Blue Chip Issue 81

UMBRELLA FUNDS
second are members who consciously decide to leave their
savings in the fund.
The second group are interesting as possibly they appreciate
that the assets are invested in a lower fee class than is
applicable to retail solutions such as many preservation funds.
The regulations are clear that the paid-up members cannot be
charged a different investment
It will be interesting to see how
quickly the paid-up members
increase as a percentage of the total
members of an umbrella fund.
fee to the contributing members.
Advisors are persuading members
to transfer to preservation funds
presumably because the higher
asset-based fees are offset by the
access to a much wider range of
investment portfolios.
I am not convinced that the umbrella funds are doing
much to make the option of remaining as a paid-up member
an attractive option. Few make provision for the member
to appoint an advisor and remunerate them via an assetbased
fee deduction. Some umbrella funds seem to default
the investor into Trustee default portfolios, which tend to be
the sponsored linked portfolios.
What appears to be happening is that many umbrella funds
remain focused on the participating employers and the consultants
to these participating employers. However, the paid-up members
tend to be “de-linked’ from the participating employer.
They will not receive any communication, which is distributed
via participating employers and their consultants. I question who
is considering the needs of these paid-up members? Is enough
effort going into tracing these members, especially the genuine
defaulters, and proper communication with them once they have
been traced?
It will be interesting to see how quickly the paid-up
members increase as a percentage of the total members of
an umbrella fund. The rate of increase will be much quicker
once National Treasury implements the two-buckets approach
that it recently raised as its vision. The one bucket will have
compulsory preservation and will result in a sharp rise in
paid-up membership. It is only a matter of time before an
umbrella fund could have more paid-up members than active
contributing members. Surely, umbrella funds cannot afford to
keep ignoring the needs of this silent majority.
I would like to see an umbrella fund embrace their paid-up
members, allow them to appoint
financial planners and create an
offering that competes with the
preservation funds and other retail
solutions. It should be easier for
financial planners to include such
paid-up benefits in their total
financial planning exercise.
In the meantime, we can expect to see most employeebenefits
consultants recommending umbrella funds based on the
outcome for active employees. The decision by an employer in
selecting an umbrella fund is probably not going to factor in the
approach the fund has to paid-up members. We can also expect
that financial planners will continue to encourage members to
transfer to preservation funds even if the fees are higher.
Does this defeat the aim of the regulator? Probably not. The
regulator seeks increased preservation of benefits and to ensure
that members’ interests are foremost when trustees make decisions
related to fund governance. I am not sure the regulator is too
concerned as to whether the preservation is in the umbrella fund
or a preservation fund.
For decades, we have had individual life arrangements and
employee benefits/group arrangements. In such a historic
structure, paid-up members are individuals. But surely, we
are in an age when group arrangements can accommodate
individuals’ requirements. Flexible risk benefits and member
investment choice are examples of this. Surely umbrella funds
can adjust to improve their focus on their paid-up members.
Before they do become the silent majority, By Dave Johnson,
Independent Consultant.
www.bluechipdigital.co.za
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