Neville Billimoria, senior vice president and chief advocacy officer of Mission Federal Credit Union, says 71 percent of its members consider the CU their preferred financial institution. (photo/alandeckerphoto.com)

With about $10 billion in assets, the 29 area credit unions are flexing their muscle in the financial arena. Most members think of their credit unions as a place to start a savings account or pick up a car loan. But these powerful San Diego lenders are enjoying increasing success signing up members for investment services ranging from certificates of deposit (CDs) to stocks and mutual funds.

These investment services are available to members simply by keeping a nominal amount ranging from $5 to $50 in their savings accounts.

“We offer CDs, money market funds, checking, and investments like mutual funds and stocks through a brokerage service, Financial Network Investment Corp. (FNIC),” says Bob Marchand, chief financial officer of San Diego County Credit Union, with 163,987 members and assets of $2.93 billion.

Typically, credit unions will offer higher yields on certificates of deposit than banks. SDCCU also offers 401(k) retirement accounts through FNIC, although Marchand says, “It’s not a big ticket for us. We don’t actively solicit 401k’s, but if a member wants to do that, they can get it done.”

Credit union officials say the adhesion among their members to credit union products is greater than at most banks. “I think we have pretty good penetration in all products,” says Marchand. “The majority of our members don’t just deposit, but take advantage of our other products.”

SDCCU says more than 22,000 of its members have a CD (13.6 percent) and more than 50,000 (about 31 percent) have a money market account. Nearly 25,000 SDCCU members (15 percent) used the CU for a car loan, and 33 percent use Visa credit card services. About 5,000 customers, or 3 percent, have a mortgage through the credit union.

At Mission Federal Credit Union (130,000 members, $1.9 billion in assets), investment services are handled through the credit union’s own CUSO, or credit union service organization, which is a wholly owned subsidiary of the credit union.

Kristin Stephany, vice president of the CUSO, says Mission Federal offers stocks, bonds, mutual funds, annuities, mutual funds and insurance. The credit union’s CUSO works with a third-party broker/dealer. That company, CUSO Financial Services, is a San Diego-based national provider of financial services for credit unions.

In 2004, Mission Federal’s CUSO had about $89 million in assets under management, representing 3,500 members, about 2 percent of the CU’s member base. Mutual funds are Mission Federal’s most used investment product, followed by fixed and variable annuities. Members also invest in corporate bonds, government bonds, muni bonds, insurance and investment trusts.

Stephany says “awareness is our biggest hurdle” in achieving higher penetration for investment products.

“Some of that is perceptual,” says Neville Billimoria, senior vice president and chief advocacy officer at Mission Federal. “And some of it is due to regulatory issues that are changing over time,” as credit unions become similar to banks.

Mission Federal members typically learn about the credit union’s investment offerings from statement stuffers and newsletters. “New members get the information when they open an account, in the teller line, and from a video that plays in branches,” Stephany says. But, she adds, many members rarely need to visit a branch once they have opened an account.

Investment information also is available on the CU’s Web site, and Mission Federal offers free investment seminars for members and the general public.

Billimoria says the CU’s service rates high in member survey data, and that credit unions enjoy an advantage over banks because members see the CU as a “value based relationship,” not just a “product price” decision.

Mission Federal says 71 percent of its members think of the CU as their preferred financial institution. “That’s a mark of their trust in us,” Billimoria adds. Still, he says many members “think of us for borrowing or savings, but not necessarily investing.” He says credit unions can improve demonstrating the value of their investment products, but also says “people like to diversify, they like to have their money in different places. There’s something psychological about that.”

Joel Hudson, chief financial officer of Cabrillo Credit Union, says the penetration rate for investment services at Cabrillo is under 5 percent. (photo/alandeckerphoto.com)

Awareness also is on the mind of Joel Hudson, chief financial officer of Cabrillo Credit Union, with 20,000 members and about $150 million in assets. Cabrillo’s core membership is made up of Border Patrol agents and Sharp Hospital employees, but the CU has undergone a charter change that opened membership to the entire community.

Cabrillo offers CDs ($10,000 for 12 months at 3.25 percent), retirements accounts, stocks and mutual funds. Investment vehicles are handled through a financial adviser who is affiliated with State Farm Insurance.

Hudson says the type of customer most likely to sign up for investment service is someone who has come into an inheritance. “It’s probably a baby boomer who has a chunk of cash and doesn’t know what to do with it,” Hudson says.

Hudson says the penetration rate for investment services at Cabrillo is “not terribly high, under 5 percent.” Car loans comprise a large part of Cabrillo’s business, Hudson says, although home equity loans have become popular recently.

Retirement accounts are the most popular investment for members of North Island Federal Credit Union, which has 121,000 members and assets of $1.4 billion.

Brett Everhart, vice president of investment and insurance, says 70 percent of the business in his department is in retirement accounts. “The one commonality to retirement accounts is that they’re long-term,” says Everhart.

Like Mission Federal, North Island uses CUSO Financial Services as its third-party broker/dealer.

Geri Dillingham, senior vice president and chief operating officer, estimates North Island has $200 million under management in uninsured IRA certificates and an equal amount under management in uninsured market investments.

Roughly 6,000 North Island households take advantage of some investment service, about 5 percent of membership. “CUs are relatively new in this market, operating about 12 years,” says Dillingham. “When you look at major brokers, the Merrill Lynches, they have more name recognition. There’s still a perception that CUs are for car loans, but investments are done by brokers.”

Dillingham says the investment business is growing, and that member satisfaction rates remain high, making it more likely that CU customers will discover the investment option at some point.

Teachers are the affinity group for California Coast Credit Union, with 71,000 members and about $860 million in assets.

Cal Coast’s CEO Jim McPheters says his credit union offers investment services through Members Financial Services, part of the CUNA (Credit Union National Association) Mutual Life Insurance Co.

“We don’t have what I would consider a real heavy usage of investment services,” says McPheters. He placed penetration at below 5 percent.

The CEO says his core group of member teachers has “pretty good investment services and financial planning through their employer” or through a teachers’ union, and that may affect the numbers who take advantage of Cal Coast’s service.

McPheters says investment services are not yet a profit center for the CU, but outreach methods, such as newsletters and brochures, are reasonably effective in signing up customers for investment accounts.

In any event, McPheters says credit union involvement in the personal investment market is a hedge against higher priced service elsewhere. “Without CUs, everybody would be paying a lot more for financial products and services,” McPheters says.