wealth-management assets under administration, the major banks, which have built fully integrated wealth-management platforms, are realizing a profit of 100 to 155 bps of AUA, the report noted. And although the banks have 45%-50% of their wealth-management AUA in proprietary products, credit unions have just 25%.

Credit unions need to develop more proprietary products, to drive more assets into those products and to make sure credit unions are capturing a greater degree of profitability from them, the report concluded.

“I think one of the benefits we would bring to the table is the credit union brand and all of the good feelings of loyalty and trust and values that the brand carries to mutual fund products,” says Jamie Baillie, president and CEO of Halifax-based Credit Union Atlantic.

Some credit unions have already taken steps in this direction. In late 2007, Ethical Funds Co., a firm owned by the provincial credit union centrals, was merged with Northwest Mutual Funds Inc., a subsidiary of Lévis, Que.-based Desjardins Group, to form a new fund manager for the credit union system, Northwest & Ethical Investments LP.

As part of that partnership agreement, credit unions would get to participate in the profits derived from the manufacture of the firms’ funds, something that hadn’t happened before.

“Northwest & Ethical provides a dividend to the member credit union based upon its assets under administration that are in Northwest & Ethical stand-alone or packaged products,” says Elaine McHarg, senior vice president of marketing and strategy at Vancouver-based Credential Financial Inc., the credit union system’s primary fund dealer.

Executives say that finding ways to work together will allow credit unions to drive down costs and increase margins.

“If the credit unions combine our efforts, we should be able to leverage our buying power with suppliers and improve the margin that comes down to us, particularly on the manufacturing side,” says Rick Sielski, senior vice president of member services at Vancouver City Savings Credit Union, Canada’s largest co-operative outside Quebec.

The CEO committee on wealth management is also studying ways to standardize the way their advisors provide wealth-management advice and solutions, as opposed to customizing investment solutions for each client. The result should boost the wealth-management business and reduce compliance worries.

“It’s about consistency of delivery, and a good understanding of the product,” says David Fearncombe, vice president of wealth-management services at North Vancouver-based North Shore Credit Union. “It’s a lot easier to know 15 products vs 4,000.”

The committee will also look for ways in which credit unions can share information and set best practices in terms of workforce organization, which, says Meridian’s Jackson, might include setting benchmarks for investment specialists’ average portfolio sizes.

@page_break@A key part of the plan to build the credit union system’s wealth-management business will be to raise awareness among credit union members that credit unions do indeed provide wealth-management services. Part of the awareness problem, credit union executives say, is that until recently, Canadian credit unions built their wealth-management businesses separately from one another, with some credit unions embracing the line of business earlier and more aggressively, while others trailed.

“It weakens the perception of credit unions as a place to go for wealth management,” McHarg says.

Despite the drive to find ways to co-operate, individual credit unions will continue to offer uniquely branded wealth-management products and services. Some larger credit unions, such as Vancity and North Shore, have already developed sophisticated wealth-management platforms.

The challenge will be for credit unions to find ways to work together where they can while retaining individual strategies and solutions developed for their respective markets.

“It’s absolutely crucial,” Sielski says, “that we can provide for our members’ needs from start to finish.” IE