VIDEO: What is a mutual?

what is a mutual

Mutual’s have been around in the UK since the 1800s, and still play a huge role in the makeup of our economic structure. The societies were set up originally to allow “members” to contribute to a mutual fund and be able to receive benefits to help in times of ill health or as they reached old age.

Mutual’s proved so popular with workers, at a time when bank accounts or credit cards simply weren’t available, that it is believed that there were around 27,000 registered mutual  societies in the UK.  (1)

The main reasons for their popularity at the time were that the societies were owned and run solely in the interest of the members themselves and that they allowed members to take better control of their finances.

The total number of mutual’s began to decline after the Welfare State was introduced to the UK in the 1940s, but it was estimated that as recently as 1995 over half the UK’s insurance industry was still in mutual ownership. (2)

How do today’s mutual differ from banks?

Where banks are primarily companies, many of which are listed on the stock market, run essentially for profit and the interest of their shareholders, mutual societies are run purely in the interest of their members.

The members are in fact the owners of the business and each has a vote and a say in the running of the society. They are actively encouraged to attend and speak at meetings about their society, and can contribute towards major corporate decisions.

Mutual societies have no external shareholders to pay dividends to or answer to. The money earned in the business is re-invested to provide improved products and services to meet the members’ financial needs.

How do mutual contribute to the UK economy?

While the total number of mutual organisations in the UK may have declined, they still make a valuable contribution to the economy. Their main values can be described as:

– Creating diversity in business and exerting competitive pressure on profit-seeking companies

– Providing competition and choice for consumers across a range of markets

– Operating to longer-term business strategies designed to keep them accountable to their users and the public at large.

–  Spreading wealth throughout the country and helping to re-build and maintain public trust in business

How do the benefits mutual provide differ from those from banks?

Difficulties faced by a number of the biggest names in the UK financial market may have had an adverse effect on the public’s confidence and trust in some commercial organisations.

However the underlying ethos of mutuals of putting their members’ interest first in all they do has gone a considerable way to readdressing the balance.

Mutuals look to provide greater transparency, a belief in social responsibility and more stability in their financial structure. Because they are owned and answerable solely to their members, their primary focus is on how to improve the products and services offered rather than looking to  increase returns to shareholders.

This attitude is also reflected in their staff’s approach to customer service. Independent research (3) has indicated that customers report higher levels of satisfaction with the service they receive from staff employed in mutual organisations

  3. The Mutuals Yearbook 2013

Please note: All information within Your Resource Centre is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given. The information reflects the view of the author and not that of Shepherds Friendly Society.

If you’re not sure what to do when making financial decisions then you should consult a financial adviser, who will likely charge for any advice that is given.

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Shepherds Friendly Society was founded in 1826 by a group of people who shared the same interest – providing financial security to each member of the society when they lost their regular income due to sickness or injury. Their money was pooled together and when a member needed it, they were able to access the fund and keep a regular income until they returned to work. While we have adapted and modernised significantly since then, the same underlying premise behind the company remains in place. This is mutuality.

A mutual society, owned and run by you

A mutual is a company that is owned by those who have the biggest interest in the company, in our case our members who have invested their own money with us. In being mutual we don’t have external shareholders to pay dividends to or to make key decisions, meaning that more of the profit that we make goes straight back to our members as bonuses on their investments.

This means that, unlike a bank, not only do you have a say in how the society is run, but you also get potentially greater returns on your investments.

How does it work?

We don’t have any external investors or anyone with a financial interest in the company apart from our members. We make a profit by taking the money our members save with us and investing it responsibly in assets that make a return on the amount invested.

The better the investments perform the more profit we make and the more money we can return to our members in the form of annual bonuses. Because we don’t have external investment we don’t have anyone else to pay any of the profit we make to, and this means you could potentially make more from the money you invest than with a company that is not a mutual.

The Association of Financial Mutuals

As a financial mutual society, we are a member of the Association of Financial Mutuals (AFM). The AFM is the trade body that represents mutual insurers in the UK. You can use the AFM website to find out more about the benefits of mutuality, and to see the importance of mutuals to the wider economy in the UK.

Please note: All information within our news stories is correct at the time of publication, and we make every effort to keep content accurate. However sometimes information may be out of date. You should not rely on this information when making financial decisions as no financial advice has been given.