Issue: September/November 2008

Trustees need to learn from independent trainers

“One should perform his deeds for the benefit of mankind with an unbiased approach, because bias gives birth to evil . . .”

Pension fund trustees might be forgiven lack of familiarity with the quotation from the Rig Veda – the ancient Indian sacred collection of Vedic Sanskrit hymns dedicated to the gods – but appreciation of impartiality should be a prescr

Which is why their training should come from an organisation entirely independent of their fund’s administrator and consultants.ibed condition.

The Rig Veda is counted among the four canonical sacred texts of Hinduism known as the Vedas, and is revered by Hindus around the world.

Its verses are recited at prayers, religious functions and other auspicious occasions, putting it among the world’s oldest religious texts in continued use.

Trustees need not go as far as praying, but the principle is worth committing to memory.

Today’s trustees are under enormous pressure to act with far more diligence and understanding.

New, complex changes to the Pension Fund Act impact funds in different and sometimes unexpected ways.

Regulatory authorities demand a greater level of knowledge, understanding and proactive involvement from trustees in performing their duties.

Fund members, more informed than ever before, demand that trustees manage their funds not just more knowledgeably and competently but, most importantly, transparently.

Because members are exposed to greater risks in Defined Contribution Funds than they were in the previous Defined Benefit eras, they expect trustees to implement risk management strategies to help them mitigate the pitfalls.

Trustees must also reinforce their own competence by ensuring they remain fully informed on developments in the retirement fund industry.

Their need for knowledge and competency has increased substantially.

Trustees must be fully aware of, and focused on, ‘what they have to know and what they have to do’ in discharging their fiduciary responsibilities to the fund.

Repeatedly, the National Treasury and the Financial Services Board have emphasised the need for trustees to perform at a much higher level and to maintain it.

Yet, of course, trustees come from a variety of occupational and educational backgrounds that do not necessarily prepare or qualify them appropriately for the complexities of managing a retirement fund.

So the value of effective, meaningful training cannot be overstated.

However, while much of training they’re given focuses on technical aspects (understanding the rules, legislation and regulations, financial statements, actuarial reviews and so on) or on exercising fiduciary duties, it overlooks one of trustees’ most fundamental functions.

Trustees have to select and manage a team of service providers – the benefit consultants, actuaries, administrators and investment managers - who will fulfill the functions the board of trustees delegates to them.

In selecting the team, trustees must:

  • identify the services the fund needs to outsource;
  • invite potential providers to tender for the business and then select the successful candidate;
  • act with as much professionalism and diligence as they would if they were selecting an executive;
  • identify the critical issues to be covered;
  • identify and manage any conflicts of interest between service providers;
  • identify the feedback they need if they are to manage service providers effectively;
  • set all this out in a service contract; and
  • periodically review of the competitiveness of the service provided.

It’s now that they must remember the Rig Veda.

The people who train them to do all this, must be ready ‘to perform their deeds for the benefit of mankind’ or at least for the trustees and their fund members.

They must be independent, disinterested, non-aligned.

Can a trainer do an effective job if he worries about stepping on the toes of sister organisations who provide the fund with services other than training?

Can he do so if he hesitates to question the performance of the fund administrator associated with his employer, or the benefit consultant or, worst of all, the investment manager?

If he is not independent, can he guide trustees in evaluating whether the fund is getting an effective service?

Will he raise issues that might cause a sister organisation to wriggle with discomfort about its service to the fund?

Fundela has heard, for example, that a consultancy operation of one major player in the South African retirement fund market demands to scrutinize training material before its training arm delivers it.

Would anyone believe this is just to see the quality of the material?

The consultancy wants to be sure that there is nothing in the training that might jeopardise its other, much more lucrative, business relationships with the fund.

In an industry where incestuous relationships between benefit consultants, actuaries, administrators and investment managers tend to be the norm, it’s essential that trustees know what to look for when they appoint and manage service providers.

Jeremy Andrew

They won’t learn it from a trainer who has links to the fund’s other service providers.

* Jeremy Andrew is a partner in Fundela Financial Education, a training organization founded and managed by working trustees. It has no association with any benefit consultancy, investment manager or administrator. Fundela will run a three-day public trustee training course in Johannesburg on 3-5 November. For further information, please contact Carol on 0836752828 or

By Jeremy Andrew *