Credit unions: Managing wealth

Credential itself became a self-clearing dealer in January, and quietly began offering correspondent services to third parties in March.

In April, Vancouver-based Qtrade Financial Group announced that it was in negotiations with Vancouver-based Coast Capital Savings Credit Union to become the wealth- management dealer services provider to Coast Capital, the second-largest CU in Canada outside Quebec. Currently, Qtrade provides Coast Capital with online brokerage services, while Worldsource Financial Management Inc., based in Markham, Ont., provides Coast Capital with dealer services.

Also in April, Qtrade announced that it had come to an agreement with Langley, B.C.-based First West Credit Union to extend its current deal to be that CU’s wealth-management services provider through to 2019.

Both Credential and Qtrade appear to be staking their claim to be the wealth-management provider of choice to CUs across the country.

Credential is jointly owned by Burlington, Ont.-based CUMIS Group Ltd. and the provincial credit union centrals.

Qtrade is owned in large part by Lévis, Que.-based financial services giant Desjardins Group, which struck a deal to acquire about a 40% stake in Qtrade from private investors earlier this year. (Desjardins has the option to buy the remaining stake in the firm over the next six years.)

The growth opportunity for both Credential and Qtrade is significant. CUs continue to grow, with Credit Union Central of Canada-affiliated CUs reporting $134.6 billion in deposits as of Dec. 31, 2012, up by about 9% from 2011.

For Credential, the launch of Credential Correspondent Partners will allow Credential to provide portfolio managers and independent wealth-management firms with an independent alternative to the Canadian bank-owned or U.S.-based correspondent-services firms. And because Credential does not have products or an in-house distribution arm, it will make an attractive service-provider partner.

“We are not going to compete directly with the partners we want to bring onto our platform,” says Doce Tomic, president and CEO of Credential. “That gives us a very strong value proposition in focusing on this niche.”

The new correspondent business also will allow Credential to tap into growth in the high net-worth client segment being served by portfolio managers. That includes being able to refer business from the CU to partner firms.

“If a credit union has a high net-worth member who needs discretionary portfolio management,” says Tomic, “the credit union now can open that account on the new Credential correspondent network and have an outside [portfolio] manager manage those assets.”

So far, Credential has signed deals with nine portfolio managers to provide correspondent services, but Credential’s management expects that business to grow rapidly.

“We could easily be over $3 billion [in assets under administration] in five years,” says Kevin Vanderheyden, senior vice president of Credential Correspondent Partners. Vanderheyden and Chris Chen, vice president at the new Credential unit, both were hired in the autumn of 2012 and both were formerly with Montreal-based Penson Financial Services Canada Inc., the Canadian subsidiary of a U.S. firm that recently ceased operations.

Credential has a wide reach within the CU system, providing a broad variety of wealth-management services and products to about 225 firms, including services to Vancouver City Savings Credit Union, the largest CU in the country outside Quebec.

However, Qtrade has emerged in recent years as a strong competitor. And now, contends Scott Gibner, CEO of Qtrade, with the backing of Desjardins, Qtrade can present itself to existing and potential CU partners as a true CU system provider.

“We’ve been having tremendous results,” Gibner adds, “with the Desjardins announcement firmly placing Qtrade in the co-operative landscape.”

Desjardins’ involvement with Qtrade, says Tracy Redies, president and CEO of Coast Capital Savings, was a compelling factor in Coast Capital’s decision to start discussions with Qtrade on an expanded wealth-management partnership.

“Qtrade has a very innovative wealth-management platform,” says Redies. “And we believe that Desjardins and Qtrade can offer more products and services to our customers than we could if we were going to manufacture them by ourselves.”

Coast Capital has made several moves recently to work more closely with Desjardins, including the broad strategic partnership to look at ways to share products, services and expertise announced in April.

And, in May, Coast Capital announced it would sell its Coast Capital Insurance Services Ltd. unit to Western Financial Group (WFG), a Desjardins subsidiary.

As part of that deal, Coast Capital and WFG would work together to enhance and promote each other’s services to their respective customers.

“We needed a strong partner,” Redies says, “that would be focused on insurance.”

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Correction: An earlier version of this story mistakenly identified World Financial Group Insurance Agency of Canada Inc. as the buyer of Coast Capital Insurance Services Ltd.  Western Financial Group is the buyer. World Financial Group is a Transamerica company, while Western Financial Group is a subsidiary of Desjardins Financial Group.

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