Edition: August/October 2018
Expert Opinions

OLD MUTUAL CORPORATE

Greater transparency

ASISA has finalised the standard for disclosure of umbrella funds’ costs. Michelle Acton, principal consultant at Old Mutual Corporate Consultants, welcomes the positive difference it will make.

Acton
Acton . . . comparisons made easier

A number of factors must be taken into account when selecting an umbrella fund. These include governance qualities and preservation options. But few factors are more complex than costs.

From the beginning of March next year, comparing the costs of respective umbrella funds will become significantly easier. This is when the new Association for Savings & Investment SA (ASISA) Retirement Savings Cost (RSC) disclosure standard comes into effect.

This new disclosure standard will lead to a greater level of transparency across the industry. It will substantially help employers to select the most cost-effective umbrella retirement-fund solution for their employees.

Discussed in engagement with the regulator, stakeholders and National Treasury – for greater consolidation within the retirement fund industry – is a growing need to find easier ways to ‘compare’ umbrella funds. Comparing costs of umbrella funds has always been particularly challenging because the fees and charges of a particular scheme depend on the number of members, salary profiles and values of assets to be transferred.

By ensuring standardisation across the presentation of these costs, employers will be able to compare like with like when considering quotations from different ASISA members. This will also make it easier for umbrella funds’ boards of trustees to consider costs as part of their fiduciary duty.

How is this standardisation of cost disclosure to be achieved?

All employers and trustees will be provided with a template indicating all costs that will be incurred at a scheme level. As there are a number of different types of costs involved in any umbrella fund, the template will reflect four separate components into which these various charges are allocated over various investment periods.

The four components are:

RETIREMENT SAVINGS COST EXAMPLE

Retirement savings cost charges table
Charges 1 Year 1 to 3 Year 1 to 5 Year 1 to 10 Year
Investment management 1.1% 1.1% 1.1% 1.1%
Advice 0.5% 0.5% 0.5% 0.5%
Administation 0.9% 0.9% 0.9% 0.9%
other 0.3% 0.3% 0.3% 0.0%
Total RSC 2.8% 2.8% 2.8% 2.5%

Total 10 year RSC 2.5%
Sample memeber: 30 yrs old Annual Salary
    R60 000 R240 000 R600 000
Current member Share R0 3.0% 2.8% 2.6%
R100 000 2.5% 2.4% 2.3%
R500 000 2.3% 2.1% 2.0%
  • Investment management charges;
  • Advice charges;
  • Administration charges;
  • Other charges such as regulatory, compliance and governance costs.

ASISA members will have projected these costs over 10 years, based on a standardised set of assumptions, in order to derive the RSC for the umbrella fund as a whole.

The value for each of the four components, as well as the total RSC, will then be displayed as a percentage in a table at four mandatory disclosure periods: one year, three years, five years and 10 years. Any costs unable to be included must be disclosed in “free text notes”.

Turning theory into practice, there are always other factors to consider. There are often numerous costs that are not fully available for the umbrella-fund provider to include; for example, consulting or advisor costs.

As such, the new templates will need to be developed to ensure all information is made available. All investment providers will need to provide their TERs (total expense ratios) for inclusion.

No two umbrella funds are the same. While there will always be some element of cross-subsidisation, this new standard will definitely make it less complicated for an employer or board of trustees to select the umbrella fund that best meets the needs of their membership and the service for which they pay.

Overall, the new ASISA disclosure standard signifies a great step forward for the retirement-fund industry.

For more information, please contact Michelle via email at macton@oldmutual.com or telephonically on 011 217 1790, or visit www.oldmutual.co.za/omcc