Arnold, Mary Auestad

CEO Network participants ask the experts.

If you had the chance to ask a panel of experts anything at all about credit union service organizations, what would you ask? Would your query be related to CUSO structure? Compensation? Boards? Possible products and services?

Given this opportunity, participants in CUES’ CEO Network 2000 conference raised these questions and more during the two-part “Super CUSO Panel Discussion,” Nov. 7 in Koloa, Kauai, Hawaii.

Here’s what they learned from panelists Valorie Seyfert and Victor Pantea. (For panelists’ credentials, see p. 23):

Q: What types of products and services can a CUSO offer besides member investments?

A (Seyfert): “Newer offerings include Web services or portals and loan participations.”

A (Pantea): “Operational CUSOs offer data processing, check clearing, etc. to other credit unions. Member Gateways (see “Meet the `Super CUSO’ Panelists”) serves as an incubator or R&D environment for its member credit unions to investigate new offerings and bring them to market. A group of credit unions could become an ‘angel’ to a start-up e-commerce company, with the credit unions providing funding and help in the design. The group would then become the market for the credit union-owned venture’s products.”

Q: Is there really a need for CUSOs or could typical CUSO products be offered directly through a credit union?

A (Pantea): Offering products like insurance and investments through credit union employees can raise “culture integration issues. It’s often viewed as disruptive because selling these products takes different skills and a different pay structure (read on for more about compensation). CUSOs need to be integrated and involved with the credit union, especially in the strategic planning process.”

A (Seyfert): An adequately staffed CUSO can be faster to market and more flexible than a credit union charged with its own service mission.

Q: Speaking of staffing, who should run the CUSO?

A (Seyfert): “Some make [managing the CUSO] part of a credit union senior staff member’s job and don’t tie compensation to CUSO performance. Others hire a sales-oriented manager and compensate on an incentive basis to attract a highly talented individual.

“These managers, in some cases, earn three to four times the compensation of credit union employees. Real talent is attracted by incentive-based compensation. Credit unions should consider sharing CUSO ownership with senior managers.”

Q: So CUSO employees earn the big bucks?

A (Seyfert): “At the manager level, there are so many differences that it’s hard to show general statistics. At the sales level there’s a clear trend toward incentive-based compensation. Seasoned reps with good track records earn good money. Credit unions should not be afraid of a top producer coming in and making $400,000, so long as they are serving the interest of the credit union’s members.”

Q: How do you ensure the reps provide good service to all members, not just the high rollers?

A (Seyfert): “Good reps know that the person who walks in with an $800 IRA today should be treated just like a $1 million client.” You never know if this is just part of the person’s portfolio or if disposable income will grow substantially in future years. “A good rep can serve 100 clients. Often a senior sales consultant will have more clients but will target the top 100 clients; a junior sales consultant will work with the others.”

Q: What about CUSO boards-do they need to be completely different from the credit union’s board?

A (Pantea): “The credit union is investing in the CUSO and has a vested interest. It needs some reasonable level of representation on the board.”

A (Seyfert): “From a legal perspec- tive, you don’t want to have a board that mirrors the credit union board because it can be viewed as piercing the corporate veil. Minority representation from the credit union board is recommended.”

Q: Can a CUSO’s directors be compensated?

A (Seyfert): “The predominant trend is not compensating CUSO boards. We’ve got to look at this. If we want to attract the best talent possible we have to see an evolution with both board and management.”

Q: Should a CUSO be structured as a limited liability corporation or a regular corporation?

A (Seyfert): “There’s a trend toward LLC because of liability (protection) and pass-through of income to the owners, like in a partnership (rather than being recognized at the corporate level). The big question is whether income is treated as unrelated and taxed, or as part of the credit union’s nonprofit status. Opinions are divided on this issue.”

Watch Credit Union Management for a future article on structuring a CUSO.

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For additional coverage from CUES’ CEO Network 2000, see CUES FYI for “8 Elements of Nordstrom-like Service” at htm and “Carpe Diem” at fyi/n_110900.htm.

Copyright Credit Union Executives Society Feb 2001

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