In the Business Times recently, Laura du Preez writes about how Umbrella Funds need ‘tougher scrutiny’. The article states that “the steady growth of members in umbrella funds is likely to accelerate with a government-led drive to consolidate retirement funds, making the need for an improved oversight of these funds even more pressing”.

Legal issues around the ever-increasing number of Funds and Fund providers, the Financial Services Board being on a mission to lessen the number of active funds to a more manageable 200, and the need for an improvement of offerings for employees and employers alike, has led to a need for the tightening of regulation and fees. The article mentions eight recommendations for the industry to consolidate regarding Fund oversight, read the article here.

Prism Employee Benefits believes in, and more importantly, carries out these principals. Our Umbrella offering is built upon the belief that the  Segregation of Providers is in the best interest of the member’s final Retirement outcome.

Prism EB, as the benefit consultant, should be totally independent from the other service providers to give unbiased advice on benefit structure, service provider and/or product selection. The aim is to give meaningful consulting to all members.

One service provider cannot necessarily provide the required services on the most cost-effective and efficient basis. There are potential conflicts of interest where all services are provided by a ‘one-stop shop’. Employers and members need to be provided with the best possible solution for their employee benefits needs.

Support is vital in the ongoing smooth operation of a retirement fund to ensure that all compliance and legislative matters are dealt with. Proper meetings are held, with full minutes, benchmarks in place for investments, monthly accounts, a clear investment strategy that meets the needs of the members.

The role of the Sponsor of the Umbrella’s financial model needs to be understood, and it is important that it acts in the Members best interest and not on its own to truly be a sustainable benefit.

Prism will investigate the unique needs of each client (employer, fund, members) on an ongoing basis to ensure that your employee benefits arrangement is efficient and of most importance – appropriate.

Our Rainbow Model Umbrella Fund

 

Why choose the rainbow model?

Umbrella funds are retirement funds that multiple employers join to provide employees with access to a group fund.   One reason for the industry transition to umbrella funds is the cost of running these funds.  Umbrella funds offer an effective solution to employers and members in respect of their retirement funding needs.  Large insurers and administrators have over the last number of years compelled employers to join umbrella funds.  An umbrella fund is typically set up by a ‘Sponsor’ i.e. either the administrator or the insurer.  The Sponsor will appoint a Board of Trustees i.e. typically made up of an equal number of Sponsor-Employed and Independent Trustees.

Consider the following:

–     Service providers are generally linked to the Sponsor and do not allow a choice of service providers.

–     The Rainbow Umbrella’s only sponsor requirement is that Sect 28 must be complied with, thus ensuring that investments cost are fixed and exceptionally competitive plus allows for all the requirements as specified by the Registrar in the Default Regulations that were released in Nov            2017.

EXAMPLE:   Where no choice of service provider is allowed

An agent for COMPANY X may advise an employer to join UMBRELLA FUND X.  A percentage of the trustees will be employed by COMPANY X whilst the remaining trustees will be appointed and paid either by COMPANY X or UMBRELLA FUND X.  The Principal Officer will also be paid from UMBRELLA FUND X.  The investment manager, administrator, and insurer will also be COMPANY X.  All service providers are appointed by the trustees.  In such an instance – one needs to consider whether the trustees would be loyal to COMPANY X or have the members’ best interests at heart in the case of poor service delivery?  Members are not informed of issues of non-compliance e.g. late submission of financials etc.

  • Is the administration fee really lower? An important question to ask is: Is the fund using risk-benefit costs and/or asset-based fees to subsidise the administrative component of the offering?  Administration could be run at a loss and profits would come from cross-selling products offered by the Sponsor, without the transparency you deserve.

 

  • What about asset-based costs? It is often difficult to unpack costs and charges as many umbrella funds link their charges to assets, rather than fees based on salaries of contributions. The initial fee will be attractively low but will increase over time as assets increase – many funds do not disclose this upfront. This not sustainable for the members.

 

  • And transparency? Administrative matters are not always transparent. For example, contributions are typically paid into a general bank account and there are no other specific transactions related to the bank account i.e. interest or costs.

 

  • Prism EB Rainbow Funds have total transparency of all costs, which is confirmed by each fund having its own Bank account and accounting package, allowing for monthly income statements.

 

So if you tired of hearing why people don’t retire independently please give a Prism EB consultant a call and see why we “Make the Difference”

We are Nationally based with numerous South African household names as our clients.

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