The role of Management Committees in Umbrella Funds

17 August 2015 Arno Loots, Liberty
Arno Loots, Head of Umbrella Fund Solutions at Liberty Corporate.

Arno Loots, Head of Umbrella Fund Solutions at Liberty Corporate.

A number of reasons have led to the growth in umbrella funds and the consolidation of the industry. One of the main underlying factors for standalone funds to convert to umbrella funds is cost considerations. In addition, umbrella funds offer a robust governance structure, which could be quite a significant overhead in time and effort for employers that choose standalone funds. However, when an employer joins an umbrella fund, one of the questions raised is whether the employer still has input into the affairs of the members. Management committees, also called MANCOs, can play a significant role in ensuring that the employer stays close to matters affecting members, with the input from members.

What is a MANCO?

A MANCO is a committee constituted by an employer to manage the retirement solution on its behalf for the benefit of members. This committee usually consists of members, employer representatives and sometimes financial advisers. Member-elected representatives are there to ensure that the members’ voice is heard.

Legally, the ultimate responsibility for the umbrella fund lies with the board of trustees and not with the MANCO. The MANCO, however, makes a number of decisions on behalf of the employer and members.

How are MANCOs constituted?

MANCOs consist of employer and member-elected representatives. It is therefore good practice for the committee to have equal representation from both parties, so that all perspectives are brought to the table.

The size of the MANCO depends on the number of members in the employer participation. It might not be practical to set up a MANCO for a small employer, given the need to have employee representation on the MANCO. For very small participations, the employer representative would be sufficient to manage the affairs of the participation.

The mandate of the committee needs to be agreed with the employer upfront to ensure that there is alignment when decisions are made and that the retirement solution is run efficiently for the benefit of the members.

The chairperson is elected from the various representatives and a set term of office is agreed upon for those sitting on the committee.

Since the employer representative, together with the sponsor of the umbrella fund, is responsible for day-to-day administration of the retirement solution, it is essential for them to be standing members of the committee. It would also be good guidance for the responsible person, i.e. the director responsible for the retirement solution, to form part of the committee, because the committee guides the employer in making risk and investment decisions.

From time to time, it might be necessary for the financial adviser to form part of the committee, particularly where the participation is relatively new.

Duties of a MANCO

The committee is the voice of the employer, the members to the board of trustees and the sponsor of the umbrella fund. It is a platform where negotiations with the financial adviser take place in terms of appropriate solutions for the particular participation.

Some of the main decisions the committee will make are the selection of the appropriate risk benefits, investment portfolio, structuring of the member groupings within the participation as well as the extent of member choice.

It also provides oversight over the responsibilities of the employer representative and responsible person. This will ensure that the duties of these parties are discharged as expected.

The MANCO further has a role to play in member education, particularly where member choice of investment portfolios is involved.

The umbrella fund board determines the full range of portfolios available for selection, but it is the MANCO that will choose the appropriate solution for the particular participation in conjunction with the employer and the adviser.

The role of the financial adviser

The adviser plays an important role in MANCO arrangements. In the case of new participations, the financial adviser assists in setting up the MANCO structure and might also form part of the MANCO.

The adviser remains one of the most important parties as he or she is often the connection between the various parties involved in a retirement solution.

In this regard, the normal duties of the adviser still apply; the only change is that the financial adviser is now accountable to the MANCO, and not the responsible person, as it is usually the case. The financial adviser duties still include services such as advice on the appropriate benefits and portfolios.

Another important role, if not the most critical, is the financial adviser involvement in member planning and assisting them to make the right choices. The adviser also assists by contributing to member communication.

How can MANCOs operate effectively?

There are MANCOs that work effectively and achieve the various functions as set out above. However, there are instances where MANCOs are not as effective as it should be. This often relates to unclear duties of the MANCO and uncertainty of its mandate.

There are instances where meetings do not take place as often as they should and where meeting formalities, such as following an agenda, are not observed. It is important that meetings are scheduled regularly and that a pre-set agenda, which determines the structure of the meeting, is followed to ensure that the MANCO operates optimally.

In addition, the sponsor needs to ensure that the financial adviser, the employer and the various representatives have a framework within which to operate and manage the MANCO. Sponsors can also provide the necessary templates such as an agenda and minutes.

The future of MANCOs

The various umbrella funds continuously strive to get closer to their members and want to ensure that there is a close link between the employer and the fund; therefore, MANCOs play a critical role.

As standalone funds move to umbrella solutions, it will become more important to the original trustees to provide input into the affairs of the retirement solution. MANCOs offer the appropriate structure to achieve this outcome.

It is anticipated that MANCOs will be a requirement for umbrella participations in the future and might not be optional, as it currently is the case. This is further supported by the fact that various industry bodies and umbrella funds are working towards improving how the existing structures operate.

In the meantime, it is our belief that setting up MANCOs is good practice and offers an effective way to ensure the best outcomes for members.

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