In need of pro­fes­sion­al­ism

Re­tire­ment funds need cer­ti­fied pro­fes­sional trustees

Finweek English Edition - - Employee benefits -

IN AN ERA OF IN­CREAS­ING FO­CUS ON in­di­vid­ual sav­ings and the amounts al­lo­cated to re­tire­ment fund­ing, crit­ics are be­gin­ning to turn their at­ten­tion to the very trustees them­selves.

Colin Bullen, head of spe­cialised con­sult­ing at Lekana Em­ployee Ben­e­fit So­lu­tions, says: “In terms of a frame­work for the fu­ture, the big­gest word we’re go­ing to see is gov­er­nance. We need to de­fine what con­sti­tutes good cor­po­rate gov­er­nance for a board of trustees.”

Bullen reck­ons one of the prob­lems with the cur­rent sys­tem of lay trustees is that a thor­ough knowl­edge of the re­tire­ment fund in­dus­try as well as ap­pro­pri­ate in­vest­ments is of­ten lack­ing, not­with­stand­ing the cre­den­tials of the trustees them­selves.

“Trustees can be top qual­ity cor­po­rate in­di­vid­u­als that may be ex­tremely valu­able to their com­pa­nies but might not know any­thing about re­tire­ment funds,” he says.

“As far as I’m con­cerned, the days of hav­ing a board of lay trustees must dis­ap­pear into the past. We need an age of pro­fes­sional trustees to take the helm of re­tire­ment funds and han­dle the com­plex in­vest­ment de­ci­sions that this re­quires.”

Bullen says of­ten peo­ple are elected to a board of trustees based on their per­ceived po­ten­tial to rep­re­sent cer­tain stake­holder in­ter­ests rather than their ca­pa­bil­ity as trustees.

A good ex­am­ple would be when a well­liked col­league has been elected to rep­re­sent the in­ter­ests of his fel­low work­ers but may not have the req­ui­site ed­u­ca­tion or ex­per­tise to make cor­rect in­vest­ment de­ci­sions.

“With all due re­spect to the av­er­age trustee, I don’t think it’s suit­able for some­one with lit­tle or no knowl­edge of in­vest­ments to be sit­ting on a board of trustees,” he says.

Bullen says the ideal sit­u­a­tion would be for the Fi­nan­cial Ser­vices Board (FSB) along with the In­sti­tute of Re­tire­ment Funds of SA (IRF) to im­ple­ment a for­mal trustee qual­i­fi­ca­tion along with a for­mal trustee ed­u­ca­tion pro­gramme and qual­i­fi­ca­tion, which would be a step to­wards cre­at­ing pro­fes­sional trustees.

“The FSB could also in­tro­duce a re­quire­ment that you have to have at least one pro­fes­sional trustee on each board that would have to be suit­ably cer­ti­fied by the FSB and

have their per­for­mance mon­i­tored,” he says.

Bullen is also par­tic­u­larly keen to see PF130, the draft for­mal code of good gov­er­nance, ac­cepted and adopted as the stan­dard to which a board of trustees must ad­here.

“It’s stan­dard prac­tice and good cor­po­rate gov­er­nance for a com­pany to have non-ex­ec­u­tive direc­tors who are paid for their skills and ex­per­tise. I do not see why re­tire­ment funds should be re­garded dif­fer­ently,” says Bullen.

Stephan Grob­ler, prin­ci­pal of­fi­cer at Medi­cover, says he’s in full agree­ment with Bullen and be­lieves that pro­fes­sional trustees could also make a dif­fer­ence in the med­i­cal in­dus­try.

“I’m very much in favour of pro­fes­sional trustees, as that would be com­pa­ra­ble with non-ex­ec­u­tive direc­tors as in­di­cated in the King 2 re­port on Cor­po­rate Gov­er­nance.”

It’s rec­om­mended that at least 60% of a board con­sist of non-ex­ec­u­tive direc­tors. Th­ese trustees must be knowl­edge­able on the in­dus­try, must have some proof of ac­cred­i­ta­tion (sim­i­lar to what direc­tors get from the In­sti­tute of Direc­tors) and should not be linked to the scheme they rep­re­sent.

Grob­ler says they should also be re­quired to at­tend reg­u­lar train­ing work­shops as pre­sented by the Board of Health­care Fun­ders of South­ern Africa (BHF).

How­ever, not ev­ery­one agrees with Bul- len’s seem­ingly sen­si­ble sug­ges­tion.

Shan­tha Pa­day­achee, act­ing CEO and di­rec­tor of the IRF, says that pro­fes­sional trustees work­ing for re­mu­ner­a­tion don’t nec­es­sar­ily act in a fund’s best in­ter­ests. She also says that many of the so-called “in­de­pen­dent” trustees are ap­pointed by or have links to the ser­vices providers, thereby cre­at­ing a di­rect con­flict of in­ter­ests.

Pa­day­achee says trustee-train­ing re­quire­ments or qual­i­fi­ca­tions set up and funded by the FSB and Trea­sury could work pro­vided the train­ing did not be­come a bar­rier to en­try for prospec­tive trustees. “We be­lieve that the train­ing and qual­i­fi­ca­tion should be pro­vided post-trustee­ship,” she says.

The days of hav­ing a board of lay trustees must dis­ap­pear into the past. Colin Bullen

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