Firing Line: John Reeve
John Reeve, chairman of the Association of Financial Mutuals, talks to Melanie Tringham about demutualisation, the FSSC and the limelight that mutual societies have found themselves in post-credit crunch
The mutual sector has become rather fashionable of late. The Coalition Government keeps banging the drum about the 'Big Society', which could be interpreted as an exhortation for us all to pitch in, while the shareholder-owned banks fared much worse than the mutuals in the financial crisis..
Amid all this change steps John Reeve, the newly-appointed chairman of the Association of Financial Mutuals. He claims that mutuals, unsurprisingly, have come to the fore, and are being exposed to the spotlight like never before.
Mr Reeve, who is also chief executive of Family Investments, says: "I think the opportunities are interesting and exciting. The government is looking for solutions for its 'Big Society' ideas, and I think the mutual model [presents] the opportunity to play into that.
"We need to come out and say, this is a particular challenge, and this is what the mutuals can do. We have already heard that the Post Office is considering mutualising its operations.
"A mutual does not need to satisfy shareholders, and it is a more efficient way of delivering financial products, mutuals are consistently paying out larger amounts than their shareholding counterparts.
This is for the simple reason that the capital for running the business is provided by the customers, so that there is the common interest, whereas for a listed bank, it is shareholders that have to be satisfied.
Mr Reeve says: "The proof is in the pudding. For many years, mutuals have paid out better returns than shareholding companies, it has been demonstrated for many years. In lots of ways, it is a more effective solution to a particular challenge.
"I think it is important that the mutual is able to offer the clients of IFAs better value for money products, especially as we move into a fee-based environment.
To add to the argument, Mr Reeve says that the poor performance of the building societies that demutualised, most notably Northern Rock, is testimony to the problems that ensue with a different ownership.
"I cannot predict the future but I do not see any reason why mutuals should [fall out of favour]. People have now started to think what we lost by the demutualisations of the 1980s and 1990s."
However, it is not all plain sailing for the financial mutuals. One of the biggest issues is the steep rise in the FSCS levy to take account for the collapse of Keydata, which has been roundly criticised by IFAs.
"There is no doubt that rather like the travel industry, it is a responsibility of the financial services community to support those that have lost out, but it is an interesting contrast with Equitable Life.
Many policyholders of Equitable Life are getting 22 per cent of their 'relative losses', from the government, whereas Keydata claimants are getting much more of their losses, all paid for through an interim levy from the FSCS.