The Financial Services Board (FSB) has taken the first step towards preventing conflicts of interest which arise when a retirement fund is serviced by a single financial institution. The FSB is contemplating implementing further measures.
These conflicts of interest are particularly acute if a retirement fund's asset management consultant and asset manager come from the same, or an associated, financial services company. In such cases, trustees may find it difficult to assess whether their funds are being properly managed.
The range of services provided to funds includes:
- Consultation on asset management, actuarial valuation and group life assurance;
- Asset management;
- The provision of group life and disability assurance benefits linked to the fund; and
- Individual advice and investments for members retiring.
One of the large financial services companies which provides this whole range of services is Alexander Forbes, mainly through its associated asset management company, Investment Solutions. The major life assurance companies also provide retirement funds with all of these services.
The FSB has ruled that, as of June this year, pension fund administrators wishing to administer the investments of retirement funds need to obtain the approval of the Registrar for Pensions. Separate approval is required to administer benefits.
The registrar may attach certain conditions when granting approval.
Dube Tsidi, who is in charge of regulating retirement funds at the FSB, says the board is also compiling a code of conduct for fund trustees which is intended to guide trustees on issues of conflict of interest.
Recently, Trevor Manuel, the Minister of Finance, told Personal Finance that he was concerned about pension fund trustees being given incentives to favour certain service and product providers.
Tsidi says the FSB is investigating various cases of inducements being given to trustees and other officials.
Meanwhile, the Actuarial Society of South Africa (ASSA) is due to hold meetings next month to deal with conflicts of interest involving the actuarial profession. The ASSA's code of conduct already contains provisions governing conflicts of interest, and the meetings will consider making these provisions tougher.
Last year, Personal Finance raised with the ASSA the issue of the conflicts of interest which occur when the same actuaries and/or actuarial companies advise both company managements and their sponsored retirement funds and medical schemes.
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