All this emerged at the second 10X Investments Trustee Revelation Seminar, held on Friday February 15 at Bowmans offices in Sandton, Johannesburg. It was always going to be an eye-opener, with Rosemary Hunter, formerly Deputy-Registrar of Pension Funds and now partner at Fasken, and Teri Solomon, Head of the Financial and Professional division at Marsh & McLennan, as headline speakers. But the attending trustees also provided much food for thought.
It was one of the attendees who asked how often the other trustees “held a beauty parade or a tender process” to check on the costs and value of their fund. Some murmuring ensued, which prompted Hilan Berger, Head of Institutional Business at 10X Investments, to ask for a show of hands as to who never questioned the costs and value of their existing fund.
The surprise in the room was almost audible when a number of hands went up in the air. Steven Nathan, 10X Chief Executive Officer, recommended that trustees do at least an annual audit on retirement fund service providers.
Another question from the gathered trustees was: “Could retirement funds and trustees in South Africa face class action law suits?
“Quite possibly,” was the answer given by Rosemary Hunter.
This was just one of many topics that had trustees in the audience voicing their disquiet along the lines of: “Trustees are sitting ducks for all the vultures out there”, and, “We, as trustees, are like cannon fodder”. Yet a common thread from the experts at the event was: Trustees have the power, they should exercise it.
Hunter noted that in the context of state capture, regulatory capture and widespread greed and corruption, it is more important than ever that trustees act with integrity and courage.
The respected lawyer and academic came to public attention as a vigilant public official who took on her own employer in an effort to protect the interests of thousands of members and beneficiaries of dormant pension and provident funds. These had been deregistered without proper prior checks to see that the funds had no assets or liabilities.
The other headline speaker, Teri Solomon, told delegates that South Africa might well see a regulatory inquiry into the retirement savings industry and reminded delegates that retirement fund trustees could be sued in their personal capacity.
She had also discussed the possibility of employees launching class action suits against employer funds that they had been auto-enrolled into, where costs were too high.
The risk Solomon focused on, however, was cyber security, which she described as “the next big risk” for retirement funds.
She asked the audience to imagine the possible risks and repercussions in the context of the personal data the industry holds, from ID numbers to information about people’s health status and their wealth. Solomon also laid out vulnerabilities, from independent trustees working in coffee shops where WiFi was not secure to laptops being lost or stolen. She also pointed to the risk of human error by administration staff, or even attacks by phishing or malware.
10X CEO Steven Nathan agreed that data security was a big and pressing problem. He said the biggest risk lay in fund administration, in terms of individual member record-keeping but the industry was pre-occupied with asset management.
“The industry is spending money on the wrong things … asset management versus the admin side,” he said.
A key area where trustees were urged to take control is fund costs, which has the potential to inflict material damage on retirement funds. Nathan told the trustees: “If your fund manager and administrator says they can’t give you a proper breakdown of the costs, tell them you will find someone who will.”
In his presentation, he made it clear that there was no secret ingredient to investing. He laid out a basic, proven formula for giving retirement fund members the best chance of success, ie invest in a low-cost high-equity index-tracking fund.
“No one can reliably predict the future [of the market]. If you are paying someone to do that you should think again,” Nathan said, in reference to active investment management, a generally high-cost, high-risk style of asset management.
Berger added his voice to this, telling trustees: “You cannot control the future market return, but you can control future costs. And as a trustee you are in an incredibly powerful position to change members’ lives.”
He urged trustees to empower themselves with the relevant information, starting with having a good hard look at charges in their own fund. He outlined in simple detail how costs can make or break an individual’s retirement.
To this end, 10X Investments offers a bench-marking service for retirement funds. This full health assessment comes free of charge and without obligation.
To request a health check and cost comparison CTA, please email firstname.lastname@example.org.