Funds: what works and what can work better?

Madi Carstens, Manager of Umbrella Trusts and Beneficiary Fund at Sanlam Trust

The future of many orphans who are recipients of death benefits lie in the domain of beneficiary funds where efficient administration goes a long way to ensure that these children’s needs are met.

Advisers and trustees who choose beneficiary funds on behalf of these orphans and guardians are entrusted with a huge responsibility and being able to assess how well a fund is administered, can certainly help them to make an informed decision.

Four key elements

Taking this into consideration, there are four elements of successful beneficiary fund administration: care, effective and timely communication, efficient daily money management and an investment that is tailored for the beneficiaries’ needs.

1. Care: The first thing an administrator needs is empathy; and to realise that a child will now be exposed to a new set of circumstances for which he or she is unprepared. Not only have these children suffered an emotional loss of their parent’s death, but sometimes they have to adjust to a new house, new school, having to live with elderly relatives or they may even be an unplanned addition to a family. The toughest scenario is when children have to live with strangers. This is a time when they really need people who treat them with care. Arguably beneficiary funds should step up and open communication lines with the new caregiver or guardian who may be finding it difficult to care for another child. The family is dealing with grief, needs assistance from the beneficiary fund and many a time the staff of the fund will act as an adviser, a coach and even a counsellor where necessary.

2. Communication: All beneficiary funds set out communication requirements in terms of their fund rules. Good communication is also a requirement in terms of the Financial Advisory and Intermediary Services (FAIS) Act, the Consumer Protection Act and PF130 of the Pension Funds Act. A fund needs to have a communications strategy which ensures that Communication Policy provisions are implemented and that guardians and beneficiaries are kept informed. It is critically important to ensure that all communication from the fund is written in simple and direct language and that the most appropriate mechanisms of communication are used to reach beneficiaries, especially those in rural and outlying areas.

3. Daily money management: Since beneficiary funds receive requests for payment of school fees, uniforms and food among other things, timeous payments are critical because no child should have to wait unreasonable periods to cover their needs. At the same time, sound payment policy needs to be drawn up by the fund so that monies are managed carefully and can stretch until the child completes their education.

4. Investments: Capital is mostly managed according to the need the beneficiary may have on a monthly and annual basis and the number of years that minors’ benefits will be held in a beneficiary fund. For instance, Sanlam Trust Beneficiary Funds invest capital in three investment vehicles: short, medium and long term focused platforms.

The investments are combinations ofCash that provides for static liquidity, Income investments i provide for unexpected cash demands while the growth investments ensure that the portion of benefits not needed for immediate income, earns returns in the long term. The investment strategy is balanced according to the age and needs of the child as well as the amount of the benefit available.

Looking beyond performance

It is acknowledged that it is not always an easy task to assess if a fund is well administered. Therefore it is recommended that Transferor Funds look beyond the performance of investment portfolios.

While performance of beneficiary funds’ underlying investments is important, it does very little for the beneficiaries if they are kept in the dark and their benefits do not reach them.