Financial advice fees may hit most vulnerable, warns mutual

Tony Burdin, pictured right, the society’s chief executive, said a lot of the society’s activity was being driven by older savers who were setting up policies to protect the long-term financial interests of their grandchildren. The internet is also driving the society’s expansion beyond its traditional heartland in South Yorkshire.

During 2012, the society’s traditional premium income rose by 21 per cent to £4.21m, while membership grew by eight per cent to 8,032. Investment income increased by 29 per cent to £1.94m. Total assets rose by 20 per cent to £57.3m. The society also attracted 19,179 new policies and child trust fund accounts in 2012.

A spokesman said: “This trend prompted a major re-launch of the society’s website, with Sheffield Mutual being one of the first smaller friendly societies to provide online policy applications.”

Sheffield Mutual was founded in the 1890s to help working class people in South Yorkshire who wanted to build up their savings.

Mr Burdin said yesterday: “We are delighted with the new business figures, which show that people are looking for potentially greater returns on their savings than can be achieved on cash deposits.

“Sheffield Mutual remains the UK’s top performer for the Tax Exempt Savings Plan and the availability of this product online, backed up by traditional personal service, means we are now attracting new business from savers throughout the country.”

However, he added: “2013 will be a more difficult year because of the Retail Distribution Review (RDR), which introduced fees for financial advice.

“There is a risk that savers and investors with more modest sums might be priced out of receiving advice, but we’ve taken steps to ensure that people who can’t or won’t pay advice fees can also access our products using the web and other non-advised services. These initiatives reflect our determination to remain a successful independent friendly society, being well run, financially strong and having a growing membership.”

According to Mr Burdin, the creation of RDR could mean that more Independent Financial Advisers (IFAs) decide that they will stop giving advice on friendly society policies, because it won’t be a viable option for them.

He added: “It could be harder for low value savers to be able to access advice, that is one of the unintended consequences of RDR.

“Although it doesn’t close down the IFA route altogether, we did anticipate this trend by investing in our website, which is attracting new members from around the country.”

Sheffield Mutual’s with-profits fund achieved an overall investment return of 7.6 per cent in 2012. Policyholders will receive a total with-profits bonus distribution of £667,000 compared with £544,000 last year – an increase of 23 per cent.

The society maintained a strong financial base and its available capital increased to £7.1m from £4.3m in 2011, which is more than double the minimum regulatory margin. Free assets increased by around £1m, resulting in a free asset ratio of seven per cent, compared with six per cent in 2011.

“In terms of investment, the biggest asset is commercial property,’’ said Mr Burdin.

Mr Burdin said that the mutual bought property such as Co-op stores “very selectively” on long leases.

He added: “A lot of our policies for children have been started by their grandparents, although we are seeing a slightly younger demographic with ISAs.

“The internet is playing a bigger role and we are also using social media to spread the word.”

The financial meltdown of 2008 tarnished the reputation of many of the major banks, and rows over bonuses and mis-selling have dogged the sector ever since.

The banks’ unpopularity has provided a boost for the mutual sector.

Mr Burdin added: “We do hear some terrible stories about the banks, but people trust friendly societies.

“At Sheffield Mutual you can pick up the phone and speak to a named individual and get a personal response to an email within the hour. Being a mutual has helped us to attract and retain new members.”

Mr Burdin said the society’s growth was expected to remain at around 10 per cent a year.

He confirmed that his total pay in 2012 was £88,772 which compares with £87,210 the year before.

Yesterday, the Building Societies’ Association (BSA) called for the Government to deliver measures to boost house building and the economy as part of its submission to the Treasury ahead of this month’s Budget.

The BSA is also calling for a scheme to help homeowners defend themselves from the threat of flooding.

Adrian Coles, director-general of the BSA, said: “House building is an important growth engine for the economy and we have a desperate need for more homes. Government must do more to make this happen.

“Similarly, we now need Government to step up and do something tangible to help savers whose rates have been decimated by four years of an ultra low bank rate.

“A temporary moratorium on the taxation of savings interest would benefit millions whose self-help ethic is being eroded.”

The BSA is calling for the creation of a Minister of State for Housing with a cross-departmental mandate, and measures to speed up the release of land with planning consent to boost home building.

Chancellor George Osborne will make his Budget statement to Parliament on Wednesday, March 20.

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