Offers a good guide for unsure trustees, writes Isaac Moledi

The trustees who may feel uncertain about their ability to steer clear of unscrupulous financial services companies, following the Fidentia scandal, should look at the wide-ranging principles contained in the Financial Services Board's Circular PF130 for advice.

The trustees who may feel uncertain about their ability to steer clear of unscrupulous financial services companies, following the Fidentia scandal, should look at the wide-ranging principles contained in the Financial Services Board's Circular PF130 for advice.

Craig Aitchison, head of Old Mutual Actuaries and Consultants (OMAC), says a well-considered application of the principles contained in the Financial Services Board's Circular PF130 could go a long way toward helping funds avoid bad apples.

PF130, issued earlier this year, aims to streamline the principles of good fund governance for the trustees of retirement funds and bring together the major principles in a single document.

These principles and guidelines are not just more red tape but, if applied by all retirement funds, would improve fund governance and help all stakeholders to run funds properly and in the best interests of members, says Aitchison.

"PF130 is the best indication we have currently of post-reform governance standards.

"The principles contain guidelines for the governance of the board of trustees, the governance of fund operations and the management of stakeholders," he adds.

He says recent experience of the Fidentia scandal where millions of rands of pensioners' money was squandered, can show just how devastating the consequences of lack of funds governance can be.

Fidentia Holdings was earlier this year placed under curatorship and its executive chairman, Arthur Brown, arrested for not accounting for more than R680 million of almost R2billion taken in from various investors by its asset management subsidiary, Fidentia Asset Management.

Principle 1 of Circular PF130, for example, clearly outlines the roles and responsibilities of the board, the chairman, the principal officer and trustees.

A trustee is expected to act independently of his or her constituency, guided by a code of conduct, including a gift policy, acceptance form and a declaration of their interest.

Where services are delegated to service providers, they should be subject to regular in-depth performance appraisals. This could bring any conflicts of interest to the fore.

Aitchison says when a service provider is appointed, one should not just look at price and performance, but at a more in-depth assessment of the service provider and its capabilities.

Here a clear set of written rules about the evaluation and appointment of service providers would be critical.

Where independent expert advisers are appointed to assist a fund, he believes trustees must ask for assurances that they are truly acting independently.

Questions that trustees should be asking are:

l Is the adviser linked to a financial services company?

l What assurances can they give that they are acting independently?

"If there is any doubt in the trustees' minds they should conduct independent checks on independent consultants, because the trustees are responsible for decisions based on the expert advice given."

He believes funds should create an annually-updated risk management policy.

"A retirement fund can only explore efficient ways of dealing with risk once the risk is identified," he says.

According to him, trustees should step back and look at areas where things can go wrong for their fund, to ask themselves if they would have any protection in the face of massive governance failure.

In terms of Principle 8, all retirement funds should have an annually-updated Investment Policy Statement (IPS) to capture the complex circumstances of the fund.

Members and beneficiaries can only make appropriate financial decisions if they have an understanding of the rules of the fund and all relevant developments.

Trustees are, therefore, obliged to have a communication policy statement in place, in line with minimum disclosure standards.

Aitchison says it may not be good enough for a fund to send out a regular newsletter to its members.

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