Wealth Management for Credit Unions: What it is & What it Could Be

  • Posted by: Mark Allen, SVP of New Ventures


Who are a credit unions’ most valuable members? Typically, it is those who hold multiple accounts, including savings, loans and investment accounts, as those are the members who have a strong relationship with the credit union and value it as their primary financial institution. Members who invest in a credit union are particularly important because they are also the most loyal.

However, credit unions have struggled to bridge into the last phase of a member’s financial path. According to The Boston Consulting Group, there are roughly $74.3 trillion global assets under management with more than half belonging to institutional investors. Unfortunately for credit unions, the vast majority of individuals have chosen to invest through wealth management firms and apps rather than investing with their community financial institution.

CUNA Brokerage Services found only 16% of credit unions offer wealth management services, despite 43% of credit union members having investable assets between $100,000 and $500,000. Even more concerning, their report found that only 2% of members use a credit union investment service.

Investing is also one of the areas of financial management that has been turned upside down by mobile apps. Robo-advisors - an automated investment manager - are forecast to manage $1.4 trillion in 2020, an annual increase of 47%. While many credit unions are focused on attracting new members with their latest online offerings, they are missing out on the opportunity to give their investment tools the same digital update.

CU Wealth Management Excluding Too Many Members

Many larger banks are forging ahead with automated investment management with the goal of reclaiming customers from outside competitors.

Most community financial institutions, like credit unions, currently have wealth management programs run by third party broker-dealers. Working with a third party partner is the most cost-effective and compliant approach for credit unions; however, these relationships do come with limitations.

One of the first limitations that a member might experience are the high minimums that are required to begin investing. A member might have to invest upwards as high as $50,000 to get started. Some members might want to start exploring the world of investing, but only have hundreds of dollars rather than thousands to contribute. This high cost can often force members to invest their money elsewhere.

Even if a member does have the right amount to get started, an advisor can only handle so many relationships at once. This brings the risk of the advisor getting overwhelmed and overcommitted, which might lead to members with smaller accounts receiving a lower level of attention than others with more profitable relationships.

Looking at it from this vantage point, it might seem like this wealth management model is holding credit unions back. While this approach is easier and more cost-effective than having in-house staff devoted to investing, there are other courses of action that could help credit unions broaden their offerings and better serve a diverse range of members.

The Future of Wealth Management

While bringing on in-house staff is not the most efficient solution, that does not mean credit unions cannot offer their own investment advisor. The answer lies in a robo-advisor that allows credit unions to handle all types of investments in all sizes.

A robo-advisor works through a credit union’s online and mobile banking platform, giving members the ability to access all their accounts in one place. By automating a historically manual process, robo-advisors make wealth management more cost-effective for credit unions, allowing more members to invest with lower minimums. This provides a new opportunity for members that have traditionally been excluded from investing because of the high barrier of entry that is often associated.

Attracting and Retaining New Members

Attracting new members, especially those of a younger generation, is vital for credit unions. Currently, the average age of a credit union member is 47 years old and many financial institutions are working on their strategy to attract the next generation that will keep credit unions alive.

The key with the younger generations is to lure them in. Many Millennials or Generation Z may start out at a credit union, only to find they do not have access to the tools they need and ultimately move on to a big bank or challenger bank that has the right digital features. By offering a robo-advisor, credit unions have another digital tool in their arsenal that will help keep younger generations as members for years to come.

While it is easy to focus on the same few areas of innovation, credit unions need to think outside the box and focus on an area that has long needed a digital update. With a solution that is complementary to their existing wealth management programs, robo-advisors create a win-win scenario for both the member and the credit union.




Published at Credit Union Times


Mark Allen, SVP of New Ventures
Author: Mark Allen, SVP of New Ventures
Mark led two successful CUSOs as CEO over 26 years and is an industry-recognized expert in building broker dealer insurance and lending businesses for digital and mobile channels.