Who's in charge?
Most investors are unaware that unit trust management companies are required to appoint a trustee, according to Debbie Prinsloo of Investment Solutions.
“Many investors are even unaware that trustees exist and yet they play a vital role in the administration and management of unit trust funds,” says Prinsloo.
“Furthermore, the requirements of the Collective Investments Schemes Control Act (CISCA) and the Association of Collective Investments (ACI) Code of Advertising Standards, make it compulsory for management companies to disclose full details of trustees in their marketing material and annual reports.”
Legislation requires them to be registered, and they may be a public company, as defined under the Companies Act, a bank or an insurance company.
“A trustee can be thought of as the custodian of a unit trust fund’s assets who acts on behalf of unitholders to ensure the unit trust manager adheres to the provisions of the deed and CISCA in all aspects of managing the unit trust,” says Prinsloo.
Unit trust fund assets such as shares, bonds and other financial instruments are held by the trustee in an FSB-approved nominee company name on behalf of the unit trust fund, and not by the management company.
In this way, legal separation of assets is ensured, as is the investor’s legal entitlement to these assets.
The trustee is also responsible for ensuring appropriate internal control systems are maintained and that records clearly identify the value of all assets held and the ownership of these assets.
Prinsloo says that for each annual accounting period the trustee is required to compile a report on the manager’s administration of the unit trust scheme.
“This report needs to reflect that the unit trust scheme has been administered according to the provisions and limitations of the deed and CISCA, and detail any irregularities the manager needs to rectify.
"The trustee is also required to give the reasons for any non-compliance and report on the manager’s actions to correct the situation,” she says.
CISCA requires all management companies to include a copy of the trustee’s report in their annual financial statements.
Other duties of the trustee include reporting the manager to the Registrar if irregularities are not satisfactorily rectified.
The trustee also performs an independent review to that of the auditors as a check to confirm that the income statement, balance sheet and other financial statements prepared by the manager fairly represent the assets and liabilities, income and distribution of income of every unit trust fund under its administration.
“Since failure to fulfil their duties and responsibilities, as stipulated in CISCA, makes trustees guilty of an offence, they fulfil an important but onerous task in the management of unit trusts,” says Prinsloo.
