Checklist for choosing a beneficiary fund

If you have children, especially if they’re minors, you need to have a plan for how they will receive the proceeds of your retirement fund or a payout from your life or group life policy.

A beneficiary fund is one way of protecting minor children from caregivers or guardians who may either be unable to manage money or keen to use it to further their own ends.

The fund receives lump-sum death benefits (from your pension or provident fund or life policy) and manages the money to provide whoever you’ve appointed to be your child’s guardian or caregiver with a monthly income and ad hoc payments for other essential expenses, such as healthcare or school fees.

At a recent webinar hosted by Fairheads Benefits Services, Jolly Mokorosi, an independent trustee and professional principal officer, shared her personal checklist of what she looks for in a beneficiary fund.

Mokorosi says her view of beneficiary funds has been shaped largely by her friendships with orphans she has known.

“Luke”, the fictitious name of someone she studied with at university, lost both his parents in a car crash. He had been left a trust fund, but wasn’t able to access the benefit until he turned 21.

“Before that, all the trust fund was prepared to pay for was his tuition fees and under certain circumstances textbooks. But he really struggled to cover his living expenses. Shortly after his 21st, he had 15 medical procedures to get him to full health. Watching him struggle was my first encounter with a person with a trust of any sort,” Mokorosi says.

Years later, while volunteering at a children’s home, she met “Mary” (not her real name). Though she had relatives, no-one had the means to take care of her.

“When Mary turned 16 she found out she had a trust fund and was given access to the benefits. It was sad for me that the trustees had chosen to wait until her 16th birthday to contact her. She had been in a children’s home unnecessarily.

“This got me thinking about what differentiates a good trust from a bad trust, what is the role of trustees and what could they have done differently under the circumstances.” 

Mokorosi says that when a beneficiary fund presents to her as a [retirement fund] trustee, she considers the following:

1. The fund’s standing in the industry. “Beneficiary funds are a new concept relative to other legal structures in South Africa, so I consider whether they are thought leaders in the beneficiary funds industry and do they contribute to the betterment of it.”

• What are their clients saying about them? “I ask the fund for two or three clients I can speak to about their experience with the fund. Clients can give you good insights.”
• Where do they stand with the regulator? “This sounds obvious, but some service providers don’t have the licences to do what they’re doing.” 
• What is being said of them in the media? She says it helps to do a Google search on the fund and check Hello Peter for reviews.

2. The team. “I look at who is your auditor, who is on the board, are your trustees independent and in good standing, and do you have a professional principal officer.” An absence of governance should be a red flag, she says.

3. Key performance indicators (KPIs) for trustees. Proof of existence is an important KPI, she says. “What do they do in terms of proof of existence? I’ve heard of payment being made to dead beneficiaries or the wrong beneficiary.”

Mokorosi says she also considers whether the fund prepares minors for attaining majority. “Do they just leave the beneficiary on their 18th birthday or is there a process for preparing them for receiving money? And are minors given the option to leave money in the fund?” 

Costs and expenses are important, too. “Some service providers are extravagant,” she says. Costs eat away at returns on investment of the beneficiary’s funds.

4. Communication. “This is important. How frequent is communication? Is it just the mandatory annual communication? Is the fund accessible? What’s the language policy? What’s the medium of communication? SA’s financial literacy level is low and not everyone absorbs information in the same way. A lot of the people need face-to-face communication. They prefer a person to a bot or internet access.”

5. Signs of ubuntu. Are social workers involved? Is there an understanding of the needs of beneficiaries? Is there empathy? “When I hand over this beneficiary, I don’t want a fund that’s not culturally sensitive to an ad hoc payment for initiation, for example,” she says.