Strict transformation scorecards on the horizon for the industry

Transformation within the financial services industry has been one of the items that has been on top of National Treasury’s agenda for quite a while now.

While the sector has come on in leaps and bounds in terms of accessibility, there are still worrying signs that transformation is slow in other sectors of the industry. 

This is changing. On 19 March, the Financial Sector Transformation Council (FSTC) announced that in future, retirement funds will be expected to adhere to strict transformation scorecards. 

The nature of these scorecards is still to be discussed and a yardstick by which retirement funds will be measured still needs to be established. FAnews spoke to Isaac Ramputa, CEO of the FSTC and Anne-Marie D’Alton, CEO of the Batseta Council of Retirement Funds for South Africa, to find out more about this process. 

What will the institution of transformation targets mean for the retirement industry?

“The South African retirement funds industry manages assets of close to R4.2 trillion on behalf of some 12 million members (including the Government Employees Pension Fund) and is therefore an important participant in the South African economy. 

Since boards of trustees are tasked by fund members with appointing service providers, they have the power to transform value chains and prompt change within service providers. Therefore, it is important to set sector appropriate transformation targets that can guide trustees in their decision-making process. 

Compulsory transformation scorecards will ensure an even greater contribution by retirement funds towards empowerment. This will ensure healthy competition and the future sustainability of the retirement industry value chain,” said D’Alton. 

What will the institution of these targets mean for the relationship between retirement funds and their investors?

“The role of a board of trustees is to ensure that savings are invested in a sustainable way and that the fund can meet its liabilities towards members. This means that trustees must always act with the members’ best interest in mind. 

New and compulsory scorecards will provide trustees with an opportunity to review their current strategies and service providers with the aim of giving effect to the Amended Financial Sector Code (FSC),” said D’Alton. 

Will these transformation targets be in line with the objectives set out by environmental, social and corporate governance (ESG) investing?

“Funds are already required to take ESG factors into consideration when making investment decisions; it is integrated into the investment decision making processes,” said D’Alton. 

“New transformation scorecards will emphasise the social aspect of ESG investing that is mostly neglected by retirement funds,” said Ramputa. 

What considerations are taken into account when establishing these targets?

“We will look at the size of the biggest 100 retirement funds and their impact on the economy through their investment portfolios. 

We will also look at how these funds can help transform the industry by increasing their procurement from black-owned and female service providers. – Isaac Ramputa. 

While there are a number of considerations, the following are key: 

• The role of retirement funds in the economy;
• The scope of activities of a retirement fund and areas of contribution; and
• The ability of retirement funds to achieve the targets without compromising members,” said D’Alton. 

Will these funds be receiving any support from the FSTC in order to ensure that they meet these targets?

“It is the role of the FSTC to provide the financial sector, including the retirement funds industry as represented by Batseta, with interpretive guidance and practice directives. 

In addition, Batseta will also provide guidance to its members, which are principal officers, trustees and fund fiduciaries within the retirement industry,” said Ramputa. 

What actions will retirement funds need to take in order to achieve these targets?

“Since the board of trustees of a retirement fund is responsible and accountable for the implementation of the FSC, trustees should ensure that scorecards are included as a standing item on their board agenda. 

Some of the action points should include: 

• An independent assessment of the current state of affairs of the fund;
• A review of current transformation strategies;
• A new strategy to meet targets and to report efficiently;
• Develop and/or amend policies in line with sector requirements;
• Develop an implementation plan with associated targets, milestones and outcomes;
• Ensure regular reporting on the progress made in respect of the implementation plan; and
• Evaluate, monitor and report on the progress made, both to members as well as authorities,” said D’Alton. 

Editor’s Thoughts:
Transforming the industry just for the sake of transformation may lead to undesirable outcomes; however, transformation for the sake of adding value to clients will significantly improve the industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.