by Giselle Gould, Business Development Director
From the outset, the aim of Fairheads Benefit Services has been to achieve best practice in the governance of beneficiary funds. In this article, we refer to the Fairheads Umbrella Beneficiary Fund (the Fund).
The Fund is the oldest and one of the largest in the market, with over R2 billion of assets under management and servicing some 16,500 members.
Bear in mind that beneficiary funds are a uniquely South African vehicle set up to protect and manage the funds of the most vulnerable sector of our society, minor children who have lost a breadwinner. As such they perform a vital social role and this is why good governance is so essential.
As beneficiary funds are uniquely South African, there have been no international best practice models on which to base governance, and we believe that Fairheads Benefit Services has played a pioneering role in developing the industry in South Africa. This reflects our deep industry knowledge, strong intellectual capital, and impeccable record of trusteeship.
The building blocks of good governance
Board of trustees
The Fund has four trustees, split equally between independent trustees and sponsor (Fairheads) trustees. The industry norm is to appoint one independent trustee but we have gone one step further by making the independent role 50% of the board of trustees. We have selected highly experienced trustees with a robust track record particularly in governance.
The board of trustees and the administrator (Fairheads) have an administrator agreement which sets out what the board expects from the administrator and which is in line with the section 13B administrator’s licence. This agreement represents the primary governance standard and has a 90-day termination clause as required by the Pension Funds Adjudicator. As such it is reviewed regularly by the trustees.
Regularity of trustee meetings
The board of trustees meets a minimum of 10 times a year as follows:
- Trusteeship meetings – three per annum
- Investment meetings – three per annum
- Administration meetings – three per annum
- Governance meeting – one per annum
- Ad hoc meetings – as necessary
The trustees of the Fund take part fully in all meetings, unlike some peers in the industry who delegate tasks to sub-committees which we believe can lead to delays and less involvement of the board. As a result, the 10 meetings held by the Fund’s full board is higher than the industry norm.
A detailed digital board pack is compiled and sent to the trustees well in advance of the meetings, in order to ensure familiarity with the contents and decisive, efficient meetings.
Annual trustee governance meeting
An annual trustee meeting is dedicated to governance. This governance board pack normally runs to a total of about 400 pages with which trustees are expected to acquaint themselves before the meeting.
Various policies and governance documents are reviewed on an annual basis and include:
- Conflict of Interest Policy
As the administrator (Fairheads) is also the sponsor of the Fund, there is a need to guard against any conflict of interest. Governance of this is contained in the conflict of interest policy. For example, when the asset consultant recommended Vunani as a potential asset manager for the Fund, the sponsor trustees recused themselves from the election process as Vunani owns Fairheads Benefit Services.
- Investment Policy Statement
This governs how the trustees govern the investment function for the Fund, setting out the objectives and asset allocation policy.
Administration instructions are given via policies, requiring the administrator to report back to the board of trustees regarding the status of the management of income, capital requests, consultation to 18-year-olds terminating their accounts, and systems for obtaining proof of existence.
- Risk management policy
The board of trustees have committed themselves to a risk management framework that is guided by the principals of PF130. The approach is based on that of the Committee of Sponsoring Organisations of the Treadway Commission (COSO) framework, and includes elements of ISO31000 and the National Treasury Framework.
A risk register is maintained by the board with support from the administrator and reviewed regularly with due consideration given to emerging and existing risks, as well as the control framework in place to mitigate them.
- Data security policy
These two policies ensure that data is fully protected in the event of a disaster. The administration agreement prescribes the standards required of the administrator with respect to i.a. business continuity, disaster recovery, data protection and cyber crime.
Specialised internal support functions, all contributing to good governance
- Fairheads has a dedicated compliance officer who ensures that the Fund is compliant with elements such as the section 13B license, FAIS, King 4 compliance, Treating Customers Fairly, the Protection of Personal Information Act, etc.
- We also have a dedicated lawyer who advises on legal matters and ensures the Fund is compliant with all relevant legislation, for example all FSCA circulars and changes to regulation
- The Fairheads internal auditor does various checks and balances on an ongoing basis in order to detect any possible fraud. The department also scrutinises all processes and systems and lays the ground for the annual external audit of the Fund.
- Fairheads has developed a bespoke beneficiary fund administration system which is supported by a team of 13 IT professionals. Investment into technology remains critical in order to keep up with changing consumer behaviour and Fairheads continues to innovate in the regard.
- Best practice communication. Fairheads won an IRFA Best Practice certificate in 2019, 2016 and 2014 for its pioneering grassroots communication exercise, the guardian roadshows. Report-backs are made to the trustees on this practice. In addition, at the end of the financial year, trustees have sight of and sign off on the year-end pack sent to all guardians/caregivers/members which comprises a benefit statement, the investment performance, a trustee report and a request of update on the personal data relating to the member and guardian/caregiver.
In conclusion, we list some of the differentiators which we believe sets Fairheads apart in the market:
- We assisted in and advised on the legislative and regulatory regime to govern beneficiary funds (in the lead-up to their introduction in January 2009).
- We were the first to obtain a section 13B licence to administer beneficiary funds.
- We were the first in the market to register a beneficiary fund.
- We helped the Financial Services Board (now the Financial Sector Conduct Authority) to develop a set of master rules to govern beneficiary funds. We furthermore advised at a broad level on a fee structure for beneficiary funds.
- We have a strong internal audit capability which supports the external audit of the Fund, by PWC, which has had a clean annual audit since inception.
- We were the first to develop an asset allocation model which can be tailored for each individual member of the fund.
- The Fund outsources 100% of the investments to independent best-of-breed investment managers, including BEE managers. The Fund is the only commercially sponsored beneficiary fund having no association with the asset portfolios.
- The Fund employs an asset consultant to advise us on the choice of investment manager.