Why the battle to protect the UK’s mutuals matters more than you think

Until recently I’d heard of most of the mainstream mutuals, including the likes of Nationwide, Royal London, LV=, and NFU Mutual, but couldn’t really have told you why they were that different to any other big, glossy financial services brand.

After finally getting around to buying income protection from LV earlier in the year, I was invited to take part in the key LV members’ vote on whether to stay as a mutual or be sold to the US private equity firm Bain Capital for £530m.

It wasn’t the only offer for the insurer, which has 1.25 million members. Fellow mutual Royal London had put in a bid, saying that it would keep LV= as a mutual, yet this was rejected.

Insurers, building societies, credit unions and friendly societies all make up what is known as mutuals and they exist all over the UK, offering financial products and providing an alternative to traditional banks.

So what was everyone getting so upset about?

The vote happened because LV=’s chief executive, Mark Hartigan, had argued that the insurer needed to demutualise in order to survive. The potential sale, which had been criticised by several groups and politicians, would have meant LV= losing its mutual status.

This week, however, members of LV=, formerly known as Liverpool Victoria, stood up against the decision and voted against the sale.

Members would have received £100 each if the sale had gone through, but not enough voted for it, arguing among other reasons that the value of the sale did not match the status of LV= as a mutual.

The 178-year old insurer, first set up to cover the funeral costs of those in Liverpool who weren’t able to pay for them, certainly has problems, but what’s clear is that for now it will remain as a mutual.

But what role do mutuals have in our society? As the LV= deal shows, they are owned by their members, yet the benefits of these companies, who pride themselves on focusing on people rather than profits, are wide-reaching.

Mutuals offer an ethical way for consumers to borrow, invest and protect their money. Most are more than 100 years old and were set up specifically to benefit a local community.

While at first they may appear to work in the same way as a traditional bank, behind the scenes they operate very differently.

To start with, there are no shareholders; they are not-for-profit organisations, and a mutual’s board and management team make decisions for the benefit of members.

This means every decision made should benefit a current or new member, and not create more money for the company. This is arguably the most distinctive aspect of a mutual, and that which sets it apart from the high street banks.

However, they also offer competitive financial products, some which are market leading, and aim to provide all members with affordable options.

Mutuals must serve all members, including those on lower incomes. Credit unions, for example, offer many people a viable alternative to the big banks. They are a bridge between expensive short-term lenders and banks that often are unavailable to them because of their credit history.

Gina Fusco, strategy and marketing director at NFU Mutual, explains: “As a mutual, we do not operate to maximise profit for shareholders but to sustainably deliver products and services that are valued by members, whilst supporting farming and the wider communities that we live and work in.

“For more than 100 years, our mutuality has enabled us to embed a customer-centric culture, built around our philosophy of combining high-quality products with local personal service.”

During the pandemic, all financial institutions have had to step up and help customers who have struggled, from mortgage holidays to interest breaks.

This was the same for mutuals. OneFamily and Foresters Friendly Society, for example, handed out thousands of pounds in special grants designed to help members who were struggling financially.

They’re also committed to helping those unable to get a basic bank account, known as the “unbanked”. Care helplines to assist members with wellbeing issues, legal aid, emergency financial help and mental health advice are offered by many mutuals. Some of the big banks, notably HSBC, have also been working to help this group.

Yet perhaps what mutuals are best known for is their work in the community. From funding local projects to donating money to charities, working to help local people is part of why mutuals were first set up and it remains at the heart of how they operate.

“Supporting the communities in which we do business is a key part of what ‘mutuality’ means, and that means giving time and money,” says Martin Shaw, chief executive officer of the Association of Financial Mutuals.

“Many of our member firms encourage their staff to volunteer for good causes and allow them time to do so, as well as making donations,” he adds.