Credit Unions operate differently than banks in several ways. One, they are non-profit and non-taxable. Two, they are usually not as proactive with their investments. Three, they are more political and require “Board Approval” usually to do business with them. The latter will be the biggest hurdle.
Federal Credit Unions are governed by the NCUA (National Credit Union Administration). Similar to finding information on banks, you can find out the specifics of a credit union’s financials and investments by going to the NCUA’s web site at NCUA.GOV.
Credit unions do have positives though. There are thousands of them. Unlike recent consolidations of banks, which has diminished many of the smaller institutions, credit unions are in almost every local community. Credit union members receive higher rates on items such as checking, savings and CD’s. They also get better loan rates than banks could offer. They largely serve government or union employees (Police Federal Credit Union, Teachers FCU, Local 1887 FCU, etc). Another positive is that large brokerage firms do not cover them as much as they do banks. Competition is there, but it is lessened because of that. They are also generally less sophisticated and a beginner can make good conversations and develop rapport a little faster than they would with banks.
FCU Credit unions managers are not always the decision maker. The general rule is, if the CU is under $40 million in assets, the manager or CEO is the person you speak with. Larger CU’s will have a separate “Investment Officer” that handles the direct discussions.
Note: This is not always the case and the investment officer may still have to “run things by” the CEO anyway. To make sure, just ask for the “person who handles investments for the CU”
Credit unions invest with their regional “Corporate Central Credit Union”. They can borrow money through them or invest through them. They are a major competitor when you call CU’s. You need to understand and convey the understanding of this relationship with Corporate Central. They need Corporate Central for certain things, but NOT as a primary source for investment placement. They are just “parking” money there or buying CD’s offered by them. Your job is to get them to diversify into other higher paying bonds.
CU Board Approval and Showing Value
Many Credit Unions will only deal with a new broker or firm after they have been “Board Approved”. Each Credit Union has a board of directors. This board could very well consist of just 3 or 4 people. The CU manager normally has the authority to push through most new proposals relating to investments or investment relationships. Managers will sometimes use the board as an excuse to not push for your acceptance. Some managers who do not see value in adding you may not even present you to the board.
You must convince the CU manager that using you and your ideas will directly benefit the credit union and it’s members. You have control over a major part of their income potential. Like banks, CU’s are primarily in business to make loans. In fact, even more so than banks. Still, a significant part of their assets is invested.
CU’s operate on several different levels as far as investments are concerned. The size of the credit union will usually dictate the level of sophistication they are operating under. A 10 million dollar asset CU (which is the smallest you should ever consider contacting) may only have a 1 million dollar portfolio, that is invested in just 10 $100,000 CD’s. That is not much to work with, and frankly is not even worth your time. It would not be worth the effort to educate them on better yielding investments like callable agencies, or mortgage backed securities. A CU that is $100 million in assets will be much more advanced or will be open to portfolio suggestions and additions. The bigger credit unions should be handled the same as banks.
Look up their data on NCUA.GOV.
See what the local credit unions are earning compared to the prospect CU.
Have some basic observations written down.
Make your initial call. DO NOT TRY TO SELL ANYTHING.
Discuss their loan demand.
Mention some general observations based on what other CU’s are earning
Ask them to fax over their most recent portfolio statement
You need to get a portfolio faxed or mailed to you. The CU data through the NCUA will not list the price of every security or even more important, the broker they are using. You want to know price and the broker. If you present a “swap” out of one bond into another that you have, you have accomplished a few things. One, you made money. Two, the other broker no longer controls that money. Three, you have hopefully increased the rate of return for the credit union and have now shown what your ideas can do.
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