Sakkie Hurd, Independent Trustee and Principal Officer
In the discission at the recent EBnet In the Moment webinar relating to the future of commercial umbrella funds, much had to be said about governance and the role of the Trustees. At the same time the imminent introduction of COFI aims to move away from rigid compliance rules to a flexible, outcomes-driven approach. COFI also seeks to legislate that Trustees will have to meet (more?) stringent fit and proper requirements, including mandatory training, and sets a requirement for pension funds and service providers to adopt proactive strategies to ensure compliance.
In assessing the above, there is seemingly not much being said or discussed in relation to Trustees and Boards as regards the consolidation into and emergence of ‘mega funds’. My thoughts in respect of Trustees and Boards preparing for this has led me to consider four, in my view, critical success factors that need to be addressed.
The first is questioning if the current board structure is and will be sufficient to direct, control and oversee the operations of the Fund. The long-standing model of a board of six or eight members, with a percentage of independents, might not be sufficient given the overall directional intention of the legislature. The changes, and frequency and complexity thereof in the last six years has certainly been taxing, especially on smaller (four or six members) boards. Add to this the structuring and mandates of sub-committees and ad-hoc committees, the workload has increased exponentially. The ratio of Independent Trustees to Sponsor appointed Trustees might also require interrogation and attention, taking costs into consideration to retain and increase economies of scale. In preparing for the future dispensation these discussions and reviews should be one of the strategic priorities for Boards together with their Sponsor.
The second question in my view relates to the independence of external Independent Trustees. It goes without saying that persons who fulfill this role are generally fit and proper and in many cases highly qualified professionals. The point I wish to make is that how independent can a person be who holds multiple appointments on funds administered by a Sponsor? There is certainly a case to be made for understanding the Sponsor’s operational model, but in my view removes the real independence of thought and input and questioning. This may be a contentious subject, but in my experience of 25+ years as a Trustee on umbrella funds I too many times have heard ‘but that’s what and how we do it on other funds of the Sponsor’. The question for Boards and Sponsors to consider is whether it is prudent to have such overlapping appointments, and if justified, just how many could be considered? The same principle applies to internal Sponsor appointed Trustees? In this respect the positive aspect of synergy must not be dulled by a propensity for ‘group think’, and requires concerted attention.
The third aspect, briefly touched on in the first question, is that of workload and availability. With ever-expanding workload and complexity of fulfilling the role of a Trustee with the required due care and diligence, a hard look is needed at the commitments of Trustees, for internal or Sponsor appointed Trustees. Their day job and, for external independent Trustees the number of funds they serve on, and balancing their professional lives with their Trustee appointments. The factual position in my view is that Trustee responsibilities at both Board and sub-committee level will become more time consuming and exacting as time progresses. At the same time Boards and Sponsors must not lose sight of the imperative of transformation which is crucial to the long-term viability of the retirement industry. Creating and empowering persons to form a ‘pipeline’ for the future is a significant task.
The fourth aspect is that of creating, empowering and mandating sub-committees of the Board. In many, if not all funds, sub-committees do exist – but a fresh look at sub-committees could unlock more value.. The traditional view of sub-committees being constituted of trustees and the PO, with attendance of consultants and the administrator (and at times an auditor or valuator) is probably outdated. The new reality requires a more modern look and thought process of re-structuring sub-committees to include non-trustees such as alternate trustees and identified specialists as committee members.. This could have financial implications which will have to be quantified and justified. The sub-committee structure must make provision for specific mandates and delegations, and reporting and referral to the Board. In this manner the workload for Trustees can be spread, with the Board allocating and spending more time on strategic matters and dealing with referrals and recommendations from sub-committees for decision-making.
The purpose and intention of this piece is to stimulate Boards and Sponsors to pro-actively consider their strategies for the future and debate the best way forward into further consolidation and COFI.
ENDS
