Issue: September/November 09


Heart of the matter

Checklists aren’t the be-all and end-all. To do the right thing, ROB RUSCONI believes, the good trustee requires humility and wisdom to sift through a maze designed to confuse.

Compliance pressure on retirement-fund trustees seems continually on the increase. The Financial Services Board circular PF130, for example, is likely in due course to pass from advisory to mandatory.

Fund advisers and product providers tend to emphasise the trustee’s growing obligations, creating packages and checklists in the process. The nature of the trustee role is both easier and harder than the impression created by the rather enthusiastic problem-and- solution packagers. It’s easier because being a good trustee is essentially about doing the right thing. It’s harder because this may not be as straightforward as it sounds.

What does it take to be an excellent trustee? Two top qualities, I suggest, are humility and wisdom.

No really good trustee would describe himself as satisfied he’s doing an excellent job. This is because the responsibility is much more about doing the best for the fund and its members than about performance that accords with a checklist. Since members have different needs and perspectives, it is impossible to act in a way that maximizes the benefit for each. Pension-fund management is really a shifting series of trade-offs, and so the job is never fully done. This is where board members can apply ‘heart’ to the issues at hand. Should trustees decide on the investment strategy for members or allow them to choose their own approach to asset allocation and investment of their assets?

Under the first, the precise needs of all members cannot possibly be met at the same time; not least because trustees cannot take into account the other assets and financial needs of their various members. Under the second, members are likely to commit serious errors; trustees must ask themselves where their responsibility to these members begins and ends.

No matter how much analysis is thrown at such problems, the decisions are matters of judgment, ultimately of ‘heart’. Analysis may illuminate aspects of a problem, but is also likely to deepen awareness of the thinking trustee to its complexity and sheer intractability.

Good trustees are humble because they recognise that serving the fund and its members is not about completing a checklist. Also, they recognise that their skills are limited. Skills sufficient in today’s environment may be insufficient tomorrow.

This is the simple side of trusteeship. It’s about doing right. Trustees trying to do right would welcome the underpin of PF130 because it supports the essence of their thinking. They’d have no problem with PF130 being formalised into regulation.

Trustees also need wisdom. Developing coherent, rigorous structures around a problem is not easy. Why might it not be appropriate, for example, to appoint the same service provider to meet all needs of the fund? On the face of it, the greater convenience and lower cost make sense.

Shrewd thought may be required. The ability of service providers to lower their fees significantly when offering the full package may signal the value – to the provider, if not the fund -- of the combined package. Can the consultant possibly provide an independent service when the administration, risk benefit and investment portfolios need to be defended?

Surely the most important problem with an all-in package is that there is no check on either the quality or the pricing of services offered by the house. Experience gathered by trustees being serviced from different sources is invaluable.

This is not to say that, where a single house is regarded as the strongest in a number of categories, it shouldn’t be appointed across these lines. But the value of wisdom cannot be overstated as each trustee mulls over the benefits and downsides of each approach.

This is the more complex side of trusteeship. Resolving to do right and actually implementing it requires something rather special. Applying the principles of good trusteeship in the face of substantial vested interests and enormous market complexity is no mean feat. And yet there are good trustees – many of them too – across the SA retirement fund industry.

In a study last year (see box) I considered the dynamics of institutional investments with some concern that things were not as they should be. Five candidate causes might be summarised:

  • Consistent evidence of confusion between the owners of pension fund assets and the agents, servants really, who serve the needs of these owners;
  • Astonishing complexity of the value chain in institutional investments, both the confusing range of products offered and the variety of service providers between the pension fund and the stock (or bond) exchanges;
  • Ever-present human tendency to overweight one’s ability to select an expert to manage investments or to advise on this selection;
  • Almost ubiquitous conflicts of interest that characterise the retirement industry, making it challenging to understand what really motivates service providers;
  • Substantial information inequity between service providers, trustees who purchase their services, and fund members whose interests the trustees represent.


Several trustees seem to have relied on their fund’s consultants for summaries of Rusconi’s paper Institutional Investments: Whose Money is it Anyway? Since certain practices of consultants are criticised in the paper, it might be unwise to rely on their summaries.

Trustees should rather download the complete version freely available on It’s an easy read and immensely stimulating. – Ed.

These concerns find themselves rooted, time and again, in the activities of providers. Fortunately, there are reasons for hope. They’ll be discussed in the next TT edition.

Rusconi consults on old-age and social policy,
investments and pensions, for public and
private sector clients locally and abroad.