Standalone versus umbrella funds: What to tell your clients

Companies’ search for greater costefficiencies is evident across most sectors in the COVID-19 battered economy, and retirement funds and group employee benefits are no exception. Still, financial advisers might find themselves in a position where their clients are reluctant to make the shift from standalone funds to umbrella funds.

While it is ultimately the client’s decision, there is a strong case to be made in favour of choosing an umbrella fund, as Rochélle Cloete, Senior Manager, Product Solutions at Momentum Corporate, explains. The right umbrella fund is likely to offer your clients greater flexibility and additional value.

Here are some important points to discuss with your clients:

Greater efficiencies, reduced costs

As the regulatory pressure and governance standards rise, time commitment and advice risk increase for employers and trustees. This is why more employers are replacing their traditional standalone retirement funds with umbrella fund arrangements that have the expertise to tick all the regulatory and governance boxes. They may also offer the most costeffective retirement and insurance benefit solutions. The economies of scale and operational efficiencies these umbrella funds offer, reduce costs for the employer and employees. Ultimately, this makes it possible to channel more money to members’ savings.

Improved flexibility

There is a school of thought that umbrella funds lack the flexibility that standalone retirement funds offer. However, this is not true of all umbrella funds. Some umbrella funds consciously design flexibility into the benefits available to members. Once the employer has made certain initial choices at group level, which they believe are suitable for their employees, flexibility at member level allows employees to shape their retirement and insurance benefits according to their specific needs. This, coupled with leadingedge digital engagement solutions, allows members to understand and exercise this flexibility much easier.

Employer retains control through advisory body

Another misconception is that employers lose control of the management of their employees’ retirement and insurance benefits in an umbrella fund. While umbrella funds are managed by a central board of trustees who look after the interests of members from multiple employers, some umbrella funds make provision for each participating employer to appoint their own advisory body. Advisory body members are elected by the employer and its employees, and help to ensure the umbrella fund addresses the needs and interests of their specific employer and employees.

New hybrid model to suit all employees

Some leading umbrella funds have implemented a new hybrid model that enables the employer to keep their standalone fund and also implement an umbrella scheme. This allows their employees to choose if they want to remain on their existing fund or move to the umbrella fund.

There is a strong case to be made in favour of choosing an umbrella fund

Today’s employees expect more immediate value

Umbrella fund members may also have access to value-added benefits that are not necessarily available through a traditional standalone retirement fund. Younger generations expect their retirement funds to add value throughout their working careers, and not just at retirement or when an unforeseen life event happens. Furthermore, certain umbrella funds have invested significantly in state-of-the-art digital platforms, which enable a more integrated service experience to help members make informed decisions for better retirement outcomes.

“The move to umbrella funds has become well established in recent years. We can expect the current economic situation to create further momentum for the conversion of standalone funds into umbrella funds,” Cloete concludes.

Rochélle Cloete, Senior Manager, Product Solutions, Momentum Corporate