Issue: Oct 2010/Jan 2011


E-learning for the masses

Financial Services Board makes trustee training available to all. It’s a bold initiative that deserves to be well supported.

The easiest way to get an idea of what the FSB is attempting with the launch of its e-learning programme is to get into the trustee toolkit on the website of the UK pensions regulator. It’s basically being used, with SA modifications, by the FSB.

The programme is comprehensive, logically moving from one module to the next. It provides for accreditation and, most importantly, easy access; provided, that is, on the SA version the estimated 28 000 trustees in 7 000 active pension funds have internet access. One way or another, even if only in internet cafes, it’s probable that most of them do. There’d be few without cellphones for mobile links anyway.

The horses are being invited to the water in a most encouraging initiative for helping to educate so vast a market, of varying educational levels, so critically in need of enhanced and specialised skills. Only to be shown over time, by a process of trial and error and encouragement, is how many of the horses will want to drink.

There’s no doubt that the most effective means of training is face-to-face in classrooms. But the sheer number of trustees and aspirant trustees, as well as time and cost constraints, inhibit such personal attention. Against this, e-learning can become a whole new fun exercise for the hordes broken into electronic communications by the delights of sms, facebook and twitter.
The FSB intends, by the end of this year, to develop a trustee database for e-learning; conduct a climate study of trustees’ appetite for training, and launch the pilot study to focus groups for a detailed needs analysis. The second phase, already begun but expected to take 18 months for full completion and implementation, is to develop a support programme.

The initial target is for a take-up of 7 000 trustees. The product is scalable to accommodate 28 000 “students”. It uses universal software and is a free tool. Self assessment is ongoing. Competency and outcomes-based, there’ll be certification for students who complete the courses.

Anybody interested? Many, surely. Go into, hit the Consumer Education button, then register and keep up-to-date with the programme as it unfolds.

Code with bite

Jurgen Boyd

Boyd . . . conflict resolution

Jan Mahlangu, erstwhile Cosatu retirement-funds coordinator, is gone but not forgotten. Whatever might become of him as a gift-receiver, something might yet become of gift-giver SA Quantum (TT July-Sept ’10).

Be sure to study the amended notice, gazetted in April, of the general code of conduct for authorised financial services providers and representatives. Then see just how seriously there’s to be an FSB clampdown on interest conflicts. Mahlangu and SA Quantum have set the ball rolling.

Mahlangu had admitted to being given an Audi by SA Quantum. Whilst strictly speaking Mahlangu might not be subject to the code, unless he is seen to be a representative of a service provider’s client, SA Quantum clearly is tightly bound. Financial Services Board deputy executive officer Jurgen Boyd confirms that an inspection is being conducted into the affairs of SA Quantum to look into “various issues”, including the gift of a motor car.

He adds: “On completion of the inspection, the Registrar of FAIS will decide on the appropriate regulatory action, if any.”

From the specific to the general, the amended code states that a service provider must disclose to a client any conflict of interest in respect of that client. This includes any ownership interest or financial interest (other than an immaterial financial interest), for which the provider or representative may be or become eligible.

A provider must therefore disclose any financial interest received, or that my be received, with a determinable monetary value. The aggregate of value may not exceed R1 000 in any calendar year from that same third party.

More than this, providers have until April 2011 to adopt, publish, maintain and implement a conflict-of-interest management policy. Compliance with this policy must be reported to the Registrar.

“The FSB will monitor compliance with the code during risk assessment on-site visits and through assessment of the relevant compliance reports,” Boyd promises.

Surplus steps

Dion George

George . . . questions, questions

After all the hoopla of fraud charges and billion-rand claims, for the two biggest names in the alleged stripping of surpluses in the so-called ‘Lifecare funds’ (TT July-Sept ’10) the frenzy culminates in a fizzle. Both Sanlam and Alexander Forbes have reached settlements with Tony Mostert and colleagues – curators of the three Datakor/Cortech pension funds and liquidators of the Picbel fund – in amounts rather less than those originally blazoned.

Admitting no liability, Sanlam has announced that it will pay a further R175m (having paid the Datakor funds R106m in 2006) with the possibility of up to R25m later being paid back from other recoveries. And in its latest financials, Alexander Forbes reveals that acceptance of its settlement offer should cause a net exposure to the group of no more than R75m after the support gained from its insurance underwriters.

What hasn’t been spelled out is now much will actually go into the funds themselves: in the case of Forbes, the cumulative amounts before the underwriters’ contribution; in the cases of both Sanlam and Forbes, after deduction of curatorship and liquidation fees.

Neither will disclose these fees, saying that the settlements with the curators commit them to confidentiality. No matter. Dion George, DA spokesperson on finance, can’t understand why there should be confidentiality so is tabling parliamentary questions for reply by Finance Minister Pravin Gordhan.

As TT went to press, a letter was received from Mostert Attorneys requesting that information on remuneration should not be published “in isolation” and offered a context:

  • In respect of the amount recovered and allocated to the Picbel fund, the fund shall be required to pay the ordinary statutory prescribed liquidator’s remuneration in accordance with the Pension Funds Act i.e. 10% of the assets allocated to the fund from the settlements;
  • In respect of the three Datakor funds, the curators’ remuneration was previously pursuant to a court order i.e. 25% of all assets collectively recovered for these three funds. This was subsequently, by arrangement with the FSB, capped to assets up to R140m;
  • The curators’ remuneration was then consensually re-evaluated. It was decided to diminish the risk premium encapsulated in the remuneration structure to a reduced premium of 6,66% “as compensation for the risks assumed by the curators in their personal capacities in recovering these assets, over and above the liquidators’ remuneration of 10% normally applicable in these circumstances”;
  • This remuneration, the letter adds, must be contextualised against the background that the Datakor funds had no assets at commencement of the curatorship. “Consequently, any remuneration based on success could not be guaranteed i.e. had no recovery been made, the curators would not have earned a cent for the work conducted in the preceding five years and be faced with the financial costs incurred by the recovery attempts.”

Next stage will be the prosecution of Simon Nash, on charges related mainly to the Sable fund, before the Specialised Commercial Crimes Court in November.

Some guardians

Giselle Gould

Gould . . . horrified but not surprised

That the Guardians’ Fund is riddled with corruption – roughly R80m has gone missing, according to Justice Minister Jeff Radebe – is all the more sinful because of the vulnerable people whom the fund is intended to assist. It administers funds held for people incapable of managing their own affairs, minor children, unborn heirs and missing or absent heirs who cannot be traced.

It’s run under the Master of the High Court whose administration is scattered through various offices. Decrepit controls are a root cause of the problem, suggests Fiduciary Institute chairman John Gibson. He points out that the fund’s administration isn’t computerised: “Beneficiary details are written by hand, in pencil even, on a card-filing system, making it impossible to reconcile records. The door is left open for any form of corruption and mismanagement.”

As far back as 2007, he notes, the Master’s Office acknowledged the administrative chaos. It highlighted the poor accounting and payments process as major concerns. Tenders were invited to outsource this function. Gibson believes that no tender was ever awarded.

In 2007 it was confirmed that the fund had about R2bn under administration. The money is invested with the Public Investment Corporation and audited annually. Yet, Gibson adds, the Department of Justice “has never since 1994 received a clean and acceptable report, and no-one actually knows the current size of the fund”.

Equally amazing, especially since thousands of minor children and other vulnerable people are involved, the fund undertakes no active tracing. “All it does is advertise once a year in the Government Gazette,” points out Fairheads Benefit Services director Giselle Gould. “Monies lie dormant for years, tempting corruption.”

There’s no administration fee, so there’s no service ethic for tracing and administration. Neither is there an investment plan.

“Only interest is paid,” Gould laments. “If you are aged seven and the funds are kept for you until you’re 18, you’ll get only interest but no capital growth. Bizarrely, if you’re 25 or older you don’t even earn any interest.”

Never would the private sector get away with this. It’s shameful that the public sector does; the same public sector that insists on fiduciary responsibility in the private.

About tracing

Much as it might come as a surprise to the Guardians’ Fund – whoever its trustees might be, if indeed there are any at all – there are tracing services ready and waiting in the private sector, if indeed it deigns to consider using them.

To name a few, of varying size and efficiencies: Benefit Recovery Services, Data Factory, TAL and Kungela. A relative newcomer is ICTS Tracing Services.

What sets it apart is the collective industry experience of its major shareholders. David Weil’s Investment Consulting & Training Services has been involved in trustee training, and provision of support services to retirement funds, for the past 15 years. For a similar period, Warren Goldblatt’s Specialised Services Group has been in security services which include tracing for legal and banking institutions.

Since inception two years ago, says Weil, the company has successfully traced over 85 000 people for pension funds’ surplus apportionment, unclaimed benefits and disposal of death benefits: “There are vast sums of money currently unclaimed by many hundreds of thousands of people.”

SRI revisited

Much criticised, for good reason, is the reference in FSB circular PF130 on socially-responsible investment. It says that, only after pension funds have provided optimum returns for their members, should they consider SRI.

But it’s likely to be changed, not only in PF130 but also in the proposed revision of Regulation 28, to something more akin to the originally-suggested wording. It was along the lines that funds declare their SRI policy and show how they define it.

This would remove SRI from an optional asset class, at the bottom of the line, and restore it to the mainstream where it belongs in evaluation of investment criteria. It would also force funds actually to think about SRI more rigorously than is probably the prevailing norm.

Nedbank next

If HSBC gets regulatory approval to buy Nedbank, as it might or might not, another SA icon will become a unit in a multinational behemoth. As they say, however, behind every dark cloud....

In this instance, the silver lining is the strengthened case for seller Old Mutual Plc (OML) to return control of Old Mutual Group SA to SA. This has been argued by TT ever since the share price of OML reached its nadir two years ago.

Now it makes even more sense. Since OML has been selling off businesses right, left and centre, with little more than self-sustaining Old Mutual SA and Skandia remaining in the rump, it’s hard to see much point in retaining a London headquarters.

There’s no obvious synergy between OMSA and Skandia. Neither is there an obvious need for these well-performing entities to pay their parent for flying a Union Jack on the Thames, and for the lifestyle that goes with it, or even to have OML as a parent at all.

In recent years OML’s supposed long-term strategy, under several of the same directors then as now, has chopped and changed. Once it was expanding; now it’s contracting. Once Nedbank was integral; now it isn’t.

Just like Nedbank’s strategy. Once it was into the lower end of the retail market; then it wasn’t. Having absorbed a host of household names into the single Nedbank brand – People’s Bank, NBS, Cape of Good Hope Bank, Board of Executors – its market share dived, at the lower end for the pure pleasure of the Abils and Capitecs.

With an HSBC offer around the corner, one can dream about the sort of share price and premium that Nedbank might have commanded had its retail division not fallen to what its 2009 review enwraps as a “difficult year”. A headline loss of R156m, from a headline profit of R1bn the previous year, surely can’t be attributed to “the economy” alone.

Had HSBC foreseen more confidence in Nedbank’s future than OML? Or is OML so strapped that it can’t wait to get out? And, with no prospective buyer in the wings, where does Nedbank now sit in the OML strategy?

Old Mutual HQ . . . London extravagance