March of the Mutuals

“If you want excitement, don’t work in the financial mutual sector”.

This was the acerbic aside whispered to me by a senior financial services adviser a few years ago. We were sitting at the back of a prominent friendly society’s AGM, listening to hours of petty gainsaying by some members of a sensible proposal put forward by the management. It failed. This was business as usual. And it was only day two of a four day event. 

Nothing moves fast in the world of financial mutuals.

It has taken almost a decade to convince the authorities that there is a need and a method for them to be able to raise new capital. The Mutuals’ Deferred Shares Act (now there’s a law to get the blood coursing through the veins) received its Royal Assent in March this year. However, the need for secondary legislation means that not a lot can happen before 2016.

Perhaps a liking for the quiet life with not too much change is a good thing. When it comes to people’s savings and investments, slow and steady may well be more socially useful than the high-octane and high frequency activities often associated with the big banks.  And who could forgive the industry for wanting to forget the “excitement” of the Reverend Flower of crystal meth fame and the recent troubles of the Co-op.  Certainly, being in the spotlight as the politicians’ pet financial model post-crash has hardly produced a boon.

But mutuals do indeed need to get hot and heavy. Now, more than ever, mutuals need to grab the opportunity presented by a more competitive banking environment where talk seems to be dominated by the offers of nice, shiny and clean challenger banks.

And they need to get excited about localism and scale.

Mutuals have much to offer. Not just in the “owned by customers” cri de Coeur, but also using their innate localism as a competitive advantage. We seem to be in the age of new localism; with initiatives like Northern powerhouse, decentralisation and city mayors. There will be a handful of financial mutuals, bar the outsized Royal London and perhaps Liverpool Victoria, who can trade on their authenticity as mutuals and seize the opportunity of localism, connecting more deeply with their market.

To win against the new challenger banks, they need greater scale to exploit the opportunities – and that means a faster rate of consolidation.

For the right size financial mutual, with improved efficiencies and a cost effective infrastructure, they will be able to offer new products tailored to a customer base that they know better than others. Some, like OneFamily, are already showing the way.

But even if they have the executive will, and in 2016, the ability to raise fresh capital, their biggest challenge could well be to bring their members with them. And that means management focusing on a new narrative for members; one that turns fear into excitement and innate conservatism into active support for the future of modern mutuality.

For their own sake, here’s hoping for a period for mutuals which is both newsworthy and exciting, for the right reasons.