Jim Galbraith is quick to bang the savings drum. But, a little over a year into the top job at Scotland’s largest financial mutual, the Scottish Friendly chief executive knows he has a tough sell on his hands. Squirrelling away a few quid every month or taking out an Isa is way down the pecking order for most people whose household budgets are being squeezed by flat-lining wages and soaring bills.
Galbraith, who became boss of the Glasgow-based financial services group on 1 January 2017, is on a mission to rid us of our spend-today-worry-tomorrow mindset. And he has a simple message to drive home that notion of thriftiness: “When policies pay out we’ve rarely had people say to us ‘I wish I hadn’t saved as much’, it’s normally ‘I wish I’d saved a bit more’,” he says.
“There is no doubt that it’s a difficult environment at the moment for the squeezed middle. Real wages haven’t gone up in quite a long time and as we are focused on the mass market rather than the high net worth individuals we need to make it simple for people to save.
“People know they should be saving more but they are often put off by the jargon. It is pretty hard work. You are competing against people’s other day-to-day priorities.”
Scottish Friendly can trace its roots back to 1862. Established as the City of Glasgow Friendly Society, its name changed just over 25 years ago when the business took over Scottish Friendly Assurance.
In recent years it has undergone a significant restructuring, continuing to flourish through a three-pronged strategy of organic growth, mergers and acquisitions, and business process outsourcing.
Galbraith officially took over the reins from Fiona McBain at the start of last year, moving up from the role of deputy chief executive. Having previously been finance director of Scottish Friendly, McBain presided over a period of rapid growth during her 11 years at the helm. Under her leadership, the mutual’s assets grew by more than 50 per cent to some £2.5 billion, new business expanded by 400 per cent while membership increased by more than 100,000 to about 500,000.
Full-year financial results last month showed that the business was maintaining a largely positive trajectory. Revenue amounted to £44.8 million last year, a year-on-year jump of about a third. The increase was mainly attributed to better sales of protection products as well as higher demand for investment Isas from the firm’s direct marketing operation.
Protection sales jumped by half to £32.3m on the mutual’s business partnerships with brands such as Beagle Street, Smart Insurance and Union Insurance.
Investment sales in 2017 overall were “similar” to 2016, and while there was lower demand from its business partners, investment sales from Scottish Friendly’s own brand distribution grew by 38 per cent to £10.1m.
Galbraith is content with the performance over the past year, arguing that it “demonstrates the progress that a well-run mutual can make”.
He says: “We were very pleased with the results and that was on the back of record sales the year before. You always feel satisfied when you get a bit of momentum.
“It was across different sectors as well. We have two main aspects to our sales, There are the things that we sell under our own brand, largely direct to clients and over the web these days, and that was a strong performer last year, which has provided our core organic growth.
“We have also increasingly diversified into partnerships and there too we had a good year. I am pleased that we have been performing strongly in both of these areas.”
The bulk of the firm’s own-brand business is generated via the internet though traditional inserts and mailshots are still employed. With competition in the sector intense, considerable resources are directed at search engine optimisation.
“It is a very fast-moving channel,” observes Galbraith, who studied mathematics and statistics at Heriot-Watt University in Edinburgh and gained an MBA at the University of Warwick. “Our team here has learnt a lot in the past few years. You need to be constantly on the ball as to who you are up against and where you are in the search rankings.”
The firm is proud to be one of the largest mutual life offices in the UK, and the biggest indigenous player north of the Border, but its boss does not see that status as a particular selling tool, despite competing against larger rivals whose reputations were tarnished by the financial crisis.
“When we talk to customers, mutuality is not top of their list of reasons to deal with us,” notes Galbraith. “I think most people like it as a concept but I don’t think it’s enough to persuade them to work with us or invest with us.
“We feel that the mutuality status allows us to look further ahead and invest in the long term. We don’t have pressure such as stakeholders or dividends, and that’s all to the good especially in the industry we are in.”
Scottish Friendly has a headcount approaching 120 when part-time working is factored in and Galbraith sees the potential for steady growth on that front.
“We can add quite a bit of scale to the business without increasing the headcount but we are gradually increasing the team, and expect to add five or so this year,” he says. “We are anticipating 5 to 10 per cent growth in sales after a couple of very strong years but that is subject to external factors and we are probably just a bit nervous about where the markets are. It just feels harder this year. Brexit seems to have dampened the real economy.”
Galbraith, whose first job was as an actuarial trainee at Scottish Life, believes that customer trust has “not fully recovered” following the financial downturn, compounding the challenge in persuading people to save.
“There is a trust issue across the board both in terms of big-name companies and with certain products. Pension schemes are no longer perceived as blue ribbon safe. It only takes one or two bad apples to spoil the whole sector.
“With interest rates so low, it does put people off saving. There’s a ‘why bother, I’m not getting anything” mentality. That’s why we try to move some people towards a little bit more risk, with the likes of a with-profits product or a managed fund or a UK tracker.”
The mutual’s recent expansion strategy has included mergers and acquisitions. In 2007, it took over Scottish Legal Life, while in 2015 it acquired Marine & General Mutual, doubling Scottish Friendly’s assets under management.
The M&A activity is likely to continue, thanks, in part, to the firm’s “very efficient back office systems” giving it the capacity to take on books of business and “run them more efficiently”.
“The M&A is important to us but it can be quite opportunistic,” admits Galbraith. “You can have nothing on the go and then two or three prospects come along. There is more consolidation to happen in the sector and we definitely want to be part of that.
“If someone came along and made a silly offer we would probably have to consider it but we see ourselves very much based up here with a good team and lots of experience.”
One factor that Galbraith readily confesses is outwith his control is the current stock market volatility. There is also the prospect of a fresh hike in UK interest rates later this spring, followed by further increases over the next couple of years as the Bank of England embarks on a period of monetary tightening to control inflation.
“The jury is still out,” says Galbraith. “A lot of people feel it is a market correction and the economic fundamentals remain sound. The UK is probably a bit of a laggard, but there is a lot of nervousness about the unwinding of quantitative easing and the pace of interest rates.
“You are hoping that it is going to be a nice smooth process. Markets have had a really strong run so it’s no surprise that there has been a correction. Volatility has been very low so it’s no surprise that it has jumped up. There is probably still some fear that a bigger correction is due at some point in the next year or so.”