Addison Avenue FCU Aims for More Control through Purchase of Broker-Dealer Essex National Securities; Moves Away from CFS

PALO ALTO, Calif. – The acquisition of a broker-dealer firm is rarely seen in the credit union industry, but it’s probably no surprise that Addison Avenue Federal Credit Union is among the first to do so. On Jan. 26, the $1.7 billion credit union announced that its subsidiary, Addison Avenue Financial Partners, LLC (Financial Partners), signed a purchase agreement to buy Essex National Securities, Inc. (ENSI), an investment services broker/dealer from New York-based Essex Corporation Financial Partners. ENSI will be a stand-alone third party broker/dealer, owned by a CUSO holding company formed by Financial Partners. The acquisition will allow the credit union to continue to grow and leverage its position as a leading provider of investment services to clients of financial institutions, according to Addison Avenue FCU. Napa, Calif.-based ENSI was founded over 15 years ago by Essex Corp. and provides investment products and services to two credit unions and 31 banks as a full service broker/dealer. “This acquisition will allow (the credit union) to define its members’ experience by retaining control of the products and services we offer, and we can in turn offer this enhanced service to other financial institutions,” said Steve Lumm, president/CEO, who will serve as ENSI’s chairman of the board. It’s sort of a homecoming for Scott Davis, who will leave his role as Financial Partners’ president/CEO and retail sales and operations manager at the credit union to join ENSI as its president/CEO. Prior to working at the credit union, Davis served as president of ENSI for four years. “I’m excited about heading up ENSI at this point in the company’s evolution,” Davis said. “They already have an excellent ordering and sales tracking system. Now they can leverage some of Addison Avenue’s technology expertise to develop it into a state-of-the-art processing and front-end system for clients.” The deal is expected to close by Feb. 28 and sometime in the third quarter, the CU’s business with its broker-dealer for the past seven years, CUSO Financial Services (CFS), will be moved over to Essex, Davis said. “Our relationship with CFS has been fantastic since its inception,” Davis said. “We worked with them to grow our program. (This acquisition) is the next step to having more control.” Addison Avenue FCU’s investment program is considered by many in the industry to be one of the more successful entities. It serves 16,000 clients with $1.7 billion in assets under management and has a 13% penetration rate within its field of membership. Davis said the average industry penetration rate is about 3%. Just shy of a year ago, Addison Avenue FCU moved its investment services division out of a CUSO model to in-house. Other credit unions have begun doing the same to comply with 2001′s Incidental Powers Regulations which said CUSOs no longer have a networking exemption to receive income without being registered, as CUSOs are no longer a “required service corporation,” according to the SEC. The agency has required broker/dealers enter into new networking agreements only with credit unions and not CUSOs, according to NACUSO. The only exception has been for state-chartered credit unions in states that have not confirmed that Incidental Powers are similar to those of federally-chartered credit unions. Last August, Addison Avenue FCU started exploring the idea of either creating its own broker-dealer or buying one, Davis said. It didn’t look at any other firms because Essex’s “long and deep” reputation for training, marketing broker-dealer services and being one of the leading investment firms in the credit union space put it at the top of the list, he added. “It’s a good match,” Davis said. “By owning the operation and delivery platform, we will be able to model the delivery services to match the credit union-desired experience.” As it sought out buyers, Essex Corp. was looking for dedication and commitment for the long haul, said Fred Nicholas, CEO. “We wanted a company dedicated to providing a full service state-of-the-art broker/dealer to help banks (and credit unions) optimize their investment product distribution,” Nicholas said. “We also wanted a company willing to recognize the value of the ENSI staff and operations and a company prepared to continue delivering to ENSI’s current bank (and credit union) client needs.” Meanwhile, the transition will be seamless to members in large part because Essex uses Pershing, LLC, the same clearinghouse Addison Avenue FCU uses, Davis said. Several others will join Davis at ENSI. Keith Weber, former Financial Partners national sales manager, will become ENSI’s managing director of sales, marketing and training. Bill Wade will serve as director of new business development and client relations and John Cooney as managing director of compliance and operations. Pete Snyder, the original president/CEO of Financial Partners, will serve as an ENSI board member. Davis said it will be business as usual as the credit union takes a leap towards independence here. The relationship between the investment program and the broker-dealer is poised for new levels for a number of reasons. “Our penetration rate is high because of a dedicated call center, the commitment to reps and a program that promotes retention” through a long-term plan surrounding compensation incentives, Davis said. “First and foremost, this will give us the ability to control our member experience by owning the broker-dealer.” -