Owned By You
Your questions answered
We put the questions we’re most frequently asked to Martin Shaw, Chief Executive of the AFM.
A mutual organisation is run for YOUR benefit. It does not have to spend time satisfying the financial markets, and it does not take part of your hard-earned money to pay to shareholders. A mutual is run purely in the interests of today’s- and future- customers.
There is a great amount of choice in the mutual sector, just as in any other part of financial services. We suggest you have a look at the ‘People like you’ section on our website to see what kind of products might be appropriate and who supplies them. We recommend that you ask a financial adviser for help if you are not confident buying financial products.
Mutuals tend to be smaller and more specialist that PLCs. Most offer a limited range of products, and focus on the things they do well. Have a look at the ‘People like you’ section for more information.
We’ve undertaken extensive research to prove that mutuals as a whole offer a better deal to their customers. This may take the form of higher investment returns, lower charges, superior service, or more sensitive claims handling. In each case the average mutual will perform better than the average PLC, and over the long term.
Mutuals are all regulated by the Financial Services Authority and are subscribers to the Financial Services Compensation Scheme. That means they are run well, and that in the unlikely event that anything does go wrong, there are important safeguards in place to protect you.
Friendly societies provide a wide range of products. As well as seeking to offer better performance that PLCs, they also focus on making it easier for customers to do business with them- for example they do not use overseas call centres. In addition, members of friendly societies gain important additional rights and benefits- which might include unique tax free products, specialist help at a time of need, and the opportunity to have a say in how the business is run.
When you go to the supermarket, you often have a choice between buying the store brand or specialist products. It’s the same in financial services- big banks might offer everything under one roof- but the products may not be as good value. But whilst it doesn’t really matter if a can of own brand soup isn’t very good, taking the time to choose the right mortgage or pension may be vital to your future well-being.
If you have a lot of money to invest, you should also be mindful of the amount the Financial Services Compensation Scheme covers- and spread money round to ensure you’re covered.
Being a member of a mutual entitles you to the right to vote at the Annual General Meeting or at any Special General Meetings. If you are entitled to vote the mutual will write to you in advance to explain what you’re being asked to decide on, and how to cast your vote. Most mutuals have a helpline if you need more information.
Your vote counts, and offers you a real opportunity to have a say in how your mutual is run.
When mutual insurers were first established all their policies were written on a ‘without profits’ basis. That meant the customer got back what they were entitled to, but if the mutual made any surplus above what it needed to pay its customers, the money was stored up in the organisation. Mutuals developed the concept of ‘with profits’ as a way of sharing some of the surplus with its members.
A mutual will demutualise if it feels it is unable to pursue its strategy without the need for external capital. Over the last 25 years, a large proportion of building societies and mutual insurers demutualised for this reason- though for various reasons, most demutualised organisations have found it very difficult to survive independently, and as a result any short term windfall to customers has been cancelled out by poorer service and inferior returns.
As a sector we continue to work with the Government to create legislation that provides mutuals with alternatives to demutualisation.
Financial services can be complicated. We thought it might be useful to compile a list of some of the terms frequently used with everyday explanations. Please let us know if we can add more terms.
|Bona Fide||Something done honestly or in good faith|
|Discontinue||To stop paying into a policy|
|Endorsement||Something that is added to an insurance policy document|
|Excess||This is a set amount that you would normally pay towards the cost of a claim|
|Inception Date||When cover begins on a policy|
|Material Fact||A piece of information that might affect whether you are insured and at what price. If you don’t declare a material fact when buying insurance it might affect a later claim|
|No Claims Bonus||Rewards you for not making a claim on an insurance policy. Worth adding to the cost of the insurance, especially on your car|
|Policy Conditions||Rules of the game related to your insurance|
|Policy Document||This document sets out the details of your policy and you should always store it somewhere safe|
|Premium||The payment you make to your insurance policy|
|Public Liability||Provides protection for claims made against you for injury or damage to other people or their property as a result of your negligence|
|Warranty||This is a condition that you need to comply with; otherwise any future claim may not be valid|