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Will friendly societies benefit from mutual respect?

From their origins as welfare providers, friendly societies have always had a more personal approach to financial services and although they are having to adapt to the modern world this approach is paying off.

It seems that the mood of the nation has fallen back in step with the ethos of friendly societies. Friendly societies grew out of the medieval guilds and by the 19th century had become a pre-cursor to the welfare state or modern insurance company. People clubbed together to put in small amounts of money so that they had financial support upon illness, death, or if they were unable to work through old age.

But membership fell after the introduction of the welfare state and the friendly societies that exist today have to tread a path between maintaining their traditions and moving with the times. As mutual associations, friendly societies have no shareholders. So instead of a focus on making profits to distribute among shareholders, any profits made by a friendly society are distributed to members through bonuses and benefits.

Some friendly societies specialise in savings and investments, such tax-exempt savings plans that provide tax-free savings in addition to the Isa allowance. Others focus on insurance products such as income protection while some cover savings, investments and protection.

Income protection specialist Cirencester Friendly Society distributes solely through advisers. Marketing and sales director John Bridge believes it is important for friendly societies to specialise in what they are good at. “As an income protection specialist we know what clients want. One of the good things is that clients don’t get us badgering them to cross-sell them products,” he says.

Bridge thinks friendly societies are coming back in vogue because more people understand the benefits of mutuality since the financial crisis and Exeter Family Friendly brand & marketing manager Nick Jones agrees. “While the values that mutuals stand for may be old, it doesn’t mean they aren’t just as relevant today. One of the biggest fallouts of the financial crisis was a complete loss of faith in the banks and big financial institutions. Friendly Societies and mutuals are in a great position to provide an alternative,” he says.

Jones points out that friendly societies don’t have to build profit margin into premiums. “For us, success is paying claims, continuing to grow our membership, managing costs effectively and having satisfied customers,” he says.

Being not-for-profit and small in size means friendly societies do not have big marketing budgets so some people, including advisers, are not aware of them. Some societies have dealt with this by embracing technology to market their products online and through social media, while others are drawing inspiration from the past.

Kingston Unity chief executive Andrew Townsley says 95,000 of Kingston Unity’s 100,000 members are child trust fund holders. But growing the business is on the agenda, with premium income up over the last three years from just over £1m to £10.5m.

Townsley points out that historically, friendly societies held regular branch – or ‘lodge’ – meetings so that members could pay their subscriptions, make a claim and socialise. “It was also a way of getting new members for branches. We are looking at finding a way of giving the branches back and to develop social activities within small areas to get more people aware of the society. Hopefully that will spin off into generating new members – we’re going back a little bit to what we did traditionally while remaining a modern financial institution,” he says.

Sheffield Mutual chief executive Tony Burdin says: “You have to modernise in many respects but also keep the things people like about you. For us it’s the level of service – we offer a personal service that you can’t get these days with a larger organisation.”

Factors such as this are changing the historical age profile of friendly society members. As Foresters Friendly Society marketing director Neil Armitage puts it, there are fewer called Bert and Hilda, but more called Graham and Caroline. “The legacy customer is older but over the last five years we’ve been seeing different customers via direct and indirect channels. These are high net worth individuals that are interested in us because we’ve been recommended by their IFA. They are looking for children’s savings plans for the long-term to pay for university fees but have lost faith in bank brands and don’t want to put their capital at risk. Our products won’t shoot the lights out – but you won’t lose your shirt,” he says.

The age of Sheffield Mutual’s client base is also falling. Around 10 years ago the average age for members was over 50 but it is now 44. The amount of business generated through advisers has also fallen since the Retail distribution review.

Burdin says: “Prior to the RDR we doing 80 per cent of our business through advisers. But as the RDR approached we realised there would be a shift in distribution because paying for advice on smaller plans would not be viable for advisers or their clients. So we built a new website a year ago to enable people to apply online and post-RDR, advisers make non-advisory referrals to us.”

Half of Sheffield Mutual’s business is now direct while the remainder is a mix of advised sales, non-advised sales and non-advised referrals.

IPFM director Luke Gibbon has used friendly societies in the past when arranging children’s investments for his clients but says it is not cost-effective for advisers post-RDR. “Friendly society savings plans are tax efficient but there are other ways of generating higher returns. And if a client wants to invest £100 a month or £200 a month, they are not going to want to put £25 in a tex exempt savings plan and the balance going elsewhere,” he says. Gibbon has also found friendly society fund ranges on other products to be unexciting, limited, and not priced accordingly.

But Highclere Financial Services partner Alan Lakey believes friendly societies excel in the protection area. He likes the common-sense approach they apply to underwriting compared with insurance companies that cherry-pick clients they will cover depending on the perceived risk.

“Over the past 10 years I have used friendly societies for income protection more than the insurers. They set out to offer products that meet clients needs; their claims payment record is superb; premiums are affordable and they tend to offer own occupation plans,” he says.

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There is one comment at the moment, we would love to hear your opinion too.

  1. I’ll admit to self-interest here, but how can you write an article about Friendly Societies without mentioning LV= (Liverpool Victoria) even once? Despite our size, all the nice things Alan lakey says about Friendlies are just as applicable to us!

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