VERNON HILLS, Ill. — Nearly 10 years ago, Baxter Credit Union's investment program had its limits, offering members very few products like annuities and certain types of mutual funds.
When J.R. Ridge, vice president of wealth management, came to the $1.2 billion credit union in 2004, the new staffer immediately began looking at ways to expand investment offerings. That expansion included a re-launch, which would bring in a managed account component. Managed accounts allow investors to customize their pick of securities from a selection recommended by a portfolio manager. The accounts typically require a minimum $100,000 investment, but some credit unions have linked up with firms that have dropped that requirement down as low as $25,000.
"We migrated to having a true wealth management shop with trust services and long-term care," Ridge said, adding the ability for members to have their accounts managed through the credit union simplifies their financial lives by providing a single point of contact for money management.
Baxter offers managed accounts through CUNA Mutual, which launched its program in 1999. The company has $1.5 billion in assets through 5,950 member accounts. Baxter currently has 112 accounts totaling $48.5 million, up from $4 million in 2004. Ridge said the accounts are primarily used by members for retirement purposes. Members tend to fall in the 50 to 60 age-range and generally have a higher net worth, Ridge pointed out. Account holders have been with Baxter for decades and while many earn somewhere in the $50,000 salary range, some have more than $500,000 in their pension plans.
"We're able to get to groups that we were not able to get to before. Some just didn't want annuities," Ridge said. "We're now opening $1 million in accounts every week."
Baxter currently uses CUNA Mutual's MEMBERS Advisory Portfolio and MEMBERS Personal Portfolio choices, but plans are in place to add up to four more from other vendors by the end of the year, Ridge said.
"It's just nice to have more arrows in the quiver. We want to offer more bond portfolios and just overall, more breadth," Ridge said.
Baxter's managed account program is doing so well that plans are also in place to hire more additional financial advisors to the existing team of five. Ridge said the credit union is recruiting on multiple fronts including using CUNA Mutual as well as its own internal outreach. The goal is to have more representatives to serve members in Chicago, Irvine, Calif., St. Paul, Minn. and Boston. By 2009, the plan is to have 14 reps, which includes hiring seven by the end of 2007.
Looking ahead, Baxter is seeking ways to meet the needs of members who have stock options. Ridge said they are exploring adding executive tools from the likes of a Mellon Bank or Northern Trust to fill in the gap. The credit union has not been able to hire someone with expertise to assist with option mining. Discussions are in the works with CUNA Mutual to have record keeping and tracking processes that will help as well as determining the appropriate risk strategies.
For its part, CUNA Mutual is hoping to build on its managed account program by launching a tool for institutional investors. Its IMAP or institutional managed account program already has several credit unions in the system, said Scott Powell, director of managed account services at CUNA Mutual. Powell said the IMAPs have been "a great alternative to run pools of defined benefit pension money." A total benefits prefund is also in the pilot stage. Credit unions flushed with money, can consider other pension obligations including prefunding pensions, Powell explained.
"This is a new concept [NCUA 701.19], where you prefund all of your employee-related benefits using non-approved benefits in the traditional sense. Credit unions can invest in equities and high yield bonds–the whole attempt is to achieve higher levels of terms."
CUNA Mutual is working to debut five new managed accounts by the end of June, Powell said. In the second half of 2007, the company will start exploring offering a unified managed account and a "wrapper" that protects portfolio account balances "on the down side" could launch in 2008.
Meanwhile, Baxter is thrilled that with its managed account program, reps are on the same page in meeting members' investment needs even though their means of compensation bucks the trend, Ridge said.
"All of my advisors have bought into providing members with comprehensive solutions and professional fund management," Ridge said. Although it hits their commissions, they have parked their egos and can see the benefits to members and income streams for the credit unions. This way, they can have a book of business that is manageable." –[email protected]
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