Jan 01 2003

Professional Financial Advice for Consumers: Implications for Credit Unions

The purpose of the research reported here is to determine the extent of consumers’ desire for information and advice on savings and investments and their preferences for how to obtain it.

The research is based on data from a mail survey of 3,780 nationally representative households made available through the cooperation of the Consumer Finance Division of SRI consulting and the CUNA Mutual Group. Analysis of the data reveals four distinct market segments.

A group we call “Downscale and Local”, regards banks, S&Ls, and credit unions as the best source of information and advice. While they don’t want to spend a lot of time on investment decisions, they do want to discuss their decisions, but do not want to pay for advice. They are ideally suited to traditional credit union products, including IRAs.

A second group, which we call “Upscale and Connected”, are ideally suited for traditional, commission-based brokerage firms. This group appears to offer limited opportunities for credit unions.

The third group, which we call “The Independents”, want low cost information and brokerage services with minimal personal interaction. They are ideally suited to the traditional offerings of Charles Schwab, but do not appear to offer special opportunities for credit unions.

The fourth group, which we call “Advice Seekers”, want and need investment advice and are willing to pay for it. However, they distrust commission-based advice. They have about average income, financial assets, and education. This is by far the largest group of the four, comprising 55% of the sample. Few existing institutions appear to be well suited to serving this group. To the extent credit unions can identify and establish relationships with investment professionals who can maintain trust and operate with a fee-based service culture, rather than a commission-based sales culture, this segment of consumers could offer substantial opportunities for credit unions.