As independent broker-dealers (IBDs) grow through acquisition, their businesses often become more complex. While this growth creates exciting opportunities, it also brings challenges in managing and optimizing their clients’ diverse needs. Niche technology partners can play a critical role in helping IBDs and wealth management firms maximize the benefits of scale while continuing to deliver exceptional service to all client segments.
Every acquisition brings with it both core business elements aligned with the firm’s primary mission and more niche areas, that, while important, may fall outside of the company’s expertise or immediate focus. As every firm goes through the process of determining resource allocation, there is a constant drumbeat to focus on the core business. And, as much as the company would like to support every non-core niche with the resources they need, this becomes harder as the business structure becomes more complex. Cerulli Associates previously reported roughly half of advisors from banks and credit unions were seeking more from the technology they used. One solution to this dynamic is to find partners with niche expertise to support non-core business segments, freeing up internal resources to focus on the core business.
The Credit Union Opportunity
The credit union space is a great example of how niche expertise can solve for non-core business segments. Most credit unions are partnered with high-quality broker-dealers to provide in-branch investment services. This system works quite well, as the branch advisor’s business looks very similar to the core advisory business of the broker-dealer, which supports advisors working with mass-affluent and high-net-worth clients.
However, while the broker-dealer can set a relatively high minimum account level to ensure that the firm is dealing primarily with larger, profitable accounts, credit unions serve an economically diverse membership with a much higher proportion of small accounts. These small accounts are core to the credit union. They are critical to the credit union’s mission but do not fit neatly within the broker-dealer’s traditional business model. To solve for this segment of their business, credit unions need a thoughtful digital solution that can service accounts of any size and attract investors from multiple generations.
These smaller accounts represent an underserved opportunity. While broker-dealers may set minimum account thresholds to focus on larger, more profitable accounts, credit unions aim to serve all their members, regardless of account size. Small accounts, often held by younger or middle-income members just beginning their financial journeys, are core to the credit union’s mission of financial inclusivity and member service. However, these accounts require thoughtful, scalable solutions that allow credit unions to engage members early in their financial lives and retain them as their wealth grows.
The Build vs. Partner Decision
To respond to this dynamic, the broker-dealer and credit union have to make a choice. Do they build the technology to service their non-core segments internally, or do they partner with technical experts in non-core segments of a business? While the first option may work initially, over time the non-core build inevitably begins to compete with core business segments for finite resources. Pairing with the right third-party partner, on the other hand, can provide a tailored solution that evolves with the segment’s needs and the technology around it. Moreover, achieving breakeven on a large-scale technology project can take years to reach, often just in time to discover that new technology is required. Working with the right partner to provide a great digital experience can be immediately impactful to earnings while stemming the flow of members to competitors and online brokers. This is because third-party platforms are designed to evolve with changing member expectations and technological advancements, ensuring credit unions remain competitive in a rapidly digitizing world.
Small Accounts Matter
In the era of democratized investing, when anyone can start building wealth with just a smartphone, small accounts are much more than just a niche to be managed – they’re a strategic opportunity. By investing in small account solutions, credit unions can position themselves as the go-to financial institutions for the next generation of investors. Whether members prefer self-directed investing or require digital advice, the right platform enables them to keep their funds within the credit union. These solutions help credit unions retain member assets that might otherwise flow to direct-to-consumer platforms and foster deeper relationships with members over time.
