What is Consulting? Does it need to be independent?

What is an independent consultant and what do they do?

Who all contributes to the effective running of a retirement fund?•Administrator to manage administration records•Actuary to evaluate assets versus liabilities•Benefit Consultant to advise on “best of breed’, market trends in benefit design and impact of changes in legislation •Investment Consultant to advise on appropriate investment strategy given the liabilities the fund has•Investment Manager/s who manage the assets within the mandate•Insurers who underwrite the risk benefits•Auditors appointed to prepare and review annual audit•But who makes the decisions and is accountable?

Role Players

The Board is fully responsible?•To appoint the Administrator, Actuary, Benefit Consultant, Investment Consultant, Investment managers, Insurers ,Auditors etc•They are accountable to the members to ensure:• They have appointed adroit, reputable and capable

Administrators who have the ability to do the job; and• They have conducted a due diligence analysis and applied their

minds to the various appointments

Board of Trustees for a free standing fund

The Management Committee delegates all responsibilities to the Board of Trustees of the Umbrella fund but they remain responsible to members to ensure that they have:•Applied their minds and performed the necessary due diligence to ensure the reliability and appropriateness of the elected Umbrella Fund.•The ability to continually monitor the performance of the chosen Umbrella Fund relative to chosen benchmarks•Have the ability to ensure good governance of the Umbrella Fund (amongst a myriad of other evaluations)

Management committee for an umbrella fund

Someone needs to co-ordinate the activities of all these stakeholders, role players and furnish the Board or Management Committee with professional, independent and unbiased advice and guidance.

This is the role and function of the independent consultant

Management committee for an umbrella fund

Consider failures in our industry

….fund members effectively have to some extent been abandoned and they are going to have to pay excessive costs that’s going to affect their retirement benefits and there’s no-one there to back them up?

“……you have fund members and a board of trustees that’s appointed with fiduciary responsibilities to act for and on behalf of the fund members. The board of trustees legally contractually engages that administrator to provide certain administrative services - should

the administrator fail to deliver the services then by the law of contract it’s the board of trustees that needs to take the necessary action against the administrator…..”

Extract from interview on Summit TV

Complexity

• There is little doubt that retirement funds and investments have always been difficult and complex for the layman to understand.• In recent time the complexity has been exacerbated by 2 factors, namely:

•The government is attempting to introduce reforms to promote savings and protect the interests of employees. This has lead to a plethora of new legislation, discussions documents and Practice Notes which have to be examined and understood by Trustees; and•Increasingly with the introduction of derivatives and an explosion in

the investment vehicles available to a fund, the layman does not have the ability to evaluate these options.

Remember: The Board or Committee have a fiduciary responsibilities to act for and on behalf of the fund members.

If I manufacture widgets can I, or do I have the time, to discharge these responsibilities properly????

Complexity

• Asset Management complexity

•Mandates are complex. Can, or should the manager be permitted to write uncovered options? Should they be using swaptions in an equity portfolio?•Does the manager’s performance fee clause include a “high water mark”, does it include or exclude VAT, are the fees calculated using the arithmetic or geometric methodology?•Regulation 28 compliancy – is the fund compliant at manager level? Or does it have to be monitored at a macro level?•Hedge fund investments – should they be permitted? How?•Private equity investments – do they have a place in the portfolio?

These are questions which the independent consultant must address and answer

Conflicts of interest

"Because our retirement system is voluntary, intermediaries play a crucial role in distributingretirement savings products to customers." "Yet

intermediary remuneration may introduceconflicts of interest between them, product providers

and customers, increasing the complexity ofproducts and raising charges," the paper notes.

Conflicts of interest

"Because our retirement system is voluntary, intermediaries play a crucial role in distributingretirement savings products to customers." "Yet

intermediary remuneration may introduceconflicts of interest between them, product providers

and customers, increasing the complexity ofproducts and raising charges," the paper notes.

Conflicts of interest

"The asset management industry struggles with a problem of products often being overly

complex,with too many layers of fees and conflicting

interests, which is sometimes to the detriment of the

retirement fund members."

Role of the Independent Consultant

• The role of the Independent Consultant is to:

• simplify the choices and/or present them in an easily understood plain language• provide guidance pertaining to what the Fund should be doing in

terms of new legislation, emerging trends or current “best practices”•Co-ordinating the activities of the various role players

WHICH ULTIMATELY PROVIDES THE FUND WITH A CLEAR PATH TO FOLLOW

Other alternatives

Large free standing funds can choose:•Independent consultant ; and/or•Independent trustee; and/or •Independent Principal Officer

Smaller freestanding funds or participants in an umbrella fund :

Cannot afford or accommodate the above and therefore should make use of an Independent Consultant to advise and navigatethe path forward

Definition of Independent

 not subject to control by othersnot affiliated with a larger controlling unit (and certainly not controlled by or affiliated to 

one to the other role players)not requiring or relying on something else (especially not commission/ fees/ other 

payments from one of the other role players)not looking to others for one's opinions or for guidance in conduct where there is no conflict of interest

Thank you