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Firm Finds Unique Niche Among Credit Unions

Firm Finds Unique Niche Among Credit Unions

Finance: Concept Allows The Institutions to

Be Part Owners

BY MIKE ALLEN

Senior Staff Writer

Ann Beattie remembers the wax board hanging in the cubicle she and partner Valorie Seyfert rented for the first three years they ran their business.

“It was really a wish list for the clients we wanted, and they were mostly the largest credit unions,” she said. “And as we got going and signed them up, we’d check them off and say we got that one. Then we’d get another one, and pretty soon, we had every one of them.”

Today, their company, CUSO Financial Services LP, counts some 80 credit unions as clients, including 22 of the largest in the nation. CUSO, which stands for credit union service organization and is independent from credit unions, is a full-service broker-dealer, selling stocks, bonds, mutual funds and annuities to credit union members.

The women started the business in 1996 in response to what they saw as a lack of real service on the part of contracted broker-dealers providing investment services to credit union members.

Instead of just contracting from a third-party vendor for the service, the CFS model was structured as a limited partnership, allowing credit unions to become part owners and gain a greater share of the profits from the sales of securities.

In the mid-1990s, Seyfert was working as an attorney advising credit unions on various issues including setting up and overseeing third-party contracts for their investment services.

Many of the credit unions told her they were not satisfied with either the performance or the way those services were offered, and asked Seyfert for help.

“It was really at my clients’ urging that we started the business because a number of them came to me and said, ‘Why don’t you start this. You have the vision. You understand what we need as credit unions and we believe that if you do this, it would help us all.'”

Seyfert and Beattie, a consultant to dealer-brokers on the operations side whom Seyfert had worked with in the past, saw the potential for a business they knew would better serve credit union members.

They decided to join and started working from a leased cubicle in a Miramar office building.

Among the earliest credit unions to take a partnership stake in the new company was North Island Financial Credit Union in San Diego.

Brett Everhart, chief operating officer for the NIFCU subsidiary that provides the CFS services, said since CFS has been providing investment services, the arrangement has been a winner.

“On the front end, we’re gaining a higher payout (on the commissions earned for investment sales) and on the back end, as CFS grows, and their sales increase, that means our profits increase, and we’re entitled to more distributions from our investment,” Everhart said.

Pete Snyder, president of Addison Avenue Financial Partners, the investment subsidiary of HP Employees Federal Credit Union in Palo Alto, said CFS has done an outstanding job in both the technology platform they’ve created and in providing effective tools for their sales reps.

“They’ve been extremely responsive to problem resolution and are very flexible and that all has its roots in the fact we’re equity partners with them,” Snyder said.

To get the capital to launch the business, CFS raised an initial $1 million, selling partnership units in the business for $25,000 per unit. Later, the company had two more funding rounds to bring the total capital raised to about $4.5 million.

Credit unions aren’t required to purchase partnership shares to obtain CFS’ services. They can contract for the service.

Thirty-eight of CFS’ 80 clients are partner-owners and control about 75 percent of the company, Seyfert said.

It took about four years, but CFS began turning a profit last year in its second quarter. It’s a trend that has continued this year as the company grows to a size where the volume of business exceeds the expenses to operate it remain relatively stable, Seyfert said.

“For the first quarter of this year, we’re looking at a profit that exceeds all of our last year’s profits,” she said.

Last year, CFS had net earnings of $228,000.

CFS revenues this year should reach between $35 million to $40 million, up from about $22 million last year. The firm is signing up an average of about 20 new credit unions a month, and expanding beyond its initial market of the biggest credit unions to those with assets of at least $200 million. There are more than 10,000 credit unions in the nation.

CFS is also expanding its employment, adding seven new staffers in recent months to bring the total to 45 people.

The two partners are pleased with their current success, but say it didn’t happen overnight.

“Because we’ve done a good job, because we’ve done what we said, and created some unique technology that set credit unions apart that gives them a competitive advantage in their marketplace, (credit unions) have been sold on this service,” she said. “It is a service that sells itself.”

Seyfert and Beattie have long track records in financial services.

Seyfert has worked for more than 17 years as a legal counsel to broker-dealers and financial institutions. She’s also run a couple of businesses, one an independent energy company called Strategy America, and First Night San Diego, a non-alcoholic New Year’s Eve celebration held at the San Diego Convention Center.

Beattie worked in the securities industry for 25 years in a variety of jobs, but primarily as an expert in setting up and maintaining the back office support operations for a brokerage.

Although the securities industry is still dominated by men, the women rarely encounter skepticism about their abilities anymore, they say.

“Any skepticism that may have been there is gone,” Seyfert said. “At this point, our success speaks for itself.”

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