LOA note to intermediaries - submission regarding section 14 transfers

Following the LOA's submission on the proposed amendments to the Pension Fund Amendment Bill to the Portfolio Committee on Finance last week Thursday, some intermediaries expressed unhappiness with our proposal that trail fees should not be permitted on section 14 transfers.

While it was certainly not our aim to create the impression that all transfers will be commission driven, the LOA remains concerned that clients could be prejudiced where transfers from one retirement annuity (RA) fund to another are motivated by additional fees that did not apply to the transferring fund and that are deductible from the accumulated retirement savings of the clients.

Click here to download a pdf file 137 kb to read the LOA's submission, which we believe puts our concerns in greater context than came across in summarised reports.

At the time of our submission, National Treasury commented that the LOA submission had overstated the risk that trail fees present to RA fund members. After due consideration, however, National Treasury this week agreed that there is such a risk.

National Treasury therefore agreed with the LOA's suggested change (i.e. no trail fee if transfer is from an underwritten fund) when they presented their proposed amendments to the Portfolio Committee on Finance on Wednesday.

In presenting to the Portfolio Committee on Finance, Jonathan Dixon said:

* National Treasury had thought that the LOA submission overstated the risk posed by trail fees, but that it is now recognized that there is such a risk.

* National Treasury believes that this risk will no longer be an issue in a few years time because of Treasury's plans to level the playing fields.

* While the FAIS Act provides a legislative framework, it is still fairly new and there are some gaps in enforcement (to be addressed in the FAIS Amendment Bill hopefully to come before the committee later in the year).

* Treasury therefore believes that there is merit in removing the risk, while not interfering with the principle that advisers be remunerated for advice. Since the proposed amendments do not prevent this as payment can be made directly by the client to the adviser for "fee based advice", this is considered the preferred method as it is completely transparent.

ANNA ROSENBERG

Deputy Executive: Legal & Policy