NEWS & OPINION
31 December 2019
The critical role played by beneficiary fund trustees
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he role of beneficiary fund trustees in protecting the interests of minor beneficiaries cannot be underestimated. By doing their fiduciary duty, trustees play a critical part in changing children’s lives by helping them to be financially resilient and as self-sufficient as possible as they approach adulthood. It can be a complex job. There are lots of tricky cases and, although the law governs decisions, trustees do often have final say. It’s easy to feel overwhelmed by the depth and breadth of responsibilities. Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds and Umbrella Trusts, says it’s pivotal to have a diversified board of trustees to foster absolute impartiality and ensure there are myriad perspectives being brought to the table. “Diversity is critical for good governance. It facilitates the robust discussions imperative to fair decision-making. It’s the best way to challenge innate biases and ensure the interests of minor beneficiaries are central to every course of action undertaken.” Mwalo lists trustees’ responsibilities as: • Taking all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Pension Funds
Act are protected • Disclosing and properly managing conflicts of interest where they arise • Acting with due care, diligence and good faith • Ensuring proper record keeping of the fund • Ensuring proper control systems are employed by or on behalf of the trustees • Ensuring adequate and appropriate information is communicated to members informing them of their rights, benefits and duties in terms of the rules of the fund • Obtaining expert advice on matters where the trustees may lack sufficient expertise • Ensuring that the rules and the operation and administration of the fund comply with all relevant laws. One of the biggest responsibilities is making decisions around pay-outs. Mwalo says payments may be made for the purposes of the member’s education, maintenance, advancement and wellbeing from the member’s fund account at the request of the beneficiary, and subject to trustees’ discretion. When deciding on whether to make a payment, trustees need to consult the beneficiary fund’s rules, the Pension Fund Act,
TYRAN NAIDOO Compliance Officer at Compli-Serve SA
instructions from the retirement fund’s trustees and any court orders in effect (relating to divorce, maintenance, adoption, etc.). The idea is to conserve funds in such a way that the member will have something left upon reaching majority age. In addition, trustees must consider: • Current capital amount in the member’s fund account • Age of the beneficiary • Duration of the fund account • Guardian’s duty of support • Long-term objectives, e.g. capital growth to provide for tertiary education. There are also limitations to bear in mind, for example, school fees or educare payments may be capped, unless there are special circumstances. Every case must be carefully considered on an individual basis. There are plenty of examples of ‘trickier’ requests – for example, a guardian submitted a claim request asking the beneficiary fund to purchase a house for the two beneficiaries in her care. The trustees considered all the factors above, along with the Children’s Act, and decided to approve the request on condition the house be registered in
the beneficiaries’ names. In this case, the beneficiaries had enough funds to sustain them until age 18, after deducting the contributions to be made for the purchase of the house. An even tougher example would be a scenario where that wasn’t the case. Mwalo advises that trustees maintain their fiduciary duty at all times. He says that on top of the extensive training trustees undergo, they need to keep up to date with their annual CPD point requirements. “It’s vital to keep learning and to be aware of any unconscious biases. Having a diverse board of trustees will help catalyse greater impartiality and enable you to ‘bounce ideas’ off peers from all walks of life. Ultimately, you are safeguarding the interests of a minor child. You are playing a pivotal part in making young people more financially resilient.”
Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds and Umbrella Trusts
Getting real about robo-advice
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s robo-advice becomes increasingly popular with clients wanting cheaper and more accessible ways to pursue financial planning, instead of fearing the evolution of financial services as we know it, financial advisers should see the real opportunity. If used correctly to assist an adviser in providing clients with a service tailored to them, robo-advice can be an asset. An example is enabling an adviser to give clients more detailed information on their investment goals through using technology to generate information on their client’s needs, and then recommending suitable options to pursue. This happens quickly and accurately. A hybrid model comprising of robo-advice and face-to-face human interaction is the most likely outcome. This approach will also be more accepted by those clients who are tech avoiders. One of the risks robo-advice presents is that current algorithms may not be sufficiently developed to provide clients with advice on more complex products. Algorithms are essentially a set of questions used to solve a problem, so for the advice to be suitable, the series of questions will
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need to be as detailed as possible. Working through issues and finding solutions like these will ease the transition process of merging technology with a current advice model. If customer needs are more complex, such as around retirement planning, algorithms will need to be advanced enough to provide the customer with suitable solutions. Clients may not be aware of certain risks, such as an underestimated lifespan or propensity for illness. This is where human interaction may be required to probe the client and have a detailed analysis to provide the best recommendation. A word of caution, however: the speed of algorithm advancement using self-learning techniques will likely narrow the gap in the next few years. Robo-advice can also make it easier for advisers to provide quick solutions for car, household, home insurance or low-risk investments. While we advance to a more sophisticated system of fintech, it is important to remain cautious, but to also be open to possibility and how change could improve your business. In this time, FSPs may find opportunity to partner with fintech companies to obtain
the technology needed to provide robo-advice successfully, tapping into a new marketing strategy. Regardless of whether a hybrid model is used or robo-advice only, the supervisory function will always require some human intervention. Compliance officers and key individuals will need to understand the regulations of robo-advice in order to monitor and review the technological systems. Chapter 3 of FAIS Board Notice 194 of 2017 sets out the rules for monitoring that should be in place if an FSP is using robo-advice. Technological literacy is becoming increasingly important in the financial services industry and this trend will accelerate in times ahead. It is inevitable that robo-advice will continue on a growth trajectory to throw an increasingly large shadow over the financial services market. Robo-advice comes with risks attached but we should note that it is not a passing fad. It's best to get on board before it's too late. Indeed, current market players should embrace this – using technology to enhance and expand their services where appropriate – for a future-proofed advisory business to thrive.
