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What is a Mutual Company?

by My Journey to Millions

How would you feel if you weren’t a customer but rather an owner of your life insurance company? How about if you were an owner of your investment company, rather than just a plain account holder/customer?  Imagine a world where the company theoretically cared about the customer because they were owners of the companies.  Although associated with life insurance companies, Mutual Companies can be found in other aspects of the personal finance world.  I think at their base roots mutual companies are a very interesting way of doing business.

What is a Mutual Company?

Uncharacteristically, Investopedia actually doesn’t provide much insight with their definition,

A private company whose ownership base is made of customers. Also referred to as a “co-operative”.

Luckily wikipedia provides a little bit more insight,

A mutual, mutual organization, or mutual society is an organization (which is often, but not always, a company or business) based on the principle of mutuality. Unlike a true cooperative, members usually do not contribute to the capital of the company by direct investment, but derive their right to profits and votes through their customer relationship. A mutual organization or society is often simply referred to as a mutual.

So basically, a mutual company is collectively owned by the customers (obviously with a board of directors and normally C-Level Executives).  There are no external shareholders to pay out!  As such there are no worries associated with day to day stock price fluctuations, and if taken to a logical conclusion, no need to worry about short term stock price increase at the expense of long term growth.

Examples of United States Mutual Companies

  • Most Credit Unions – They are owned by the depositors
  • Various Insurance Companies, but not all – MassMutual, The Guardian, Liberty Mutual, NorthWestern, I am sure there are others.
  • Two Special Investment Companies – Vanguard & TIAA-CREF

Any experience with mutual companies?

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Jenna 09/14/2011 - 1:59 pm

Not currently, although I am considering making the move from a big bank to a local credit union.

Hunter 09/14/2011 - 8:47 pm

Growing up in Australia there were several prominent organizations structured this way. One interesting example was the AAA equivalent. It became so large that it demutualized, issuing stock to all members for their share. It was a nice payday if you were a member at the right time.

Evan 09/18/2011 - 11:01 pm

How is the company doing now that it has to answer to short term demands of the market?

Hunter 09/19/2011 - 7:35 am

I just checked them out, and it looks like they have returned to being a mutual organization again…unless I had my wires crossed. Maybe it didn’t work out?


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