Credit unions thrive on loyal customers: Includes chart

The “something extra” that account managers at credit unions have over their counterparts at banks is the most loyal customers in the financial services sector.
“Credit unions tend not only to retain their clients, but the clients view the credit union as their primary financial institution,” says Don Rolfe, president and CEO of Vancouver-based Credential Financial Inc.
“They’re willing to consolidate their assets in a single financial services institution.”

There are reasons for the loyalty. Credit
union clients participate in a sort of ideal shareholder environment, in which there is a direct relationship between the dollars they spend and the size of dividend that’s paid back to them as members of the institution.

Once a client pays a fee to join a credit
union, usually between $15 and $25, there is an incentive to retain and expand his or her assets. As profits are generated by the credit union, they are paid out to members in a profit-sharing model, says Rolfe. The greater the profit from clients’ portfolios, the higher the dividend paid out to clients, based on the net value of their accounts.

For their part, credit union account managers know who butters their bread.
“Clients come first,” says one account manager in rural British Columbia, when asked what was the best thing about his firm. “Serving the members,” says another rep from Calgary.

The motivated client isn’t easy to come by in the bank and brokerage business, says Rolfe. “It makes it easier than picking up the telephone book and dialling for dollars.”

The credit union model has all sorts of knock-on effects for their 2,000 account managers across Canada, starting with compensation. (Desjardins, a separate credit union or caisse populaire, dominates Quebec).

What clients expect in return for their loyalty is good service which, Rolfe says, credit unions excel in delivering because of their community approach. “They monitor [service] and are religiously making sure they’re meeting their clients’ needs,” he says. “Keeping clients happy is especially important because [the clients] own it.
Those 80,000 members are not only your clients, they’re your shareholders.”

It helps when service is layered into compensation. At many credit unions, an account manager has to achieve an approval rating from the members of 80%-85% before he or she gets a bonus.

However, some of those customers must be stingy with their praise, as account managers gave lower ratings for their compensation plans in this year’s Report Card. The 2005 score was 6.7, down sharply from 8.2 a year ago.

Although bank-owned brokerages or financial planning firms are consolidating, credit unions are growing, says Rolfe. “As banks exit certain rural areas, the [staffing] expertise becomes available to us,” he says.

Credential added more than 6%, or $400 million, in assets in 2004, bringing total assets under administration to $6.4 billion.
It’s looking to add about 25 insurance-licensed and IDA-licensed reps in 2005. “We have more than enough mutual fund reps, at 2,000,” adds Rolfe.

Service is really only a part of the equation.
Otherwise, compensation is “pretty close to industry standards.” Insurance is the most profitable product, followed by wrap programs, mutual funds and fixed-income products.

Relationship managers

Roughly 65%-70% of credit union assets are in either funds or wrap accounts.
Although Credential owns Ethical Funds Co., the balance of sales isn’t tipped toward those products, says Rolfe. The credit union doesn’t own a wrap program, but the ideal account manager tends to prefer them.

“It avoids the rep having to be a fund- or stock- picker. It becomes extremely difficult [to recommend funds or stocks], especially when you’re expecting a person to be the relationship manager as well,” says Rolfe.
“With managed funds, they don’t have to worry about which fund they should be promoting this month.”

The ideal credit union account manager would expand his or her book of business by 10%-15% a year, says Rolfe, while acknowledging that “at a certain point in time, you can’t continue to grow at that level because maintenance and service becomes more important.”

@page_break@On average, clients at credit unions are about seven years older than at other financial institutions, notes Rolfe. Clients also may have more investments to consolidate because their credit union started offering wealth-management services relatively late.

“We have acquired expertise over the past decade — not a long time in this business,” says Rolfe. “Now, account managers have the opportunity to say to their clients, ‘I have the capability to offer these services and products’.”

An advisor won’t find any additional charges for items such as co-op advertisement; it’s all paid through the model, says Rolfe.

Credit unions aren’t for everyone, however. Rolfe says a potential account manager’s fit into the credit union model will surface through the selection process. A candidate’s interest in living and raising a family in, say, Guelph, Ont., will be apparent, as will their approach to sales and long-term client service.

“It’s a cultural difference. We need to attract certain attitudes and attributes,” Rolfe says.
“We are not a brokerage firm. You have to make sure [a candidate] is in sync with what you’re all about. [We] have responsibilities to members and to the community and, in that regard, that’s different than a broker who is going out to hunt, kill and eat whatever he can find.”

Newly hired account managers at Rolfe’s firm are flown to Vancouver for technology, sales, compliance and service training.
Each rep holds a mutual fund sales licence, but about 225 are on the IDA platform and a handful have financial planning accreditation. Generally, credit unions will pay for education that leads to higher designations.

Later this year, the credit unions are transferring all client accounts to an online environment available at the point of sale. “It rolls out in August and will probably take about two months,” says Rolfe.

The launch should help assuage gripes about front-office technology. The average score in that category slipped to 7.1 from 7.7 last year.

If account managers make the leap to credit unions, they’re generally happy about it. Rolfe says account managers at brokerages and banks occasionally suffer a turnover rate of 15%-20%, but at credit unions the number is 1%-2%.

When a rep does leave the credit union, his clients have the choice to leave with him. But the rep will tend to find, once again, that clients are loyal to their credit union and the community. IE