A Kansas City financial management CUSO announced Wednesday that it had forged a deal that allows its client credit unions to execute security transactions directly with Fidelity Capital Markets.
CU Capital Market Solutions’ arrangement allows credit unions to eliminate brokerage fees on each transaction, reducing the cost of redeploying assets at a time credit unions are trying to offset the rising cost of interest on savings.
For access to the Fidelity trading portal, CU Capital Market Solutions (CMS) will be charging an annual fee of 5 to 15 basis points on the value of a credit union’s investment fund. The lowest fee applies to credit unions with investment funds of at least $300 million.
NCUA reports show the average credit union investment fund was about $47 million as of Dec. 31, 2018. The nation’s 5,375 federally insured credit unions held $253.25 billion in investments last year, accounting for 17.4% of their total assets.
In the past, all but the largest credit unions had to pay brokerage fees of 25 to 50 bps on each transaction, said CMS President and Chief Strategist Robert Colvin.
“This way you have the flexibility to do whatever you want, whenever you want with no friction costs,” Colvin said. “You’re basically buying wholesale.”
Large credit unions with investment expertise can choose to only buy access to the Fidelity trading portal, while smaller credit unions can participate in the CUSO’s Total Management Solutions program.
The charge for the enhanced service for a credit union with $200 million in assets is about $60,000 a year. It includes Fidelity trading access as well as a portfolio review and investment advisory services, loan review and loan participation alternatives, IRR modeling and back testing, bond accounting and other services.
“The CFO in a ($200 million asset) institution sort of wears all those hats, but he doesn’t have time to be an expert at each of those,” Colvin said. “Could I hire the expertise at that price? I think the answer is no.”
More than 100 credit unions use CMS for help managing interest rate risk, secondary capital, loan activity, funding programs and other asset/liability issues.
CMS CEO Lewis Lester said it’s been so long since credit unions have managed funds in a rising interest rate environment that many of the CFOs with experience in those conditions have retired.
“We’re seeing a new generation of credit union CFOs come to us for advice on how to manage a balance sheet in a rising rate environment, because they’ve never experienced it,” Lester said. “A rising rate environment requires a very different strategy, and mistakes made today could limit credit union income significantly and potentially mean the difference between growth and being merged.”