Better to bank with a mutual

EVERYONE'S talking about mutuality again. Some people think its days are numbered. They will tell you that Equitable Life and Standard Life are two big nails in the coffin. Besides, isn't the idea of customers actually owning their business a bit quaint and old-fashioned for the 21st century? Well, no. It's true that mutuality is an old and well-established concept. But the values that led to the growth of the mutual movement in the 19th century are still relevant today. Building societies were formed to enable ordinary people to save for the future and borrow to buy their own homes. Ring any bells? Today, people still want the same things. They also want to do business with people they can trust. Mutuals have a crucial role to play in the financial services marketplace. But to do so, they must be well-run and modern in their approach. Levels of corporate governance must be seen to be high. Mutuals should not have lower standards. At Nationwide, we always ensure we can meet and exceed the rules for public limited companies. For example, Nationwide discloses directors' pay and puts this to a vote, despite the fact that this is not a legal requirement for mutuals, only for companies listed on the Stock Exchange. Directors are directly accountable to our customers - we call them members. All board directors are elected by members and have to stand for re-election regularly. That serves to focus directors' minds on exactly what members want. If members are unhappy with the way their society is being run, they can nominate and vote for others. It's a simple process and it works. We've had a contested election every year for more than 20 years. Modern? Very much so. Modern mutuals bring dynamism and innovation to the market. Some of the best deals for mortgages, savings, loans and credit cards consistently come from the mutual sector. We have an impressive track record of delivering long-term good value. Without shareholders clamouring for a dividend, we have an inherent advantage. There is no extra mouth needing to be fed. Nationwide's philosophy of delivering better value in a way that is fair, honest and transparent produces tangible benefits for members - we have returned around £2.7bn to members since 1996 through better interest rates and fewer fees and charges. Other mutuals have a range of similar ways of rewarding their members. Mutuals are making a difference, not just to their own customers, but for all consumers as well. For instance, credit card issuers have followed our lead and introduced a summary box in their literature, which explains the key features of their plastic. Similarly, Nationwide has been pivotal in ensuring that cash machines which charge customers carry early warnings. Our approach to mortgage pricing - with all our deals available to all customers - has found favour with many new and existing borrowers. After all, why should new borrowers get a better deal than those who have been loyal to an organisation for many years? OURS is a business model that lets us take a long-term view, rather than rush for short-term profit. So we have taken a stand on outsourcing call centres abroad. I have received a tremendously positive response from many people since we declared that we would keep our call centres in the UK. We are just not prepared to outsource our key contacts with our members. I'm not claiming that mutuals are perfect, or that plcs are always to be mistrusted. At Nationwide we can and do offer people the chance to be a real stakeholder in their organisation, with a different relationship to that of a shareholder. We are bringing something distinctive and different to the marketplace. Who needs mutuals anyway? I think we all do.

Philip Williamson is chief executive of Nationwide Building Society

Insurance Bosses under Fire over Savings Risks

By David Winning, City Staff, PA News

Insurance bosses today came under fire from MPs for failing to highlight clearly the risks involved in investments such as endowment mortgages. Appearing before the Treasury Select Committee, the heads of Aviva, Prudential, Legal & General and Standard Life conceded the savings process was too complicated at present. Consumers currently made investment decisions using a 20-page document setting out the key facts which MPs likened to a novel and an encyclopaedia. “Can we get to a point where the customer can pick up a brochure, look at it and see at a glance how risky a product is?” urged James Plaskitt, Labour MP for Warwick and Leamington. Solutions suggested by MPs included standardised risk ratings and a summary box on the front of the document that stressed the balance between risk and potential rewards. Angela Eagle, Labour MP for Wallasey, called for a traffic light system where the riskiest investment was marked in red. In response, the chief executives said it was essential for the reputation of the financial services industry that consumers “get what they are expecting”. However, Aviva chief executive Richard Harvey said the use of red as a warning might put consumers off potentially lucrative investments and make them overcautious. The insurance industry was working with the Financial Services Authority to make guidance clearer, he added. The chief executives said consumers had to shoulder some of the responsibility when stock markets fell and the value of their savings collapsed. Legal & General chief executive David Prosser trumpeted the value of independent advice and said: “I don’t believe consumers are stupid but are capable of making decisions.” He added: “People need to understand the product, but where that product fits in terms of their aspirations and their future life is best left to them.” During the questioning, the chief executives were accused of having a “cosy relationship” with Independent Financial Advisers (IFAs) that sold their products. This led to many consumers being stung for high commission rates on products that were unsuitable, something the chief executives denied. “Is advice merely a euphemism for selling?” said Robert Walter, Conservative MP for North Dorset. The reputation of the financial services industry has been dented this year by criticism over the way products were sold and how people were kept informed about their investments. Around 80% of the 8.5 million endowment policies still in force are unlikely to pay off the mortgages for which they were taken out, with average shortfalls of £5,500. Committee chairman John McFall, the Labour MP for Dumbarton, said it was important that watchdog Financial Services Authority (FSA) was given a higher profile as “a number of consumers may not even have heard of it.” His comments came as the FSA said it was changing its rules to require firms explicitly to warn people with endowment policies when their right to complain about mis-selling expires. Today’s move was described as “long overdue” by the Consumers’ Association, estimating that thousands of people may be in the dark about the time-bars.