Leon Greyling, COO of ICTS Legal Services

For some time now, I have been feeling uncomfortable with the growing trend of stand-alone funds moving into commercial umbrella funds.  Don’t get me wrong, I support the creation of professionally run umbrella arrangements that compete for business, but I’m seeing an abscondment by employers of their responsibility and an industry of funds fraught with conflicts of interest – and a servicing model that perpetuates this.  In South Africa, the role of a Management Committee (Manco) in the context of umbrella funds for retirement savings is (should be) to provide oversight, ensure alignment with the needs of participating employers and their employees, and act as a critical governance mechanism. While the fiduciary responsibility primarily shifts to the umbrella fund’s trustees, the Manco plays a pivotal role in monitoring the fund’s operations, ensuring transparency, and retaining ultimate responsibility for the selection or termination of the umbrella fund. Below is a detailed breakdown of my views on the Manco’s role, responsibilities, potential liabilities, and key questions they should be asking.

Role of a Management Committee (Manco)

The Manco serves as a governance structure appointed by the participating employer to monitor the umbrella fund’s performance, ensure its suitability, and safeguard the interests of employees. Its primary roles include:

1. Oversight and Monitoring:

• • Monitor the umbrella fund’s operations, investment performance, administration quality, and compliance with regulations.
  • Actively question and scrutinise potential conflicts of interest within the umbrella fund setup, such as relationships between trustees, service providers, or investment managers that could compromise member interests.
  • Ensure the fund delivers value to members in terms of investment returns, cost efficiency, and service quality.
  • Review the fund’s communication to members, ensuring it is clear, transparent, and effective.

2. Suitability Assessment:

• • Evaluate whether the umbrella fund remains appropriate for the employer’s workforce based on factors like cost, investment options, and alignment with employee demographics.
  • Periodically assess whether the fund continues to meet the employer’s retirement savings objectives or if a switch to another fund is warranted.

3. Decision Making Input and Authority:

• • Provide input on fund-related decisions, such as selecting default investment portfolios, risk benefits (e.g., life or disability cover), or service providers.
  • Retain ultimate responsibility for the decision to hire or fire the umbrella fund, ensuring the chosen fund aligns with the employer’s and employees’ best interests.
  • Recommend changes to the umbrella fund or a transition to a competing fund if it is deemed unsuitable or underperforming.

4. Member Advocacy:

• • Act as a conduit between the employer, employees, and the umbrella fund’s trustees, raising concerns or feedback from members.
  • Ensure employee interests are prioritised in fund decisions, including fee structures, benefit design, and transparency.

5. Reporting and Communication:

• • Facilitate clear communication between the umbrella fund and the employer/employees, ensuring members understand their benefits and options.
  • Report to the employer on the fund’s performance, any conflicts of interest identified, and issues requiring attention.

Responsibilities and Potential Liabilities

While Mancos do not typically carry the same fiduciary duties as the umbrella fund’s trustees (who are legally responsible under South Africa’s Pension Funds Act), they have significant responsibilities and potential liabilities, particularly given their role in hiring and firing the fund. These include:

1. Due Diligence and Oversight:

• • Responsibility: Mancos must exercise due care and diligence in monitoring the umbrella fund’s performance, costs, compliance, and governance. This includes demanding full transparency of all fees (administration, investment, performance, or third-party charges) to ensure they are reasonable and justifiable.
  • Liability: Failure to identify or address excessive fees, poor performance, or mismanagement could expose Manco members to criticism or legal scrutiny, especially if their inaction results in financial harm to members.

2. Monitoring and Addressing Conflicts of Interest:

• • Responsibility: Mancos have a duty to actively monitor and question potential conflicts of interest within the umbrella fund, such as undisclosed relationships between trustees, administrators, or investment managers. They must demand transparency in how these relationships are managed and ensure decisions prioritise member interests.
  • Liability: If a Manco overlooks or fails to challenge conflicts of interest that lead to biased decision-making or financial loss, they could face reputational damage or legal accountability for negligence.

3. Acting in Good Faith:

• • Responsibility: Mancos must act objectively, free from conflicts of interest, and in the best interests of employees and the employer. This includes ensuring their own decisions are not influenced by external incentives or relationships.
  • Liability: If a Manco member has a conflict of interest (e.g., receiving undisclosed benefits from a service provider) that influences their recommendations, they could be held accountable for breaching their duty of good faith.

4. Hiring and Firing Responsibility:

• • Responsibility: Mancos hold ultimate responsibility for recommending the hiring or firing of the umbrella fund. This involves conducting thorough due diligence when selecting a fund and continuously evaluating its suitability to ensure it meets member needs.
  • Liability: If a Manco recommends an unsuitable fund or fails to act when a fund underperforms or engages in questionable practices, they could face liability for poor decision-making.

5 Quasi-Fiduciary Role:

• • While Mancos are not fiduciaries in the same way as trustees, their role in overseeing the fund and making strategic recommendations (including hiring and firing decisions) may carry a quasi-fiduciary duty to act in members’ best interests. Courts or regulators may hold them accountable if they fail to address serious issues like opaque fee structures or conflicts of interest.  Ultimately employee wellness is in the best interests of the employer, so active oversight is important.

The Forthcoming Conduct of Financial Institutions (COFI) Act

As of July 2025, the Conduct of Financial Institutions (COFI) Bill remains forthcoming, with ongoing delays pushing its tabling in Parliament to early 2026 and full implementation potentially years away. It is currently in the final stages of preparation by the State Law Advisors before submission to Cabinet. The FSCA is actively preparing for its enactment through regulatory strategies and plans, emphasizing readiness for enhanced conduct standards.  Once enacted, COFI will represent a major overhaul as an umbrella piece of legislation replacing industry-specific conduct rules, applying unified standards to all financial institutions, including retirement and umbrella funds.

For Mancos, COFI is expected to amplify their oversight role by imposing stricter requirements on governance, transparency, and member protection. Key impacts include:

• Enhanced Conduct Standards: Mancos will need to ensure umbrella funds comply with new principles-based conduct rules, such as Treating Customers Fairly (TCF), which could expand their duties in monitoring fair treatment, clear communication, and value-for-money in retirement savings.

• Transparency and Conflicts: The Act will likely reinforce demands for full fee disclosure and conflict management, aligning with existing Manco responsibilities but with greater regulatory scrutiny and potential penalties for non-compliance.

• Definition and Regulation of Umbrella Funds: For the first time, “umbrella fund” will be formally defined in the Pension Funds Act, potentially clarifying and strengthening Manco roles in suitability assessments, hiring/firing decisions, and fiduciary-like oversight.

• Proportionality and Compliance Burden: Smaller or less complex funds may benefit from proportionate regulation, but Mancos should prepare now by reviewing governance frameworks, as COFI emphasises transformation plans, unified licensing, and accountability to prevent harm to members.

• Overall Impact: This could elevate Mancos’ quasi-fiduciary status, requiring more robust due diligence and potentially increasing liabilities if funds fail to meet conduct benchmarks. Mancos are advised to stay informed via FSCA updates and begin aligning practices proactively to mitigate future risks.

End of Part 1