What is a retirement fund administration service worth to you? Part 2 by Tilman Friedrich
Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He is a member of the legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.
In the previous column we posed the question in the headline and commented on, what we believe to be a distorted focus on the cost of services in the retirement fund industry in SA media. This is patently out of self-interest of fund administrators specifically, who aim to herd private funds into their umbrella funds, unfortunately with the full support and cooperation of the SA regulator!
The Retirement Fund Solutions service philosophy is to be sensitive to the needs of our clients, first and foremost. In accordance with good corporate governance principles, we believe it is essential that retirement funds place emphasis on independence between their service providers (e.g. administrator, consultant, actuary, insurer, investment manager) to ensure that adequate ‘checks and balances’ are in place throughout.
More often than not, this produces higher aggregate costs for a fund than placing all services with a single service provider. However, what value do you place on improved governance and a significantly reduced risk? In the absence of such independence, trustees are highly exposed to legal sanction in the event of things going wrong or member expectations not being met. It is our philosophy to focus on the area where we believe to offer a superior package, namely day-to-day fund management.
When appointing different service providers however, trustees are well advised to ensure that compatibility exists between them so that they are not continually required to arbitrate, or to fear that their fund will be disadvantaged through intense competition between its service providers.
We also believe that on-going administration services require broadly based management experience, an in-depth knowledge of administration, finances and accounting aspects, pension, tax and related laws, and these are best provided on a ‘retainer’ basis (i.e. agreed range of services on an on-going basis for an agreed fee). Although fund management costs can be a factor, they are relatively ‘immaterial’ in relation to asset management costs and reassurance premiums and should be viewed in the context of the level of experience, resources, skill and qualification employed. Typically, inferior fund management becomes evident only after many years, when it is too late and the ‘wheels have come off’. Short-term cost advantages can, in this manner, prove to be very expensive in the long-term.
Trustees can thus rest assured that an exceptionally high level of expertise will be applied to the business of their fund at all times. Those trustees that approach their fiduciary responsibilities towards their fund without proper regard to the requirements of the Income Tax Act, the Pension Funds Act, the rules of their own funds and other peripheral statutes, are likely to experience our services as frustrating at times. We shall protect the interests of the Fund, its members and the trustees without compromise, thereby living up to our credo to provide ‘rock solid fund administration that lets you (the trustee) sleep in peace’!
How much do you think you can afford to pay for this additional assurance, or ‘peace of mind’. Alternatively can you afford to shoulder the increased risks your fund may shoulder for a lower fee on offer?