CFO Focus: Understanding Investment Program Profitability

businessman on a ladder drawing financial line graph
By Valorie Seyfert

5 minutes

Get the most from your wealth management program, both for members and for your credit union.

The numbers tell the story. In addition to helping members prepare for the future, investment programs can help credit unions increase non-interest income and build relationships and loyalty. Customers using investment services tend to have deeper, more meaningful relationships with credit unions. According to Kehrer Bielan, average checking account balances are 1.4 times higher for customers who also purchased an investment with credit unions, and savings accounts are 2.4 times higher. These customers are also more likely to use other services—credit cards, mortgages, home equity lines, and vehicle loans. According to the Federal Reserve Board’s Consumer Finance Study 2013, for every dollar a bank or credit union client has on deposit with the institution, they have $4 to $5 invested in retirement accounts, stocks, or mutual funds.

However, to be successful, a credit union investment program requires a concerted and coordinated effort by the institution and its broker-dealer. If a program is not growing, it stands to reason that it is not meeting the needs of the credit union, its employees or its membership. If the program were meeting needs, it would be better-utilized.

Understanding investment program profitability starts with a thorough analysis of revenue (product mix, AUM, return on assets) and expenses. In assessing top line gross dealer concessions (commissions) and costs in relation to industry benchmarks for revenue as a percentage of expenses, credit unions can help to ensure best practices and program profitability. 

Typical investment program expenses include:

  • Rep production – the net payout to a representative after all months average out (payout grids are based on levels of production, with lower producers typically receiving a lower percentage of overall production than higher producers). 
  • Assistant costs – clerical and organizational expenses are a line item that frequently exceeds recommended benchmarks. Representatives are paid commission (GDC) based on their production levels. A helpful way to keep administrative costs in line is for licensed assistants to be paid a base pay from the program, plus share in the GDC payment. 
  • Management – fees vary based on whether the credit union has dedicated or part-time or divided managers who not only work for the investment program but also for another department or several. While compensation for the former may be higher, he/she can bring dedicated support to the program, which may provide a better return on investment.
  • Benefits – vary, given retirement and other packages provided by the institution. 
  • Miscellaneous fixed expenses – a catch-all for registration, errors & omissions, licensing, ticket charges (or cost to place a trade), supplies, and so on. 
  • Marketing – can vary and be advanced with electronic systems and proven messaging.
  • Broker-dealer – fees vary by contract based on who does Office of Supervisory Jurisdiction—the credit union or broker-dealer. The OSJ has supervisory responsibilities for agents and offices within its region, final approval of new accounts and retail communication. Credit unions that do OSJ themselves will also need to create a line item for cost of the full or part-time employee doing it.
  • Target profit margin – spending too much in any of the above will affect this unless an adjustment is made elsewhere.

The most underestimated expense in assessing GDC and expenses is the impact of low production months or lack of recurring revenue. If the advisor or program does not hit targeted revenue, such fixed expenses as base pay, management, administrative compensation, insurance, software and technology can result in financial losses. In new programs or those with new advisors, inconsistent revenue in the first few months is common and should be anticipated. 

While institutions cannot prevent low production months, they can budget and forecast for them. A good broker-dealer will help the CU to assess not only the program level but growth assumptions for each rep, including potential shifts in product mix, changes in commission, fee revenue, increases in assets under management  and new invested dollars. It will assess where the bulk of revenues are coming from–and help to identify more opportunities–as well as train reps on best practices to increase money awareness and  help members earn more. 

How can you know if a new broker-dealer will take these steps to ensure your program’s success? A key question to ask is: What do we need to do, and what will you, as my broker-dealer, do to grow this program’s profitability?  

While some broker-dealers may offer enticing deals to get institutions on board, a credit union will want to look at true, long-term value in addition to transitional incentives. For instance, such long-term figures as broker-dealer asset growth can be telling. With average rates of 9 percent year-over-year asset growth industry-wide, credit unions should expect the same or higher from their broker-dealer. Also consider a strong track record of growing and maintaining advisors to indicate long-term satisfaction.

Other things to look for:

  • Direct access to program data online for products, custodians, accounts;
  • Business planning software integrated with program data to show opportunities for growth
  • Compliance-approved marketing 
  • Practice management and program development support on strategies, best practices
  • Technology for membership engagement, from comprehensive remote delivery to full-service wealth management
  • Online client account portals integrated with home banking

Credit unions are in a good position to offer customized investment programs to address members’ wealth complexity, preferred delivery channels and product set needs. However, ensuring success requires a concerted effort. A profitable program is dependent on having everyone pulling the oars to move the boat forward—advisors bringing the best experience, know-how and passion for clients; credit unions providing top-down support and commitment to long-term success, and the broker-dealer bringing the best technology, support, tools, strategies and expertise. 
A thorough profitability analysis can inform credit union leaders about exactly what they need to do to support growth. This information makes clear exactly how the program can achieve its goals with results that can be reported and tracked regularly. 

Valorie Seyfert is co-founder/president/CEO of CUSO Financial Services, LP, with more than 30 years’ experience driving growth and profitability in the securities industry. Previously, she had a law practice specializing in securities regulations, contracts and corporate law. A past winner of the Ernst and Young Entrepreneur of the Year award in Business Services for San Diego County, she is a recognized expert on the structure and strategy of successful investment services programs in financial institutions. Email her at for more on how to ensure the profitability of investment programs and receive industry guidelines for investment program GDC and expenses.

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