By Kevin Pohmer
More and more credit unions have begun offering wealth management solutions to their members—as they should in order to stay competitive in retaining and attracting members who are looking for a financial institution to be a one-stop shop for them.
Unfortunately, the traditional manner in which credit unions have offered these services is via a broker/advisor model. This traditional model in which a broker/advisor sells investment products to your members is being disrupted and this disruption is coming from two distinct sides: the first is from the fintech revolution which has emerged due to the changing demographics of credit union members, and the second is from new federal regulations that were recently passed that will dramatically impact the traditional wealth management industry.
Think back over the last few decades and consider how your relationship with your members has changed. The introduction of email and cell phones has revolutionized how we communicate. The invention of the Internet has changed the way we conduct business. Without the Internet, we would not have such conveniences as online banking and automated bill pay. This technological trend has now crept into the wealth management space in the form of “Roboadvisors.” These fintech companies can now deliver professional, unbiased, and transparent investment advice at a fraction of the cost of a traditional broker/advisor all via an easy to use digital experience within their smartphone, tablet, or computer.
Technology is not a fad; it is not going away. As time moves forward and one generation succeeds another, technology will become a bigger part of the long-term success strategy of credit unions. Early adoption is key in order to attract a generation that is tech and consumer savvy, and entering their peak earning years. Roboadvisors are ideally positioned and philosophically aligned to help credit unions seize this enormous opportunity and bring a differentiated service to help attract and retain members.
The Fiduciary Standard
In addition to the emerging fintech revolution the Department of Labor with the backing of the federal government passed legislation in April 2016 dubbed “The Fiduciary Standard,” which will now require traditional human brokers/advisors to act as a Fiduciary when providing investment advice your members’ retirement accounts (i.e. IRAs, 401(k)s). This “Fiduciary” requirement was hotly debated and withstood a national lobbying effort from the traditional wealth management industry, as putting the individual investor’s best interest first when giving them investment advice, is unfortunately not how the traditional industry is set up today.
In fact, for those credit unions that provide wealth management services to their members, the vast majority provide this service through the traditional broker model which is not required to put your members’ best interests first. In essence, credit unions become an accomplice to taking money from their members as most have a referral/revenue sharing arrangement when your Members are sold products that are not in their “best interest”. As this legislation is implemented over the next 12 months Credit Unions across the country will be forced to review their wealth management solutions and make changes to this model.
The beauty of this technological and regulatory disruption is that in the end the credit union’s members will be the winners and will have access to better wealth management services to help them achieve their long and short term financial goals. The credit union philosophy is to put members’ best interest first and credit unions across the country should embrace this new world of wealth management.
Kevin Pohmer is president of Financial Guard. For more info: www.financialguard.com.