 When looking to offer wealth management programs, credit unions are often faced with a choice between a third party brokerage or Registered Investment Advisor (RIA) arrangement model. Traditionally credit unions have implemented a third party brokerage model, however the RIA model presents several distinct advantages that align more closely with the cooperative values and member-focused ethos of credit unions. RIA vs. Brokerage
The terms brokerage and RIA are often used interchangeably, however there are key differences between the two models largely centered around standards, compensation, services provided, and member relationships. Fiduciary Duty vs. Suitability Standard: RIAs: Are held to a fiduciary standard. The fiduciary standard requires an advisor to prudently act in the best interest of members when providing financial advice. The fiduciary standard cannot be waived or disclosed away. Brokers: Are held to a suitability standard. The suitability standard requires that a broker only needs to check the suitability of a prospective product, based primarily upon financial objectives, current income level and age, in order to complete a commissionable transaction. A useful analogy popularized by financial blogger Michael Kitces is: “Suitability means selling a suit that fits you. Fiduciary duty means it actually has to look good on you, too." Compensation Models: RIAs: Typically earn income through fees, which can be structured as a percentage of assets under management, flat fees, or hourly fees. This fee-only structure is seen as aligning the advisor’s interests with those of the client. Brokers: Often receive commissions based on the products they sell or trade. This can lead to potential conflicts of interest if the broker is incentivized to sell products that generate higher commissions. Members are often unaware of many non-transparent or complicated fee products. Nature of Services: RIAs: Generally provide more comprehensive financial planning and investment management services. This includes estate planning, retirement planning, tax strategies, and more holistic wealth management. Brokers: Primary role is to facilitate the buying and selling of securities. While some brokers also offer advisory services, their core function is more transactional. Client Relationship: RIAs: Often build long-term relationships with clients, focusing on ongoing financial planning and investment management. Brokers: Client relationships are often more transaction-based, centered around specific investment purchases or sales. It is crucial to understand the operating differences between a RIA and brokerage model when selecting a wealth management program for members.  Key Updates on the Economy & Markets Financial markets underwent a sizeable shift in the fourth quarter. Treasury yields, which spiked in Q3, reversed lower as inflation eased and the Federal Reserve hinted at interest rate cuts in 2024. The decline in interest rates was a significant tailwind for stocks and bonds. The S&P 500 gained +11.6% during the quarter, and bonds produced their best quarterly return since Q2 1989. This letter recaps the fourth quarter, discusses the decline in Treasury yields and the potential for interest rate cuts, and looks ahead to 2024. Treasury Yields Reverse Lower in Fourth Quarter
Following a significant increase in Q3, Treasury yields moved sharply lower in Q4. Figure 1, which compares the change in yields during the two quarters, graphs the opposing interest rate moves. The gray bars show yields increased in Q3, with longer maturity yields rising the most. In contrast, the navy bars show yields reversed sharply in Q4, erasing nearly all their Q3 rise. The abrupt reversal can be attributed to a significant change in the market’s view heading into 2024. Investors had two key concerns, both of which contributed to the rise in Treasury yields during Q3. First, the U.S. economy continued to outperform expectations, which raised concerns that the Federal Reserve might need to keep interest rates high for an extended period to cool inflation. Second, the fiscal deficit was growing quickly as government spending increased. Investors were concerned the U.S. Treasury would need to issue a large amount of new debt to finance the growing deficit but that there wouldn’t be enough buyers for the new bonds, potentially causing yields to rise if supply outweighed demand. A notable shift occurred in November, setting off a sharp reversal in Treasury yields. Investor worries about increased Treasury bond issuance were alleviated as the U.S. Treasury revealed plans to slowly increase bond issuance. The market felt there would be enough demand to absorb the new bonds, lowering the probability that too much bond supply would cause yields to rise. In addition, data showed that inflation continued to decline even as the economy continued to exceed expectations. Investors’ fears about persistent inflation and high interest rates faded from view, and yields declined. With Inflation Falling, Market Expects Rate Cuts Data shows that inflation pressures continue to ease. Figure 2 graphs the year-over-year change in headline and core inflation. Headline inflation, which peaked at 9.1% in June 2022, dropped to 3.1% in November 2023. Likewise, core inflation, which excludes the volatile categories of food and energy, now stands at 4.0% after peaking at 6.6% in September 2022. The price declines have been widespread across categories, with price pressures easing across food, energy, airfares, and household furnishings and appliances. S&P 500 Registers its Biggest Monthly Gain Since July 2022  Monthly Market Summary
Stocks Trade Higher as Treasury Yields Reverse Lower
The big story during November was the decline in Treasury yields. The bond market experienced large moves in interest rates, with the 10-year Treasury yield falling to 4.36% from over 5% in October. For context, the -0.54% decline in the 10-year yield ranks among the biggest 1-month drops since December 2008, when the Federal Reserve cut interest rates by -0.75%. Falling Treasury yields provided relief to bonds, which have traded lower as the Federal Reserve hikes rates. The Bloomberg U.S. Bond Aggregate Index, which tracks a broad index of U.S. bonds, produced a +4.6% total return. It was the index’s first gain in seven months and its biggest gain since 1985. The decline in yields helped the stock market rebound after trading lower for three consecutive months. The S&P 500 recorded its biggest monthly gain since July 2022 and currently trades less than 5% below its all-time closing high. The NASDAQ 100 Index gained +10.8% as mega-cap growth stocks such as Microsoft, Apple, and NVIDIA traded toward new all-time highs. Technology was the top-performing S&P 500 sector as the rally in growth stocks propelled the sector to a new all-time high. Real Estate followed close behind, benefiting from falling interest rates that provided relief to property owners. Defensive sectors, including Consumer Staples, Utilities, and Health Care, lagged as the market traded higher.  In the past, credit unions made efforts to grow their Select Employee Group (SEG) business through a basic offering of share accounts coupled with attractive loan rates. Today, that offering is simply not enough. Employers are now searching for providers that can deliver a full suite of services ranging from the traditional banking & loan products all the way through to retirement planning and workplace financial advice. For credit unions looking to distinguish themselves in the crowded business banking marketplace, incorporating a financial planning program into their SEG offering presents an attractive growth opportunity. Focus on Financial Wellness The financial wellness of employees has taken a front seat in the strategic planning of many employers. Financial stress among employees is a growing concern for many organizations. It can lead to decreased productivity, higher absenteeism, and lower job satisfaction. By offering workplace financial planning services, credit unions can help alleviate these issues, demonstrating their commitment to the well-being of SEG members. There are four key areas where credit unions can utilize advisory and wealth management services to significantly enhance their SEG value proposition.
Indianapolis, IN — Mt. Zion Federal has partnered with Polaris Financial’s Credit Union Wealth Group (CU Wealth) to offer fiduciary financial planning and investment management services to its members. Mt. Zion FCU provides personalized services to its members who appreciate the close knit community. Mt. Zion members will now have access to a dedicated financial advisory team who may provide financial advice, planning, and investment management services. The full service program provides support for the credit union, including: program management, marketing, compliance, technology and back office support.
All members will have access to a variety of services within financial planning and investment management.
LeWana Britt, CEO & Manager at Mt. Zion Federal Credit Union, on the partnership: “The mission of the Mount Zion Indianapolis Federal Credit Union is to promote savings amongst our members. We want to provide an array of financial products to meet all of their financial needs both now and for generations to come. We are excited about what Credit Union Wealth Group will bring for both the short term and long term financial planning of our members.”  Credit Union boardrooms often share a common question in regard to the introduction of a wealth management program, namely:
“Do wealth management services pose a cannibalization threat or growth risk to our deposit base?” Although a valid concern, the evidence fortunately shows that an advisory model wealth management program actually serves as a catalyst for deposit growth. Growth Through Deeper Relationships & Data Insights Deepening Member Relationships: Wealth management opens doors to deeper, advisory-based relationships with members. As advisor(s) guide members through their financial plan and investment strategies, their trust in their credit union strengthens, often leading to an increase in deposit balances and use of other banking services. Deposit Retention through Comprehensive Services: Members are less likely to transfer funds to external institutions if they receive both banking and investment services under one roof. This retention inherently safeguards and potentially increases the deposit base. Stocks & Bonds Trade Lower as Interest Rates Continue to Rise Monthly Market Summary
 In the ever-evolving world of employee benefits and financial well-being, workplace banking has taken center stage. Employers are increasingly recognizing that workplace banking programs can be more than just a means to streamline payroll and direct deposit; it's about providing a comprehensive toolkit for employees to manage their finances effectively. This includes offering access to financial education, resources, and tools that empower employees to make informed financial decisions. Credit unions have a golden opportunity to distinguish themselves and cultivate enduring value for their Select Employer Groups (SEGs). By strategically integrating 401(k) plans, comprehensive financial advisory services, and Health Savings Accounts (HSAs) into their SEG programs, credit unions can adeptly address a wider spectrum of financial needs, resulting in a more competitive SEG offering, heightened member loyalty and market prominence. Retirement Plans
A well-structured 401(k) plan is a powerful tool for SEG employees to secure their financial future. It provides a structured platform for them to save and invest for retirement, aligning with their long-term goals. CUs that offer 401(k) plans can set your credit union apart from competitors and make you an attractive choice for SEGs looking for integrated and comprehensive financial services. Workplace Financial Advice Employers want workplace banking programs that include access to financial education, resources, and tools to help employees manage their finances more effectively. Lexington, KY — KUE Federal Credit Union has partnered with Polaris Financial’s Credit Union Wealth Group (CU Wealth) to offer fiduciary financial planning and investment management services to its members. KUE FCU is dedicated to providing a full range of quality, convenient services at competitive prices in order to meet the needs of its over 3,000 current and future members. The expansion of services to include wealth management continues this dedication. KUE FCU members will now have access to a dedicated financial advisory team who may provide financial advice, planning, and investment management services. The full-service program provides support for the credit union, including: program management, marketing, compliance, technology and back office support.
All members will have access to a variety of services within financial planning and investment management. ● On-demand dedicated financial advisors ● Advisor managed investment portfolios ● Financial planning, investment management, & estate planning services ● Digital onboarding and member portal Stephanie Gillis, CEO & Manager at KUE Federal Credit Union, on the partnership: “At KUE Federal Credit Union we are always looking for ways to enrich our relationships with our members. As more members have inquired about investment opportunities, we knew it was important to find a partner that valued and respected our members and their needs as much as we do. We believe we have found that with our new partnership with Credit Union Wealth Group. We are excited to offer this new benefit to our members!” At Polaris Financial, we believe that estate planning is an important part of any comprehensive wealth management program. That's why we are excited to announce that trust and will services are available as part of our bank and credit union programs!
Trusts and wills can be made available to everyone and are a great way to engage your customers or members. This will also generate additional revenue for banks and credit unions as part of their wealth management programs. With our trust and will services, clients can have peace of mind knowing that their assets will be managed and distributed according to their wishes. Our experienced financial advisors will guide clients through the entire process of creating a personalized plan that reflects each clients’ unique needs and goals. We are dedicated to providing clients with the necessary services and support to make informed decisions about their legacy and the future of their loved ones. Easily expand your customer and member offerings today. Contact us today to learn more about how your bank or credit union can benefit from our trust & will services and our wealth management programs. |
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Advisory services offered through Polaris Financial, LLC. Polaris Financial, LLC is a SEC registered investment advisor. 6 Liberty Square #2663 Boston, MA 02109. All rights reserved. Brokerage services provided to clients of Polaris Financial, LLC by Altruist Financial LLC and/or Interactive Brokers Group, registered broker-dealers and members FINRA/SIPC. Past performance is no guarantee of future results. All securities involve risk and may result in loss. Nothing in this communication should be construed as a solicitation or offer, or recommendation, or advice to buy or sell securities or services.
Investments in securities: Not FDIC Insured - Not NCUA Insured - No Bank Guarantee - May Lose Value.
Polaris Financial has a partnership with banks and credit unions to provide investment advisory services to their customers and members. The banks and credit unions are not investment clients of Polaris Financial but have a revenue sharing relationship that can create a conflict of interest.
Advisory services offered through Polaris Financial, LLC. Polaris Financial, LLC is a SEC registered investment advisor. 6 Liberty Square #2663 Boston, MA 02109. All rights reserved. Brokerage services provided to clients of Polaris Financial, LLC by Altruist Financial LLC and/or Interactive Brokers Group, registered broker-dealers and members FINRA/SIPC. Past performance is no guarantee of future results. All securities involve risk and may result in loss. Nothing in this communication should be construed as a solicitation or offer, or recommendation, or advice to buy or sell securities or services.
Investments in securities: Not FDIC Insured - Not NCUA Insured - No Bank Guarantee - May Lose Value.
Polaris Financial has a partnership with banks and credit unions to provide investment advisory services to their customers and members. The banks and credit unions are not investment clients of Polaris Financial but have a revenue sharing relationship that can create a conflict of interest.