FANews
FANews
RELATED CATEGORIES

Learnings from the Default Regulations

03 December 2019 editor@fanews.co.za

When the Default Regulations were introduced into the retirement funds industry in 2017, it was hoped that they would add significant value to retirement funds and clients alike.

For the most part, this has been the case as the majority of retirement funds have found significant benefits in the Default Regulations. However, there are some funds who have approached the Default Regulations with a much more measured approach and struggled to come to terms with what is required from a compliance perspective. 

There have been some key learnings from the Default Regulations. These were highlighted by Andrew Davidson – Head of Advice at Old Mutual Corporate – and Thiru Govender – Principal Consultant at Old Mutual Corporate. 

Major learning curve

While far from forced preservation, the Default Regulations do place a certain amount of increased responsibility on Retirement Funds who are expected to make a certain number of key decisions on behalf of policyholders when it comes to investing. 

“We need to acknowledge that the Default Regulations is a first of its kind in the South African retirement funds industry and has proven to be a major learning curve. Boards of Trustees and Management Committees (Mancos) have never had to make these recommendations in the past and therefore, they are not necessarily educated on what annuities are available to fund members and what annuities best fit certain situations,” said Davidson. 

This has seen a major skills development drive within the industry whereby Trustees and Mancos are being upskilled on what needs to be done to be compliant with the Default Regulations. 

Education drive

Davidson adds that it goes without saying that if Trustees and Mancos are not up to speed when it comes to annuities and what annuities to recommend in specific situations, then fund members definitely do not know what is going on in the industry when it comes to annuities. 

“Because of this, we are seeing a lot of retirement funds arranging interviews with their members to find out that their investment goals are and trying to figure out, with their help, what the best recommendation for them would be,” said Govender. 

She added that because this is such a huge decision to make in terms of the members overall investment plan, this space will see a lot of development over the next five years as retirement funds come to terms with the fact that members travel different paths towards retirement. 

Conflicts of interest

Although Trustees and Manco’s are being educated on compliance with the Default Regulations, it needs to be pointed out that these parties will never have the same level of expertise than industry experts who have decades of experience. 

Because of this, a lot of retirement funds are outsourcing compliance to consultants who advise on the best investment routes that need to be taken. 

However, this is a blessing as well as a curse. “Because the majority of these companies are major corporates, they are more likely to recommend their product over other products in the industry. Conflicts of interest are unfortunately rife within the industry. This means that there needs to be a very big focus on relationship management and making a clear distinction between decisions that benefit members vs benefitting employers,” said Davidson. 

Lots of work needs to be done

The Default Regulations were a significant undertaking and were always going to have a major impact on the industry. Because of this, value will take time as compliance with the Default Regulations grow. 

However, there are ways for the industry to be proactive. 

The Financial Sector Conduct Authority (FSCA) has made its intentions clear that it wants the industry to move away from a tick-box approach when it comes to compliance. Yet, funds who have struggled to comply with the Default Regulations have adopted the tick-box approach to compliance. 

This is understandable bearing in mind the fact that Trustees and Mancos need to educate themselves on the various options that need to be offered to members. However, this should be a temporary situation as the FSCA has made it possible to go from a tick-box compliance approach to proactive compliance. 

 Let’s hope those who are struggling with compliance see the value of adopting a proactive approach. 

Writer’s thoughts:
There is nothing wrong with struggling to come to terms with the Default Regulations. Humans learn the most when they are faced with a seemingly impossible situation. If the industry takes these learnings and add value, clients will receive improved outcomes. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts editor@fanews.co.za.

 

Ends

Comment on this post

Name*
Email Address*
Comment
Security Check *
   
Quick Polls

QUESTION

In your opinion, what do organizations and customers rely on intermediaries for?

ANSWER

Advice based on their knowledge and expertise
Getting the best deal
Understanding their needs and explaining products
Identifying risk exposure
All of the above
A E fanews magazine
FAnews November 2019 Get the latest issue of FAnews

This month's headlines

It’s time to go overweight, heart!
A holiday should not be stressful
Should brokers participate in claims investigations?
Offshore investing to finance education
The whole cake… or rather one slice at a time
Non-disclosures: what you need to know
Medical schemes’ average increases for 2020
Subscribe now