AFL-CIO EFCU: Big City, Big Challenges

This $51M, D.C.-based credit union uses compliance assistance to overcome cost, staffing, and skill challenges

AFL-CIO

AFL-CIO Employees FCU is a $51M organization located in the heart of downtown Washington, D.C. With their membership encompassing a staggering 55 affiliated unions across the country, and one of several credit unions that has unionized employees, they exude an old-school credit union charm and grit. They are also one of Aux’s oldest compliance clients, having been a client of ours since 2011.

Let’s learn about the challenges faced by a small credit union in today’s market, and examine how having a team of compliance experts for a fraction of the cost of just one in-house compliance manager allows AFL-CIO Employees FCU to remain financially-efficient and sound in turbulent times.

🤔 The Challenge:

Shrinking union membership and extraordinary cost of living and competition within the D.C. market has created challenges for a small credit union with a closed field of membership. That being the case, efficiencies are top-of-mind for the management team and outsourcing expert-level back office functions is critical to survival.

“Often a managerial team can't see through the weeds to think strategically because they are putting out so many fires."

-Robert James, CEO of AFL-CIO Employees FCU

Introduction

In this study, we focus on how AFL-CIO EFCU is:

  1. Staying viable as a small credit union by embracing the “gig” economy and outsourcing
  2. Utilizing turnkey, on-call experts who don’t require costly hiring, training, and benefits
  3. Allowing your decision-making team to focus on strategic tasks rather than tedious compliance functions
  4. Creating partnerships with your vendors, who act as an extension of your team

We sat down with Robert “Bob” James, the CEO of AFL-CIO Employees FCU, to understand why the credit union continues to renew our outsourced compliance contract year-over-year. Even more compelling, the credit union sought to keep our compliance services when the NCUA recommended they “reduce office expenses” – in other words, review and terminate vendor contracts as part of the reduction to office expenses.

CEO James is the embodiment of starting “from the ground up,” and this scrappy mentality funnels into his open-minded and progressive leadership approach. “I started in financial services in 1984 as a collector working for a finance company, and in those days we literally went out on the street and picked up payments from people” says CEO James. Rising up through lending and operations ranks at various credit unions, he became Operations Manager at AFL-CIO Employees FCU in 2012. This is when he was introduced to the Aux Compliance Team (formerly COMPASS 4 CUs), who had just begun working with the credit union.

Use the Gig Economy to Your Benefit

What is a “gig economy,” anyway? Gaining popularity in recent years, a gig economy consists of contract, outsourced and freelance workers hired to perform often expert-level tasks, for a fraction of the time and cost a full-time employee (FTE) would work for. The value of operating part of one’s business in this manner is tremendous: instant knowledge, savings on benefits, reduced key-person risk, disaster recovery improvement, and paying only for what one needs.

CEO James sees the value in utilizing a gig economy and has used this strategy to lower his credit union’s operational costs. In 2016, he took over as CEO, determined to turn around a credit union that had been “losing money,” as CEO James puts it. Hundreds, if not thousands of small and mid-sized credit unions are in the same boat as AFL-CIO Employees FCU, struggling as membership declines, cost of staffing increases, and regulation expands. “How can small credit unions survive in a large credit union world?” asks CEO James.

AFL-CIO Employees FCU situation is particularly challenging in that they reside in one of the most expensive and credit union dense regions in the country: Washington, D.C. In effect, high cost of living and competition to obtain experienced staff, especially in niche back office areas like accounting and compliance, drive salaries upward.

“When we looked at our compliance function, we found that to hire a certified compliance person, you’re going to pay anywhere from $50K to $125K a year,” says CEO James. And that’s not including cost of hiring and training.

“We average about nine exams a year. Between the NCUA, internal audit and the independent audits, we’re doing an exam almost every month. We have the experience of the Aux Team, which is not just one or two people, but five people,” says CEO James. “It’s economies of scale when you really weigh it out. When you’re looking at hiring, it doesn’t just include that salary, but it includes the benefits, the vacation cost, the medical plan,” says CEO James. And his credit union faces an even larger staffing hurdle: “We are one of a few credit unions left in this country that still pay into a pension plan.”

👏The Benefit: Hiring outside compliance assistance averages less than 40% of one FTE compliance manager. What’s more, Aux’s compliance offering provides a whole group of compliance experts for this price.

Not to Mention Internal Training…

A topic routinely left of out the outsourcing benefits discussion is that it serves as a solution to exorbitant continual internal training costs. What might seem as manageable to some credit unions, the costs to keep your compliance staff up-to-date on training can be quite burdensome, (1) because of the hard costs and (2) because of the time it pulls the compliance manager away from their duties, which can be difficult for a small team to coordinate.

Compliance professionals are, by necessity, life-long learners. Administrations change, regulations and regulators change, credit union products and services change…. What you learned last year may not apply this year. For that reason, compliance managers require ongoing, highly specialized training to stay abreast of the rules. That’s expensive.

“When you look at NAFCU school or something similar, you’re talking $1,500 to $2,000 for one class. Now, for three people, that’s anywhere from four, five, six thousand dollars. The average cost to hire and train an employee can be costly especially to a small credit union.” A dense, urban, industry-competitive market increases the dreaded turnover, as well. Even high-level staff bounce around for the next best salary and opportunity or move away from the city. Urban populations are notoriously mobile. “When you have high turnover, which we’ve been lucky the last couple of years to not have, training becomes very costly to an institution,” says CEO James.

One of the challenges is that small credit unions lack training for their managers. They don’t have the time to hone their skills because they’re putting out fires all day.

Wearing Many Hats

Which leads us into our next topic on why compliance assistance can be so beneficial for cost-conscious credit unions: most credit union folks wear many hats. This should come as no surprise to the reader. It’s the nature of the industry – thriftiness is top of mind for credit unions and staff who are skilled in many areas is more cost-efficient. This is especially true among small and mid-sized credit unions, where even the CEO’s functions span across many areas within the credit union.

“The Aux Team helps us because of all the hats that I wear as the CEO. I’m the CEO, the chief lending officer, the chief information officer, the chief compliance officer, the chief marketing officer, etc.,” comments CEO James. Really, the only thing he isn’t doing is hitting the streets and collecting loan payments.

“Often a managerial team can’t see through the weeds to think strategically because they are putting out so many fires,” laments CEO James. The Aux Team has found this to be an enormous and pervasive problem across their small and mid-sized back office clients, regardless of demographics. “I can tell you right now that I average between 75 and 120 emails a day,” says CEO James. I need help managing my time: this is an area where many smaller credit unions don’t have the expertise, including my own credit union. How do we overcome this?”

👏The Benefit: Outside compliance assistance frees up your decision-making team, allowing them the gift of time to focus on strategic initiative and thinking, which is what they were hired to do. If no one has time to focus on strategic functions, then how is the organization moving forward?

So Why Aux?

It’s no secret that the compliance assistance market is saturated. So why does AFL-CIO Employees FCU continue to renew our contract year after year? CEO James sees the value in outsourcing, but he is also cautious and privy to the promises vendors are quick to make.

“I’ve always had a philosophy, to not put all your eggs in one basket; don’t have everything with one vendor, because vendors become complacent. We’ve gotten rid of vendors over the last several years because they were charging us money but not delivering service. And so small organizations have to be very careful and not make the presumption that they’re getting the best bang for their dollar,” warns CEO James.

In truth, there are credit unions who are skeptical of hiring outside assistance for their back office functions, many of which they wear close to the vest. There is a level of deep trust that comes with outsourcing such a critical function. One of the main values of Aux is to build trust and instill a new type of vendor experience – a “partner, not vendor” mentality. An extension of the credit union’s own team. A team of experts who you know by name.

AFL-CIO Employees FCU chooses us because they feel the same – we are a part of their team.

“I learned more in two days from when the Aux Team visited me for compliance training than I learned from anybody in the last eight years. You are a valuable resource.” – CEO James.

One of the services the Aux Team provides to their clients is staff and volunteer training on a wide variety of compliance topics. This can be done once, annually (BSA training, for example), or even multiple times per year. We have some credit union clients who we train every other month. We offer many different formats to meet the unique needs of our clients: In person, remotely, live webinars, and recorded webinars accessible on demand. We also provide one-on-one coaching, as needed.

Additionally, because all five Aux Compliance Team members work together with every client, credit unions can enjoy a much more accessible and efficient experience than if there were to have just one dedicated contact.

“The Aux Compliance Team is not going to give me lip service. They are going to tell me straight up what I need to do from a compliance perspective, and that’s what I value. I don’t have that with every vendor. I just had a conversation this morning with my senior loan officer where I said, ‘Don’t trust, validate.,’ Through the years we built the trust with the Aux Compliance Team, and that makes the vendor relationship very valuable.”

The Day-to-Day Workings of our Outsourced Compliance Relationship

We’ve read our fair share of case studies, and found they often fall short on the operational details. What’s the day-to-day work of our partnership? It’s just as important to know the operational components of the vendor relationship as it is the high-level benefits. Let’s do a quick dive into the works of our full-service compliance relationship with AFL-CIO Employees FCU. (Learn what full-service encompasses here)

CEO James is our primary point of contact, but this can range from the VP of Compliance to Operations Manager, depending on the size and structure of our client. “Our day-to-day relationship boils down to the independent audit piece: Answering questions over the phone, assisting us with moving policies forward to our board to help us to be a better institution,” explains CEO James.

But we don’t just answer questions. The Aux Team assists with risk assessment, development of policies and procedures, marketing compliance review, BSA compliance, and independent tests. We provide customized training for staff and volunteers. We perform almost every task you would expect of an in-house compliance manager. Above all, we not only tell you want you need to do, we help you do it.

“A recent example is our annual meeting, which we must hold virtually this year due to COVID. Our bylaws need to be updated with a temporary amendment for 2020 on how that virtual meeting will take place. But how is that meeting going to take place from a virtual perspective, because there are a lot of logistical and strategic aspects that have to be taken into consideration, like voting – how are you going to identify that person?

“Where the Aux Team helps us is from the service perspective by validating our policies. They validate questions that we have because I have a lot of questions. It’s very complex and changing often.” – CEO James.

“I have the utmost respect for everyone on the compliance team I’ve ever met. I mean, if you compare Aux to some of our competitors out there…it’s not even a comparison. The passion they have, and how credit union-centric they are, is above and beyond the competition,” concludes CEO James. We are blushing. In all seriousness, a credit union-centric, zero bank-speak approach to compliance is another main value of our service. Every one of our compliance staff has credit union experience and understands the credit union mission.

Conclusion

We hope this case study provided insight into the benefits and details of one of our longest compliance assistance relationships. You’ve read first-hand from a credit union executive who is in same boat as so many other institutions – struggling with cost of living, salaries, staffing, training and having enough time in the day to get everything done.

To recap, below are the benefits Aux Compliance Services have brought AFL-CIO Employees FCU:

  1. A full team of credit union centric compliance experts for a fraction of the cost of one FTE
  2. The ability for the credit union’s decision-making team to have time for strategic tasks rather than putting out fires all day
  3. Cost-savings in internal compliance training, as our team stays up to date on all trainings, and relieving the burden of turnover expenses
  4. A partner not vendor relationship where we act as an extension of the credit union’s team

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About AFL-CIO EFCU

The mission of the AFL-CIO Employees Federal Credit Union is to be the primary financial institution for union members and their families, providing quality products and member service, consistent with the values of the labor movement.

As a credit union, AFL-CIO EFCU exists solely to serve the financial needs of their membership. Those services include not simply loans and savings and checking accounts, but all sorts of ways to make it easier to manage the money in one’s accounts.

AFL-CIO EFCU is run democratically. The members elect a board of directors in annual elections. Their day-to-day operations are carried out by a professional staff whose members always treat you as more than just a customer. After all, when you belong to AFL-CIO Employees Federal Credit Union, you’re one of the owners.

Learn more at www.aflcioefcu.org

Wondering if compliance assistance could help your credit union? Reach out to us for a zero-salesy, zero-pushy chat.👇

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