Financial consumers have several options when it comes to banking. Different types of institutions such as banks, credit unions, savings and loan associations, and financial advisory firms offer varying products and services. Being informed about what is available and where can help people determine where to carry out their financial business.
Dean Ilijasic, co-founder of Long & Short of It in Cleveland, and Dale Braun, financial adviser at Edward Jones Investments in Beachwood, discussed the differences between the leading types of financial institutions and the unique benefits they offer.
“Banks are generally for-profit companies that offer a wide range of services from individuals to large corporations on a global basis,” Ilijasic said. “Credit unions are actually nonprofits and that’s one of the biggest differences between a credit union and a typical commercial bank.”
At a credit union, people who carry out their financial business there are called members, he said. They are usually connected by a common cause, such as being in a teachers union or being citizens of a certain county.
“There’s all kinds of reasons why a credit union has what they consider their membership (requirements) that allow you to become a member there,” he explained
Because credit unions are not for profit, any profit that is brought in as a result of their operations is funneled back through the credit union, oftentimes as dividends back to their members, he said.
“Savings and loans are closer to being banks,” Ilijasic noted. “They just have, historically, placed a much higher emphasis on residential mortgages and on the savings aspects of banking.”
All three offer the same types of services, he pointed out, but the most important thing for a person to keep in mind when choosing is knowing what makes sense for them, he suggested.
“If you are looking for your typical checking account, savings account, credit card, you can get that from all three,” he said. “If your financial services needs aren’t very complicated, you can go to any one that you feel is most comfortable for you. I think that’s one of the biggest things, that all these institutions are looking for that relationship and I think individuals should choose where they feel they can get the best service and have the best relationship possible.”
As one’s financial needs grow more complex, such as by launching a business, a credit union or a savings and loans may not have all the capabilities or the same levels of expertise as some of the larger banks, Ilijasic said. Because of the services for more complicated finances and the ease of access throughout the nation, 80% of individuals in the United States bank at the top dozen or so banks, such as JPMorgan Chase, PNC, Citibank, Bank of America and KeyBank, he said. In addition to offering services for more sophisticated banking needs for businesses, major commercial banks can be convenient for individuals because if a person moves from one state to another, it is more likely that there will be a branch of their bank at their new location, he pointed out.
“I think, yes, there are some very technical, legal reasons that differentiate a savings and loan, a bank and a credit union,” Ilijasic said. “However, for the individual –the person – it really comes down to what you need.”
If someone is looking to meet their personal banking needs, wants convenience, and an institution that will know them and is nearby, a credit union can be a good option, he said. If they need more intricate banking services, they may benefit from the offerings of a commercial bank.
Broker dealers, such as Edward Jones, are in the business of buying and selling securities such as stocks, bonds, mutual funds and certain other investments, Braun explained. Many of these types of firms broker investments between consumers and sellers. Because these firms have access to multiple types of financial institutions and products, they can offer competitive interest rates and, in some cases, higher interest rates than those of local banks.
These firms can specialize in a variety of investments, which offer clients an array of options that can suit their best interests, he pointed out.
“At times, fixed incomes such as corporate or municipal bonds are most appropriate, in their best interests, while other times, the FDIC-insured CDs may be in the best interest of the client,” Braun said. “In other circumstances, stocks, mutual funds or exchange-traded funds or an annuity or a combination of these, along with fixed income, may be in the best interest of the client.”
Clients’ decisions about which types of investments they want to make depend on how much or how little of a risk they are willing to take, the time horizon for investing, their income needs and other various goals such as planning for or living in retirement, he said.
As of late, CDs and fixed income investments have been popular due to higher federal rates, Braun noted.
“Every client is different and every situation is different,” he said.
Broker dealers take time to understand what is important to their clients, and what their needs and goals are, and point them in the direction that best helps them meet those needs and goals, he explained.
When looking for a financial adviser, research is key, Braun mentioned.
“You want to maybe do a background check,” he advised, adding that there are sites through which consumers can look up brokers. “You’ll get to see information about (the financial adviser) – the exams they have passed, what kind of experience they’ve had, how long have they been with that firm or other firms.”
Consumers should ask what investment options are offered, he noted. They can ask about their offerings for retirement planning, tax preparation, estate strategies, college savings planning or life insurance, and ask for referrals if those services are not offered directly within that firm. They should also inquire about fee structures.
“You want to find out the investment options and the services that they may offer,” Braun advised. “Ask around. Maybe (you) know people that have used them.”