Edition: September / November 2015
The need to man MANCOs
Arno Loots, head of Umbrella Fund Solutions at Liberty Corporate, discusses the
A number of reasons have led to the growth in umbrella funds and the consolidation of the retirement-fund industry. One of the main underlying factors for standalone funds to convert to umbrella funds is cost considerations.
In addition, umbrella funds offer a robust governance structure, which could be quite a significant overhead in time and effort for employers that choose standalone funds. However, when an employer joins an umbrella fund, one of the questions raised is whether the employer still has input into the affairs of the members.
Management committees, also called MANCOs, can play a significant role in ensuring that the employer stays close to matters affecting members, with the input from members.
What is a MANCO?
Legally, the ultimate responsibility for the umbrella fund lies with the board of trustees and not with the MANCO.
The MANCO, however, makes a number of decisions on behalf of the employer and members.
How are MANCOs constituted?
The size of the MANCO depends on the number of members in the employer participation. It might not be practical to set up a MANCO for a small employer, given the need to have employee representation on the MANCO.
For very small participations, the employer representative would be sufficient to manage the affairs of the participation.
The mandate of the committee needs to be agreed with the employer upfront. This is to ensure that there is alignment when decisions are made and that the retirement solution is run efficiently for the benefit of the members.
The chairperson is elected from the various representatives and a set term of office is agreed upon for those sitting on the committee.
The employer representative, together with the sponsor of the umbrella fund, is responsible for day-to-day administration of the retirement solution. It is thus essential for representatives of the employer and sponsor to be standing members of the committee.
It would also be good guidance for the “responsible person” (i.e. the director of the participating employer who’s responsible for the retirement solution) to form part of the committee. This is because the committee guides the employer in making risk and investment decisions.
From time to time, it might be necessary for the employer’s financial adviser also to form part of the committee -- particularly where the participation is relatively new.
What are the duties of a MANCO?
Some of the main decisions the MANCO will make are the selection of the appropriate risk benefits, investment portfolio, structuring of the member groupings within the participation as well as the extent of member choice.
It also provides oversight over the responsibilities of the employer representative and the “responsible person”. This will ensure that the duties of these parties are discharged as expected.
Loots . . . useful purpose
The MANCO further has a role to play in member education, particularly where member choice of investment portfolios is involved.
The umbrella fund’s board determines the full range of portfolios available for selection, but it is the MANCO that will choose the appropriate solution for the particular participation in conjunction with the employer and the adviser.
What is the financial adviser’s role?
The adviser remains one of the most important parties as he or she is often the connection between the various parties involved in a retirement solution.
In this regard, the normal duties of the adviser still apply; the only change is that the financial adviser is now accountable to the MANCO, and not to the identified “responsible person” as is usually the case. The financial adviser’s duties still include services such as advice on the appropriate benefits and portfolios.
Another important role, if not the most critical, is the financial adviser’s involvement in member planning and assisting them to make the right choices. The adviser also assists by contributing to member communication.
How can MANCOs operate effectively?
There are instances where meetings do not take place as often as they should and where meeting formalities, such as following an agenda, are not observed. It is important that meetings are scheduled regularly and that a pre-set agenda, which determines the structure of the meeting, is followed to ensure that the MANCO operates optimally.
In addition, the sponsor needs to ensure that the financial adviser, the employer and the various representatives have a framework within which to operate and manage the MANCO. Sponsors can also provide the necessary templates such as an agenda and minutes.
The future of MANCOs?
As standalone funds move to umbrella solutions, it will become more important for the original trustees to provide input into the affairs of the retirement solution. MANCOs offer the appropriate structure to achieve this outcome.
It is anticipated that MANCOs will be a requirement for umbrella participations in the future and might not be optional, as it currently is the case. This is further supported by the fact that various industry bodies and umbrella funds are working towards improving how the existing structures operate.
In the meantime, it is our belief that setting up MANCOs is good practice and offers an effective way to ensure the best outcomes for members.