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05Apr

Fiduciary Responsibility: A Golden Credit Union Opportunity

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It’s a fundamental premise of the credit union movement and one that received plenty of attention at CUNA’s annual Governmental Affairs Conference in Washington DC this February. There was no shortage of examples of community engagement, financial literacy efforts, and chartable initiatives on both the grassroots and national levels. Make that international - I challenge anyone to listen to Derreck Kayongo’s tale of founding the Global Soap Project to save lives and advance education in Africa via used hotel soap, and not come away feeling inspired.

Problem is, “people helping people” can begin to sound like a platitude, falling into that “motherhood and apple pie” bucket. After all, who doesn’t want to help people? Most major banks have well-funded media campaigns trumpeting the benefits they bring to communities. Raise hands, all ready to advocate for “not helping people.”This is what makes the latest big bank maneuver so mind-boggling.

The Fiduciary Rule

Though less publicized than its ordered review of the Dodd-Frank Act, in early February 2017 the Trump Administration also sidetracked a scheduled implementation of the “fiduciary rule,” which would have required retirement account advisers to work in the best interests of their clients.

The logic behind this Obama-era regulation was straightforward. Most Americans are woefully under-investing toward their retirement. It’s well-documented that high plan fees can pose a serious impediment to capital appreciation. The fiduciary rule sought to prevent conflicts in which brokers/advisers could earn higher commissions by steering consumers into retirement plans not necessarily in their best interests.

To be clear, there are substantive reasons for providers to object to the fiduciary rule. Depending on interpretation, it could fuel lawsuits for investments that go wrong for reasons other than malfeasance. I recently got a firsthand view of its unintended consequences when I learned one of my primary contacts at an area bank had been let go - apparently he lacked some of the securities licensing credentials his employer deemed necessary to comply with the pending guidelines.

The fiduciary about-face is part of the administration’s broader efforts to curtail cumbersome regulations - and this one had been opposed by a wide swath of the financial services industry. It risked adding another layer of bureaucracy to address a problem that might be handled more efficiently. I’m not entirely buying another of the industry’s key talking points, however - that it could limit consumer choice as brokers, wary of future repercussions, might opt to promote only the most vanilla plans.

Still, is this really a cause on which the banking industry chooses to hang its hat? Despite the fine print, it boils down to taking a stand opposing “working in the best interest of clients.” It’ll take a whole lot of marketing spin to overcome those types of headlines. In fact, several big-name players including Morgan Stanley and AIG have announced their intent to proceed with planned operational changes regardless of whether the fiduciary rule becomes a formal mandate.

Differentiate your Credit Union 

If you’ve been looking for an opportunity to differentiate your credit union from its bank competition, this is it. First, confirm that none of your CU incentive plans or promotions (third party offers, for instance) might run afoul of the fiduciary rule’s spirit.  It’s unlikely, but worth a quick check. In reality, the current dust-up has little direct impact on CUs. Most aren’t involved with retirement plans, and most financial advisors already owe a fiduciary duty to their clients. The rule in question is specific to retirement plans. Nonetheless, the message is a powerful one. Consider adding “member’s best interest” language to your CU’s mission statement, if it isn’t there already.

A disturbing percentage of Americans - members and non-members alike - are unaware that credit unions are member-owned, or that they operate as nonprofits. If banks take the dumbfounding step of opposing “client’s best interests” rules, credit unions should be perched on the street corner with megaphones to embrace such principles. This can serve as the beginning of a beautiful conversation about member ownership, financial responsibility- and people helping people.

 

 

 

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