The Private Investor: I have fallen victim to a salvo of friendly fire

I am in possession of a note from the chief executive of the Children's Mutual, formerly the Tunbridge Wells friendly Society. Talk about Angry, of Tunbridge Wells. Actually, he's relatively good-humoured, but he is the second chief executive of a friendly society to contact me, so I may be on to something in criticising, in varying degrees, the poor performance, unfair charging structure and, in my view, misleading literature by some friendly societies.

I have had a good deal of correspondence from unhappy customers that backs my own experience with the Family Assurance Society. I will I think take up his offer of a friendly chat (no pun intended) but I would like to make a couple of points here.

First, the man from the Children's Mutual, as we must now learn to call it, claims that a 10-year with-profits policy maturing now would have yielded a return of some 4.6 per cent per annum. Not too bad, but the performance of the unit based policies, on the evidence submitted to me by disgruntled investors, is not so impressive.

And while I might admit the Children's Mutual's charges are not as badly structured as some, it is the case that many friendly societies "front-load" the charges, so your early contributions over the first year or two of a 10-year policy may go to the Society, with nothing going into your fund. That's bad because the longer your money has to be in the market and grow the better the returns, (on the whole).

But the most unfortunate point made by my friendly chief executive was his remark that "I don't understand why you have chosen to single out friendly societies for criticism". Let me explain.

First, we ought to expect better from organisations whose roots lie in self-help and community-based values. Before the welfare state, they were all most of us had. They should, I think, behave in a different manner to the big banks and life companies. As mutual societies, they are owned by their members, but there seems little real accountability. The friendlies are not alone in this. Many building society members wonder about the salaries their boards pay themselves.

I do not feel they are living up to their heritage. Small investors are not always less sophisticated or less successful than their wealthier counterparts, but, of necessity, they are sometimes less well able to find and afford the best financial advice. For these people the friendlies have a special obligation that they are, sadly, not fulfilling.

The friendly societies are, because of a tax break no government has bothered to abolish, geared towards very small investors, with policies starting from £9 per month. With such modest sums charges can easily eat into the performance of an investment, so that is all the more reason for them to be geared down and spread across the life of the plan. Often they aren't.

Another point also stems form the "tax-free" status of friendly society plans. I suspect most of the savers who invest in these plans would not be liable for much tax on the returns from their savings in any case. And any tax savings they do make could well be far outweighed by the relatively high charges. It is an old rule, but a good one, that you shouldn't invest solely on the grounds of a tax break or fringe benefit. The friendlies' fault is that their advertising relies so heavily on a benefit that may not be of much use to many in practice.

I may as well mention that, while many investment firms have high charges, I have always been impressed by the investment trust industry's record in this field, with companies including Foreign and Colonial leading the way.

As I say I've had correspondence on the bigger friendlies (Family, Tunbridge/Childrens, Home- owners), but not much on some of the obscure ones such as the Grand Order of Israel & Shield of David Friendly Society, the Rechabite, the Anglo-Saxon and the now defunct Post Office Insurance Society (bought by Family). The smaller brethren might restore my confidence. Do write or e-mail.

s.o'grady@independent.co.uk