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Where do duties begin and end

29 April 2015 Jonathan Faurie
Jonathan Faurie, FAnews Journalist

Jonathan Faurie, FAnews Journalist

For much of the 19th century, the mystery of the Nile was one that was foremost on the public’s minds. Where did the Nile begin? In a sense, a similar question is plaguing the minds of many in the financial services industry. In the new regulatory environment that the Financial Services Board (FSB) hopes to create, where does one’s responsibility to the client begin and where does it end?

At the heart of this is the customer and refocusing one’s activities in order to make the customer’s interests the heart of one’s business. Many participants in the industry say that they have their client’s best interests at heart, and most act in their clients best interests, but there are times when this is not the case.  

Grave concerns

This was an issue that needed to be resolved by the office of the Pension Funds Adjudicator (PFA) who had received a number of complaints against Dynam-ique SA Umbrella Provident Fund (first respondent) and its administrator AON South Africa (second respondent).

One of the more interesting complaints was dualistic in nature and related to, among other issues, the dissemination of information to Mr DJ Rodsethhad (complainant).

The complainant approached the PFA about the lack of communication on the part of the respondents on the rebuild exercise of the first respondent, and the failure to provide him with information regarding the fund value. He also said there had been no benefit statements for several years.

The complainant had been employed by Lundbeck South Africa (the employer) from 1994. The employer was a participating employer in the first respondent which has been undergoing a rebuild process in order to verify and confirm the accuracy of the members’ fund values.

The second respondent submitted that the employer commenced its participation in the first respondent on 1 October 2006 and terminated its participation in the first respondent effective from 31 July 2013. With effect from 1 August 2013, the employer commenced participation in the FundsAtWork Umbrella Provident Fund (FundsAtWork) administered by MMI Group Limited.

The assets in the first respondent relating to the employer were yet to be transferred to FundsAtWork in terms of section 14 of the Act.

Outgoing letters

The second respondent said there was currently a pending section 14 transfer from the first respondent to Momentum in respect of the employer. The section 14 transfer had been delayed as a result of the ongoing rebuild exercise in respect of the Dynam-ique and IF Umbrella Funds.

Due to the rebuild exercise, the trustees were at present unable to certify members’ fund values. Should incorrect values be transferred, this could prejudice the remaining members on the first respondent and will not be in the best interest of the members.

The communiqué showed that the first respondent had a deficit of R7.4 million. It also indicated the different options that were being considered by the board to recover the outstanding amounts.

The second respondent did send out regular communication regarding the complainant’s fund. On 5 February 2015, a communiqué stating what would happen if a fund member took a reduced amount was sent to the employer’s intermediary.

There were further communiqués sent out on 13 February stating that there was a resolution to the deficit of the first respondents, and a benefit statement was sent out on 28 February indicating the complainant’s share in the fund. Like the first communiqué, both of these communiqués were sent to the employer’s intermediary.

The great debate

This is the great debate about where duties to clients begin and end. Traditionally, these communiqués would be sent to fund members by intermediaries, and the second respondent pointed this out to the PFA. But the PFA was having none of it saying that there was equal responsibility on the part of the respondents to make sure that the complainant received any information as it was vital to their retirement.

Muvhango Lukhaimane, the PFA, said funds accounted to their members by inter alia furnishing them with benefit statements on a regular basis in order to give them information regarding their benefits, contributions and other relevant information.

“Therefore, a benefit statement plays a very important role in the sense that it gives members vital information regarding their benefits in the event of death, withdrawal, disability, retirement and other relevant information relating to the fund’s assets,” she said, adding the FSB had directed that an annual benefit statement must be furnished to each member (excluding pensioners and deferred pensioners) no later than six months after the financial year end of that fund.  

“By forwarding benefit statements to the intermediary for onward transmission to the members, the board has abandoned its duty to ensure that adequate information is communicated to members.”

Bearing in mind all of the issues that were brought forward in the complaint, the complaint was upheld by the PFA.

Editor’s Thoughts:
While the FSB wants to introduce a certain level of customer centricity into the market, there are grey areas where participants may not know what the correct action is in a particular situation. There is a debate on where the client’s responsibility starts and end, and that debate will be an on-going one. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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