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Q2 JUNE 2018

financial sector code What Trustees

01

need to know

Interview with Isaac Ramputa

Interview with Ruth Benjamin-Swales

ABSIP on procuring service providers

Ramputa provides trustees with important information around the latest Amended Financial Sector Code and its implications for retirement funds.

The ASISA Foundation aims to empower previously disadvantaged citizens to manage their financial affairs in order to facilitate greater economic participation in South Africa.

With the introduction of a B-BBEE Scorecard specifically for retirement funds, here is a guide on how to apply the Preferential Procurement element of the scorecard.


First Edition An expanded version of this Education Supplement will be available in the next Quarterly edition of the Today’s Trustee Magazine.

For more info about partnering with Today’s Trustee for future TT Education Supplements, please contact: Allan Greenblo: allan@totrust.co.za Adrian Bertrand: adrian@sixcapitals.co.za

Read Online todaystrustee.co.za Scan this code with your smartphone


01

issue in this

04

05

Firepower for retirement funds

Today’s Trustee Education

06 Interview: Ruth Benjamin-Swales

10

The Amended

Financial Sector Code

16

18

21

Interview: Isaac Ramputa

Guidelines for trustees when procuring service providers

Taking retirement fund trustee education to new heights

PO Box 774 Northlands 2116 Johannesburg, South Africa www.todaystrustee.co.za

EDITORIAL DIRECTOR

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Allan Greenblo

Thalia Pallotta

E: allan@totrust.co.za T: 011 887 1250 M: 083 301 6281

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TODAY’S TRUSTEE EDUCATION Adrian Bertrand E: adrian@sixcapitals.co.za T: 021 851 0091 M: 084 500 6474


04 EDITORIAL NOTE

Firepower for retirement funds by Allan Greenblo

The Amended Financial Sector Code presents an outstanding opportunity for the financial sector, and retirement funds will play a pivotal role in seizing it.

t’s elevating when a plan comes together, and more so when original intentions are exceeded. This is the case of Today’s Trustee for its march in tandem with the new Financial Sector Code, itself the product of a remarkable consensus hammered out by competing parties. To the extent that TT operations can help facilitate vital elements of the Code’s implementation, so much the better. An expanded print magazine, to be complemented by an online offering, is planned to provide a platform that will enable Code participants to earn scorecard points for trustee and consumer financial education. That’s thanks to the company’s two recently-introduced shareholders. In different guises, both the ASISA Foundation and Alternative Prosperity featured in the Code’s formulation. Step back a little in time when there was a ground-breaking amendment to the Pension Funds Act. It introduced the right of fund members to elect up to half the trustees on funds’ boards. Opening the way for a whole new generation of trustees, it was the inspiration to launch TT. Clearly, the need to enhance trustees’ awareness and funds’ empowerment rose to prominence.

TT’s launch 14 years ago coincided with the first iteration of the Financial Sector Charter. It provided, among other things, for commitments by financial institutions to introduce programmes “aimed at empowering consumers with knowledge to enable them to make more informed decisions about their finances and lifestyles”. Significantly, it also endorsed shareholder activism as a “critical component of continued confidence and long-term growth of the sector”. Financial institutions undertook to “encourage training and awareness programmes for all shareholders regarding the impact of indirect shareholding”; in other words, substantially inclusive of retirement funds that dominate ownership of major JSElisted corporates. Over the years, the philosophy of the old Charter garnered arms and legs. One example is the obligation on funds’ trustees to consider environmental, social and governance factors in making their investment decisions. Another is that trustees formulate investment policy statements to mandate their asset managers. So it’s carried on, with greater or lesser levels of compliance and enthusiasm, with each development consistently tracked in the columns of TT. So it will carry


05 on into the future, but now with the Code’s gazetting in December representing the apex of commitment to drive economic inclusivity. Warmly supported in recent TT editions, the tale for the advent of stakeholder democracy is in its infancy. With the Code rests the challenge for financial institutions to lead the private sector as only they can, given their resources and requirements for business sustainability. The envisaged monetary allocations, at percentages of net after-tax profits, are not begrudgingly a tax by stealth for obfuscation by the state. Rather, they voluntarily

catalyse distinctive programmes of action under the control of the institutions themselves. Thus emerges an outstanding opportunity for the financial sector. It’s to grasp an initiative not only in their own best interests, but also to promote the economic growth and transformation that government is too politically burdened to deliver. In this endeavour, the role of retirement funds – where trillions of rand in ordinary people’s long-term savings are held by fiduciaries – will prove decisive.

INTRODUCTION

Today’s Trustee Education by Adrian Bertrand

Welcome to the BATSETA Special Edition of the Today’s Trustee Education supplement

t gives us great pleasure to introduce the Today’s Trustee (TT) Education supplement. This supplement will feature alongside each quarterly edition of Today’s Trustee and will have as its focus topics relevant to trustees of retirement funds. All content will strictly conform to the Retirement Fund Trustee Education (RFTE) Awareness requirements, specifically outlined in the Addendum to FSC Guidance Note GN500 – Consumer Education. This first edition of the TT Education supplement is the first in a series of new initiatives borne from a restructured Today’s Trustee company with new shareholders – ASISA Foundation and Alternative Prosperity. The purpose of this new partnership with founding shareholder, Allan Greenblo, is to extend the scope and reach of Today’s Trustee as a digital and print platform to help

facilitate the attainment of Financial Sector Code (FSC) objectives for Consumer Financial Education (CFE). Today’s Trustee is the largest independent publication catering specifically for trustees in South Africa. Its readership extends to more than 10 000 South African employer and employee elected trustees who receive a free copy of the magazine each quarter in both print and electronic format. It is the aim of Today’s Trustee to expand its activities as an independent publication to provide trustees with independent, authentic and honest information, resources and trustee education offerings as envisaged in the spirit of the FSC. Each quarterly edition of the TT Education supplement will have a specific theme or focus area. This edition has as its focus the Amended Financial Sector Code (FSC).


06 Specific attention is given to the importance of the FSC from a trustee perspective and guidance is provided in terms of how the FSC impacts on trustees. An overview of the FSC is provided as well as summary guidance on how trustees may seek to address the requirements of the FSC in their collective decision-making. The TT Education supplement is made possible by the generous financial support of the ASISA Foundation. TT Education

is keen to partner and collaborate with investment industry partners from both a content and funding perspective to increase the impact, reach and scope of this publication and related TT Education initiatives. TT Education will shortly launch an interactive website and research portal as well as an online education platform where trustees will be able to engage with appropriate RFTE-compliant content, facilitating continuing professional development (CPD).

INTERVIEW

Interview with Ruth Benjamin-Swales, CEO: ASISA Foundation by Adrian Bertrand

The ASISA Foundation aims to empower previously disadvantaged citizens to manage their financial affairs in order to facilitate greater economic participation in South Africa. Why was the ASISA Foundation established? The ASISA Foundation is a non-profit industry initiative funded by ASISA members. Its purpose is to foster economic inclusion by empowering South Africa’s most vulnerable groups through financial literacy and entrepreneurship. The aim is to influence a change in behaviour through the transfer of knowledge and skills development, thereby helping previously disadvantaged groups to manage their financial affairs more appropriately. In so doing, these consumers can become empowered to make appropriate financial decisions throughout their life stages, which will enable greater economic participation – particularly by the poor and needy.

Furthermore, the ASISA Foundation seeks to provide thought leadership to the investment industry based on the learnings it gleans from the various types of financial education programmes it implements. In consultation with the ASISA Consumer Financial Education (CFE) standing committee, the Foundation strives to be innovative in its approach – aiming to ensure that its programmes will achieve a change in the participant’s financial knowledge, attitudes and behaviour. If there was ever a need for financial education in South Africa – and the world – it is now, given the easy availability of credit, the resultant high levels of personal debt, low levels of saving and high levels of unemployment.


07 How does the ASISA Foundation receive its funding? The ASISA Foundation receives its funding for CFE programmes from ASISA members. The Foundation’s structure facilitates a simple and cost-effective vehicle to enable ASISA members to comply with the Financial Sector Code (FSC) requirements to spend 0.4% [without FSC bonus

Retirement Fund Trustee Education (RFTE) is undertaken by the ASISA Foundation in partnership with the ASISA Academy.

points], or 0.5% [with FSC bonus points], of Net Profit after Tax (NPAT) on CFE. Other sources of funding received by the Foundation include donor or grant funding organisations, public entities or corporates, for specific projects which are aligned to the specific goals and objectives of these organisations. The Foundation also receives distributions from the ASISA Enterprise Development Fund.

How is the ASISA Foundation structured to benefit its beneficiaries and incentivise donor funding? The Foundation is set up and aims, at all times, to qualify as a Broad-Based Ownership Scheme (B-BOS) as defined by the codes of Good Practice on Broad-


08 Based Black Economic Empowerment (B-BBEE) gazetted under the B-BBEE Act – in terms of which at least 85% of its activities are carried out for the benefit of black persons in the Republic of South Africa, of which 40% will be for the benefit

Grant contributions made to the ASISA Foundation to support CFE, as defined in the FSC, will facilitate immediate 100% FSC points scoring, with the grantor (measured entity) being able to immediately recognise the full grant amount awarded to the Foundation. of black women. The Foundation is registered as a Public Benefit Organisation with SARS. The Foundation’s Board of Trustees includes representatives from national government, organised labour, organised community and the savings and investment industry. The Foundation’s trustees guide and approve the Foundation’s strategy and receive regular reports from independent specialists on the Foundation’s financial management, as well as the outcomes of the various programmes supported by the Foundation in order to ensure that the Foundation complies with its mandate as a B-BOS, and remains fully compliant with the FSC. All projects funded by the Foundation are subject to independent monitoring and evaluation.

The ASISA Foundation has also recently made a commitment to fund RFTE through Today’s Trustee CFE initiatives, such as this Today’s Trustee Education Supplement.

What are some of the ASISA Foundation-funded Retirement Fund Trustee Education (RFTE) courses available to trustees via the ASISA Academy? The following RFTE workshops are available through the ASISA Academy:

›› ›› ›› ›› ›› ›› ›› ››

What are some of the other projects supported by the ASISA Foundation? The ASISA Foundation supports the following projects, under the CFE campaign name “Saver Waya Waya”, which means “To save continually”:

››

Saver Waya Waya – Phase 1: This was a pilot financial literacy project conducted in Hammanskraal in Gauteng with some spill over into the neighbouring North West province during 2013. The results of this pilot formed the basis upon which further programmes were developed.

››

Saver Waya Waya – Phase 2: This is the financial literacy programme specifically tailored to three target audiences, namely young adults; community members; and workers, who have been identified as key recipients of CFE initiatives by the FSC.

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The Saver Waya Waya Project for Technical and Vocational Education and Training (TVET) College students was first implemented in 2016 at four TVET colleges in Gauteng and the North West province. This project is directed at students in their final year of study who are about to enter the world of work. The programme has demonstrated significant success in terms of achieving its objectives and outcomes, and is currently being implemented in TVET colleges in the Vaal region.

How does the ASISA Foundation support Retirement Fund Trustee Education (RFTE) initiatives? Retirement Fund Trustee Education (RFTE) is undertaken by the ASISA Foundation in partnership with the ASISA Academy as the Foundation’s preferred service provider. The ASISA Academy and ASISA Foundation have also entered into a collaborative arrangement with the Batseta Council for Retirement Funds; the Academy provides trustee education to Batseta members who, in turn, are awarded continuing professional development points (CPD) for completing the workshops. The training offered in these workshops equips delegates to effectively fulfil their respective roles, thereby enhancing the retirement prospects of the funds’ members and beneficiaries. All workshops offered by the ASISA Academy and funded by the ASISA Foundation are fully independent and are available to all South African retirement funds and their trustees.

Investment Fundamentals Retirement Fund Trustee Governance and Ethics Responsible Investing and Active Ownership Annual Financial Statement Analysis Investment Policy Statement Formulation and Assessment Employee Benefits Death Benefits Investment Management Fees and Costs


09 ››

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Saver Waya Waya – FLAME is a financial literacy and micro enterprise programme targeted at community members in the areas of Hammanskraal, Soshanguve, Garankuwa and Rustenburg. The project aims to equip community members to generate sustainable income to enable their financial inclusion. It embeds personal and business financial education into a micro enterprise development programme for aspirant entrepreneurs and includes one-on-one coaching and mentorship. Saver Waya Waya – WageWise is a financial literacy programme targeted at workers in various sectors across South Africa. This project has been implemented continuously and effectively since 2015, helping workers to better understand their needs versus their wants; their payslips and beneficiary statements; and the impact of compound interest on both their debt and savings. The programme generally comprises of a full-day workshop with various activities to support the beneficiaries to implement the calls-to-action highlighted in the workshop. This includes meeting with a financial planner or a debt counsellor. The programme is often delivered through organised labour at worksites and is known as Project Qaphela when delivered in collaboration with the National Union of Mineworkers (NUM). The programme is also well suited as a tailored Member Education workshop for members of retirement funds, implemented in collaboration with the Principal Officer, board and management of individual retirement funds.

How does the ASISA Foundation decide on which projects to fund? All ASISA Foundation-funded projects are selected based on a formal strategy and framework compiled by the ASISA Foundation in consultation with the ASISA CFE Standing Committee, which incorporates CFE priorities as defined in the national CFE strategy. Specific programmes, service providers and budgets will be submitted via the ASISA CFE Standing Committee, for approval by the Board of Trustees of the ASISA Foundation, based on predefined priorities and evaluation criteria. All initiatives must be aligned to the Organisation for Economic Co-operation and Development (OECD) definition of CFE as adopted by National Treasury and The Financial Sector Conduct Authority (FSCA). Initiatives are required to meet the FSC guidelines for CFE, in order to facilitate measured entities being able to claim their FSC points for consumer education. These guidelines include physical accessibility; appropriateness; measurability, affordability, simplicity and to be non-discriminatory. It is important

to note that consumer education spend excludes any expenditure on employee skills development. In light of the recent gazetting of the FSC, as well as the outcomes of the Financial Sector Conduct Authority (FSCA)’s national baseline survey measuring financial literacy in South Africa, the focus of the ASISA Foundation’s initiatives are targeted at consumers that earn less than R250 000 per year and will include basic financial literacy concepts linked to relevant access to products and services.

Programmes supported by the Foundation have proven methodologies in achieving the Foundation’s vision and objectives for enabling economic participation for the poor and vulnerable through financial education. The Foundation requires ongoing funding from ASISA members and other donors and continuously seeks out new opportunities for collaboration to facilitate scale so as to achieve greater reach and impact with its programmes. Programmes supported by the Foundation have proven methodologies in achieving the Foundation’s vision and objectives for enabling economic participation for the poor and vulnerable through financial education.

Where can people find more info about the ASISA Foundation and its projects? The ASISA Foundation website is available at: https://www.asisa.org.za/foster-the-future/asisa-foundation/ and should serve as a good source of additional info about the Foundation and the projects it supports.


10 EDUCATIONAL ARTICLE

The Amended Financial Sector Code Overview and its impact on Trustees by Eric Ackroyd, Alternative Prosperity

Effective implementation of the Amended Financial Sector Code will result in an inclusive, viable, vibrant and stronger economy. rustees of retirement funds have a fiduciary duty towards beneficiaries or members of the fund and are responsible for ensuring that the fund is well governed to the benefit of its members. Part of these governance duties of trustees is to ensure that the fund complies with applicable legislation. In South Africa, transformation is legislated by the B-BBEE Act and its related Codes of Good Practice. Regulation 28 of the Pension Funds Act requires that funds consider B-BBEE as part of their supplier selection processes. Therefore, it is important for trustees to have insight into the content of the Financial Sector Code (FSC) to enable them to govern responsibly with regards to transformation and B-BBEE.

The Amended FSC was gazetted on 1 December 2017 and came into effect on the date of publication. It is based on a harmonisation of the Department of Trade and Industry (DTI), Amended Generic Codes of Good Practice and the FSC gazetted on 26 November 2012. The FSC will be effective until expressly amended, substituted or repealed. Any amendments to the Generic B-BBEE Codes of Good Practice may result in a review of the FSC for purposes of alignment. The Financial Sector Charter Council may issue interpretative guides, guidance notes, practice directives and standards documents in consultation with the DTI.


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Parties to the development of the FSC: Financial sector trade associations

Community

›› The Association for Savings and Investment

›› ›› ›› ›› ›› ››

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South Africa (ASISA) South African Insurance Association (SAIA) International Banking Association (IBA) Banking Association of South Africa (BASA) JSE Limited

Government

›› ›› ››

The Presidency National Treasury DTI

Association of Black Securities and Investment Professionals (ABSIP)

›› ABSIP representing black professional organisations

Financial Sector Campaign Coalition Disabled People South Africa National Co-operatives Association The Women’s National Coalition SA Youth Council SA Civics Organisation

Labour

›› ›› ››

Congress of South African Trade Unions (Cosatu) National Council of Trade Unions (Nactu) Federation of Unions of South Africa (Fedusa)


12 The parties to the development of the FSC are the financial sector trade associations, the Association of Black Securities and Investment Professionals, Government, Labour and Community. All participants commit to promote a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa, which contributes to the establishment of an equitable society by providing accessible financial services to black people and by directing investment into targeted sectors of the economy. Empowerment Financing, Access to Financial Services and Consumer Education (CE) are unique elements to the FSC and are intended to broaden and hasten the transformation process. Through equity equivalent contributions further resources are committed to key developmental and national focus areas including, but not limited to, National Development Plan

(NDP)-aligned initiatives, growth of black business, enterprise development, empowerment financing and access to financial services. The FSC specifies its scope of application and specifies different scorecards that are applicable to the different sub-sectors. The Empowerment Finance element is only applicable to Banks and Life Offices, while the Access to Financial Services element is only applicable to Banks, Life Offices and Short-Term Insurers. For retirement funds that operate in sectors that have a high concentration of lower-income employees, their members will also likely fall within the target market of Access to Financial Services and CE, which are two of the unique elements of the Amended FSC.

FSC – Scope of Application The Amended Financial Sector Code is applicable to: ›› ›› ›› ›› ›› ›› ›› ››

Banking Long-term insurance Short-term insurance Re-insurance Retirement fund administration Management of Collective Investment Scheme Assets Financial services intermediation and brokerage Public entities involved in the financial sector (DBSA, Land Bank)

Element

›› ›› ››

›› ››

Asset management, consulting and administration Private equity, venture capitalist and impact investors Investment managers (Management of investments on behalf of the public, including, but not limited to, private equity, members of any exchange licensed to trade equities or financial instruments in South Africa and entities listed as part of the financial index of a licensed exchange) Underwriting management agents Industry trade associations operating in the sector

Amended FSC (*=Priority Element) Banks and long-term Insurers

Short-term Insurers

Stock exchanges / members

Other (asset managers)

Retirement funds

23+5*

23+5*

23+5*

25*

Disclose

20

20

20

20

20

SKILLS DEVELOPMENT

20+3*

20+3*

20+3*

20+3*

Disclose

PREFERENTIAL PROCUREMENT

15+4

20+4*

20+4*

20+4*

80

ENTERPRISE & SUPPLIER DEVELOPMENT

10+4*

15+4*

15+4*

15+4*

n/a

EMPOWERMENT FINANCING

15*

n/a

n/a

n/a

n/a

ACCESS TO FINANCIAL SERVICES

12

12

n/a

n/a

n/a

SOCIO ECONOMIC DEVELOPMENT, FUNDISA AND CONSUMER FINANCIAL EDUCATION

5+3

5+3

5+3

5+3

Disclose

120+19

115+19

103+19

105+14

100

OWNERSHIP MANAGEMENT CONTROL & EMPLOYMENT EQUITY

TOTAL

*Some of the elements have been allocated bonus points. In the table above the + sign is followed by the bonus points for that element.


13 Voluntary Dispensation for Retirement Funds The Amended FSC not only introduces new targets and measurement categories across the various elements, but also introduces the Retirement Fund scorecard as a voluntary dispensation for the top 100 retirement funds including umbrella funds. By virtue of the high value of members’ savings, retirement funds play a critical role in the South African economy and they have a critical role to play in the transformation of the financial sector. The Amended FSC suggests that retirement funds measure themselves annually against certain elements of the FSC, namely Management Control and Preferential Procurement. This means that a retirement fund will be measured on the racial and gender demographics of its trustees and executive team as well as the transformation performance of the suppliers it uses – for example the asset managers and consultants to the retirement fund.

No B-BBEE score needs to be calculated for Skills Development, but given the critical roles that trustees, office bearers and principal officers play in the economy, it is suggested that details related to South African Qualifications Authority (SAQA)-accredited training spent on trustees and executive managers – such as principal officers and other staff – are disclosed. This should include the quantum, average spend per staff member; number of staff members trained; together with some examples of key training interventions. Member education initiatives should also be disclosed. The annual reporting should include a narrative of the B-BBEE score achieved, and future plans for improving the score. The Financial Sector Charter Council will measure transformation on an annual basis.

The retirement fund will not be required to calculate an Ownership Score, but it is suggested that large funds should report annually on the proportion of fund liabilities attributable to black male members and black female members.

Retirement Fund Scorecard MANAGEMENT CONTROL Board and Executive Management Participation

POINTS

TARGET

20

Exercisable voting rights of black board members as a percentage of all board members

8

50%

Exercisable voting rights of black female board members as a percentage of all board members

4

25%

Principal officer, executive and senior management if applicable

8

50%

PREFERENTIAL PROCUREMENT ELEMENT

POINTS

80

TARGET Y1-3

TARGET Y3+

B-BBEE procurement spend from all suppliers based on the B-BBEE procurement recognition levels as a percentage of total measured procurement spend

35

75%

80%

B-BBEE procurement spend from suppliers who are QSFIs or EMEs based on the applicable B-BBEE Procurement recognition levels as a percentage of total measured procurement spend

10

15%

25%

B-BBEE procurement spend from suppliers that are at least 51% blackowned based on the applicable B-BBEE procurement recognition levels as a percentage of total measured procurement spend

25

15%

25%

B-BBEE procurement spend from suppliers that are at least 30% blackwomen-owned based on the applicable B-BBEE procurement recognition levels as a percentage of total measured procurement spend

10

7.5%

12.5%

Total Points

100


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The FSC seeks to support new and existing black-owned companies that create jobs within the economy.

Other key aspects of the Amended FSC In line with the Amended Generic B-BBEE Codes, the FSC also places priority status on the Ownership, Skills Development, Procurement, Enterprise and Supplier Development elements whereby a 40% sub-minimum is required to prevent a one-level discount. In addition, Empowerment Finance is also a priority element with a 40% sub-minimum for sub-sector scorecards where it is applicable. The suggested retirement fund scorecard has no priority elements.

create passive empowerment stakes in non-black-owned and managed business.

Businesses must meet the following criteria in order to qualify as an eligible recipient of BBGF: ››

Black people must be directly involved in the origination and creation of the business or must through a transaction become intimately involved in the management and operations of the business;

Access to Financial Services The Access to Financial Services element is only applicable to Banks, Life Offices and Short-Term Insurers. The objective of the Access to Financial Services element is to expand the reach of financial services by all participants in the industry to that portion of the population previously excluded from such services.

Black Business Growth Funding

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The FSC seeks to support new and existing black-owned companies that create jobs within the economy. Additional recognition under the Ownership element (in certain cases) and points for the Empowerment Financing element are available for Black Business Growth Funding (BBGF) in the scorecard for Life Offices and Banks. The funding provided is intended to provide capital to operational black business and not to

The enterprise should be or become a financially sustainable business or cooperative that results in the creation or preservation of jobs in the local economy.

The Access target market includes individuals within LSM 1-5 for Banks and individuals with an income below the Income Tax threshold for the Life Offices and Short-term Personal Lines. Exempt Micro Enterprises (EME – an enterprise with an annual turnover of less than R10m) is the target market for Commercial Lines of Short-term Insurers.

The FSC Guidance Note 600(f) also provides that, subject to approval by the FSC Council, 20% of all BBGF committed can be provided to support funding of higher education for schemes and individuals that meet the affordability thresholds defined by the higher education ministerial task team.

Each of the different sectors has its own set of rules by which it is determined if a particular product or service will count for Access points – but in principle, a product or service should be appropriate, affordable and understandable to the target market and the person should have physical access to


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such product or service. However, while the product offering must be affordable for the target market, product offerings should adhere to sound economic principles and be economically viable and sustainable. For retirement funds that operate in sectors that have a high concentration of lower-income employees, their members may fall within the target market of Access to Financial Services and CE. Consequently, given their influence in the financial sector, retirement funds can play a role in ensuring that their members are offered other appropriate financial products and services from the financial product providers.

Consumer Education The National Consumer Financial Education Strategy sets as priorities that the consumer has financial control, does financial planning, chooses the right financial product and stays informed. Consumer Education (CE) is defined in the FSC Guidance Note 500. CE contributions are only recognisable if they comply with the Consumer Education Standards or are approved CE programmes.

CE is the process of transferring knowledge and skills to consumers, future consumers and potential consumers for individual well-being and the public good. The intended outcome of the process is the development of the individual and small business consumer’s knowledge and understanding of the financial sector and its products and services. CE will include programmes that are aimed at empowering the broader consumer as referenced above with knowledge to enable them to make more informed decisions about their finances and lifestyles, including the financial health of their business ventures. CE empowers an individual to make informed and good financial decisions and it is complemented by Access to Financial Services, which ensures that suitable and affordable product options are available in the market. CE is also specifically applicable to retirement fund trustees and refers to the process by which the trustees of retirement funds receive training on the legislative and regulatory framework, and governance principles

in order to equip them to effectively carry out their functions as retirement fund board members. The aim is that such training should enable trustees to minimise their risk of liability, engage confidently with all stakeholders, as well as to enable more effective decision-making for the ultimate benefit of fund members. Trustees should be educated on a continuous basis about new matters relating to their retirement funds. This ensures that they acquire and maintain an understanding of risk management, investment risks and strategies, benefit structures, legal issues, regulatory and compliance requirements, taxation, and actuarial and reform issues. It is said that the only thing that is certain is change. The Amended FSC introduces numerous new measurements and targets that need to be adopted, and for which initiatives need to be implemented. It is imperative that the FSC be embraced as its effective implementation is certain to result in an inclusive, viable, vibrant and stronger South African economy.


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INTERVIEW

Interview with Isaac Ramputa, CEO: Financial Sector Charter Council by Adrian Bertrand

Ramputa provides trustees with important information around the latest Amended Financial Sector Code and its implications for retirement funds. What is the mandate of the Financial Sector Charter Council?

What are the objectives of the Financial Sector Charter Council?

The Financial Sector Charter Council is a non-profit company constituted in terms of the Financial Sector Code (FSC), gazetted under section9(1) of the Broad-Based Black Empowerment Act 64 of 2013.

The objectives of the FSC Council are as follows:

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It is mandated through its constituencies – which are the Trade Associations, Government, Nedlac Organised Labour (Labour), Nedlac Organised Community (Community) and the Association of Black Securities and Investment Professionals (ABSIP), Financial Intermediaries Association of Southern Africa (FIA) and the Southern African Venture Capital and Private Equity Association (SAVCA) – to enforce the FSC.

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Engage with policymakers to ensure that legislation enables transformation; Engage with financial institutions to promote understanding of the FSC and to provide support for compliance; Regularly review implementation guidelines to ensure relevancy and ease of implementation; Publish an annual performance report that is reflective of the status of the financial sector’s transformation; Research to understand challenges and identify opportunities to expedite transformation; Engage with other relevant stakeholders to promote understanding of the FSC and its benefits.


17 How does the FSC operate and which constituencies are represented on the FSC Council? The FSC Council members represent a range of organisations drawn from the four constituencies represented in the National Economic Development and Labour Council (Nedlac), Government, Business, Labour and Community. The Nedlac constituencies are joined in the Council by representatives of ABSIP, FIA and SAVCA, whose members are involved in the financial sector. The FSC Council is supported by a CEO and an executive team based in Parktown, Johannesburg. More info is available on our recently updated website: www.fscharter.co.za

What is the ultimate aim of the Amended FSC? The Preamble to the FSC states this very clearly: “The Financial Sector Code (FSC) commits all participants to actively promoting a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa, which contributes to the establishment of an equitable society by providing accessible financial services to black people and by directing investment into targeted sectors of the economy. The FSC reflects the accord reached by all of the stakeholders regarding their joint commitment to fostering B-BBEE in the financial sector and in the South African economy.”

When did the Amended FSC come into effect? The effective date for the application of the Amended FSC is 1 December 2017 as stated in the Government Gazette.

Why do trustees need to know about the latest Amended FSC? Retirement funds play a critical role in the South African economy by virtue of the collective size and influence of members’ savings, which exceeds R4 trillion. Retirement funds therefore have a critical role to play in the transformation of the financial sector itself, largely by virtue of the appointment of private sector service providers. Funds are also currently required by Regulation 28 of the Pension Funds Act to consider environmental, social and governance (ESG) criteria and B-BBEE as part of their supplier selection processes. The top 100 funds (including umbrella funds) have been incorporated on a voluntary basis under the FSC and it is proposed that the top 100 funds compile and publish annual scorecards for the preferential procurement and management control elements of the Amended FSC, using the measurement metrics contained in the FSC.

What additional actions should trustees (voluntarily) take in relation to the latest FSC? It is suggested that retirement funds measure themselves annually against certain aspects of the broad-based empowerment scorecard contained in the Amended FSC. Retirement funds can compile and publish annual scorecards for the preferential procurement and management control elements of the Amended FSC. Retirement funds are classified as mandated investors in B-BBEE legislation. Trustees, however, have little or no influence on membership demographics. For this reason, it is suggested that large funds should not be scored on the ownership aspect of B-BBEE but should report annually on the proportion of fund liabilities attributable to black male members and black female members, based on the principles enshrined in FS Code 100. Retirement funds traditionally do not employ large numbers of employees. However, given the critical role that trustees, office bearers and principal officers play in the economy, it is suggested that funds annually disclose details related to accredited SAQA approved training spent on trustees and executive managers such as principal officers and other staff. In addition, member education initiatives, where applicable, should also be disclosed both in terms of number of members trained and the amount spent relative to size of membership. The B-BBEE annual reporting by retirement funds should also include a narrative on the B-BBEE score achieved and future plans for improving the score.

“What gets measured, gets managed”. Given that the Amended FSC is voluntary for top 100 retirement funds, what will the FSC Council do about monitoring the voluntary application of the FSC by retirement funds? The FSC Council will measure transformation disclosure by retirement funds on an annual basis. Should voluntary disclosure by retirement funds not materialise, consideration may then be given by the FSC Council to revise this voluntary dispensation.


18 EDUCATIONAL ARTICLE by Fatima Vawda, ABSIP

Guidelines for trustees when procuring the services of private sector service providers The Financial Sector Code has introduced a B-BBEE Scorecard specifically for retirement funds. Here is a guide on how to apply the Preferential Procurement element of the scorecard. he Financial Sector Code (FSC) is the B-BBEE framework for the financial services industry. It is an interventionist policy tool aimed at redress and aligning government’s broad agenda to engender the attainment of economic equality. Broadly speaking, it is an instrument designed to achieve parity within the sector. Given that retirement funds are a large procurer of private sector financial services, the FSC has introduced a B-BBEE Scorecard specifically for retirement funds, including umbrella funds. The objective of the scorecard is to encourage retirement funds to provide for fair and equitable treatment of suppliers and employees. Therefore the scorecard consists of two elements only: Management Control and Preferential Procurement. This guide seeks to provide practical guidance for Trustees on how to apply the Preferential Procurement element of the scorecard and outline a process to support procurement decisions to ensure implementation of a sustainable transformation and reporting framework. Ultimately, the expansion of the investment industry supply chain should lead to more efficient and competitive services that benefit Fund members.

Objectives of the preferential procurement element The objectives of the Preferential Procurement element are to increase the rand value of procurement spend to black-owned and black-women-owned suppliers as well as Exempted Micro Enterprises (EMEs) and Qualifying Small Financial Institutions (QSFIs).

PREFERENTIAL PROCUREMENT ELEMENT

POINTS

TARGET

TARGET

80

Y1-3

Y3+

B-BBEE procurement spend from all suppliers based on the B-BBEE procurement recognition levels as a percentage of total measured procurement spend

35

75%

80%

B-BBEE procurement spend from suppliers who are QSFIs or EMEs based on the applicable B-BBEE procurement recognition levels as a percentage of total measured procurement spend

10

15%

25%

B-BBEE procurement spend from suppliers that are at least 51% black-owned based on the applicable B-BBEE procurement recognition levels as a percentage of total measured procurement spend

25

15%

25%

B-BBEE procurement spend from suppliers that are at least 30% black-women-owned based on the applicable B-BBEE procurement recognition levels as a percentage of total measured procurement spend

10

7.5%

12.5%


19 identifying developmental unlisted investment opportunities that will deliver an attractive investment return while making a valuable economic impact.

What trustees should consider before making appointments Trustees are responsible for the selection and appointment of service providers to the Fund. This would include the appointment of asset consultants, employee benefit consultants, asset managers, actuarial consultants, fund administrators, auditors etc. Retirement funds apply specific procurement processes to evaluate potential service providers. These processes typically include an evaluation of the technical capability of the service provider and the costs for the provision of the services. In addition to these criteria the Fund should apply minimum B-BBEE criteria to be met by all service providers appointed to the Fund. These minimum criteria should include the following: Code under which service providers will be measured against:

In order to meet FSC targets preference will be given to:

Amended FSC of December 2017 including future amendments

At least 51% black-owned, at least 30% black-women-owned, QSFIs and EMEs

Other factors to also be taken into consideration ››

››

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When it comes to the appointment of asset managers, retirement funds should recognise the importance of building black skill across asset classes and strategies and therefore should not limit the application of the minimum B-BBEE criteria to traditional low-risk and low-fee earning strategies. The minimum B-BBEE criteria should be applied for the management of assets across all investment classes and strategies, both domestically and internationally. A retirement fund cannot claim exclusion for the fees paid to a global asset manager. Although the procurement spend is from a foreign entity, the FSC is clear that if a local equivalent exists for the service or product, then the spend cannot be excluded or regarded as import services exclusion. To qualify as an import exclusion, no local equivalent should exist. Therefore the Fund will receive zero procurement spend recognition. It is therefore recommended that retirement funds contract locally based asset managers for global mandates to attract spend recognition. Retirement funds should consider making a policy determination as part of meeting transformation and responsible investment goals to contribute to the industrialisation of the economy in a responsible manner by

››

Black-owned stockbrokers face significant challenges in gaining access to market and growing market share. Retirement funds should therefore encourage all appointed asset managers to the Fund to divert stockbroking spend to stockbrokers qualified as black under the FSC.

››

Where the Fund has already appointed service providers prior to the gazetting of the FSC and some of the service providers do not meet the minimum B-BBEE requirements, the Fund should engage with these providers on their plans to improve their B-BBEE profiles. The service provider should provide the Fund with timelines during which the firm will achieve the prescribed targets. The Fund should monitor the entity for improvements. Should the Fund see no improvement within the targeted period, the Fund should terminate the entity’s contract. To enhance the Fund’s procurement status it is important for the Fund to encourage its service providers to become contributors to B-BBEE, thereby improving the Fund’s contribution level.

››

Certain categories of spend should be set aside for blackowned and black-women-owned suppliers, especially in areas where the supply risk is low and various suppliers exist. Audit services is an example. In addition to the “big 4” audit firms, reputable black audit firms with a proven track record exist in the market.

››

In the event where the service or product is highly specialised, with only a handful of suppliers in the market, it is advisable that a transformation discussion takes place between the retirement fund and the supplier. This engagement should result in the alignment of transformational plans and objectives between the two entities. An example is the provision of actuarial services. There is an overall shortage of black actuarial consulting firms in the market. Therefore, in the case of high-risk and high-value services, with a limited supply base, it is prudent to understand the long-term B-BBEE plans of the supplier.

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As part of the Fund’s ongoing supplier review management process, suppliers should be periodically removed from and added to the Fund’s supplier list. This could be the result of governance, best practice, regulatory, operational reasons, changes to the Fund’s investment strategy or changes to specifications of products and services. These interventions contribute to an efficient supply chain. Therefore, like the appointment of new


20 suppliers, the off-boarding of untransformed or non-compliant B-BBEE suppliers, does provide an opportunity to enhance the Fund’s Preferential Procurement agenda and allows the Fund to introduce new B-BBEEcompliant suppliers into its supply chain.

››

The Fund should remain aware of fronting practices by market participants. Any misrepresentation or attempt to misrepresent a Measured Entity’s true B-BBEE status in terms of the amended B-BBEE Act Section 1 would be ‘Fronting’ as defined in the Act. Fronting practice means a transaction, arrangement or other act or conduct that directly or indirectly undermines or frustrates the achievement of the objectives of this Act or the implementation of any of the provisions of this Act.

Ongoing monitoring A retirement fund should undertake to monitor the success of its B-BBEE strategy on an ongoing basis through regular performance monitoring and reviews. It should request all appointed service providers to provide the Fund with B-BBEE verification information annually to allow the Fund to complete its B-BBEE Scorecard for submission to the Financial Sector Charter Council. Funds should maintain a central depository system that houses data used for verification purposes, such as the information derived from B-BBEE certificates. Furthermore, Funds should also ensure that transformation is a standing item at investment committee and trustee meetings. This will allow for effective monitoring and re-enforcing commitment among decision-makers. Ongoing reporting should be conducted to monitor progress against targets and to determine any actions to be taken. For example: off-boarding of untransformed asset managers and diverting spend to transformed managers, engaging and influencing asset managers’ transformation plans and sourcing new opportunities for supplier development. These interventions contribute to an efficient and competitive asset manager supply chain. Funds should provide feedback to the appointed service providers, especially if targets are not being met, to understand the mechanisms in place to improve targets as well as to provide timelines to achieve those targets.


21

ASISA ACADEMY CONTRIBUTION

Taking retirement fund trustee education to new heights

The ASISA Academy’s commitment to providing independent, quality trustee education resulted in the delivery of more than 40 workshops to over 700 trustees and principal officers last year. ome 10 years ago the Academy of the Association for Savings and Investment South Africa (ASISA) took a strategic decision to make retirement fund trustee education one of the cornerstones of its consumer financial learning programmes.

Terence Berry, executive director of the ASISA Academy, says the importance of truly independent, quality trustee education cannot be overstated. Drawing on statistics from the Registrar of Pension Funds at the Financial Sector Conduct Authority (FSCA), he says more than 16 million South Africans entrust some 14 000 retirement fund trustees


22 with the safeguarding of their retirement savings of around R4.5 trillion. By law a retirement fund is required to have a minimum of four trustees, of which at least half must be member-elected trustees. “But there are currently no requirements for minimum qualifications or previous experience,” says Berry. The Pension Funds Act Circular 130 on Good Governance of Retirement Funds goes some way to mitigate this by requiring trustees to receive rigorous, ongoing and comprehensive training, and to equip them to effectively carry out their functions. “For most employed South Africans, their retirement fund savings are also their only savings. This money is meant to enable them to maintain a reasonable standard of living when they are no longer able to work and earn an income. Having trustees who are well equipped to grow and steward this money in a prudent and appropriate manner is therefore critically important.” Berry says that for many years trustee education was an uncoordinated effort executed by various service providers, often for self-serving purposes. “While it has taken several years of consultation with various stakeholders to address this, the right partnerships have made all the difference. I believe that we had a breakthrough last year in delivering more than 40 workshops to over 700 trustees and principal officers,” says Berry. The continued demand for the Academy’s quality education, independently funded by the ASISA Foundation and professionally accredited by the Batseta Council for Retirement Funds, has resulted in the number of workshops on offer – more than doubling over the past two years to the following:

1. 2. 3. 4. 5. 6. 7. 8.

Investment Fundamentals Retirement Fund Trustee Governance and Ethics Responsible Investing Annual Financial Statement Analysis Investment Policy Statement Formulation and Assessment Employee Benefits Death Benefits Investment Management Fees and Costs

The primary intended outcome of the ASISA Academy retirement fund trustee education programme is to improve the financial literacy of retirement fund trustees, thereby

enabling them to optimise the post-employment living prospects of pensioners and dependants. This is achieved by facilitating an understanding of the investment environment, applying the learning to the governance of their retirement funds and interacting more effectively with their fund’s investment advisers and investmentrelated service providers, while simultaneously complying with an increasingly complex regulatory environment. Berry says the Academy’s vision is to become more than just a trusted service provider of independent learning programmes to retirement funds. “Currently, we deliver high-quality workshops that meet the general needs of retirement fund trustees. But we believe that we can make an even bigger impact by building long-term relationships with individual funds so that we can design and deliver learning programmes that meet the unique requirements of funds and their trustees. The deeper learning needs of trustees in the pharmaceutical industry would, for example, differ from those of trustees of a fund in the mining industry.” Berry is excited about the Academy being recognised as the Imbasa Yegolide Retirement Fund Training Provider of the year at an industry awards ceremony earlier this year. However, he is even more enthusiastic about the possibilities lying ahead. “We are working on a blueprint that will place trustees on a learning path to help them become professional trustees. This will open doors for trustees to become independent trustees of several retirement funds.” Berry believes that the Academy, in partnership with the ASISA Foundation, Batseta and Today’s Trustee, is well positioned to take ongoing retirement fund trustee education to the next level. The ASISA Academy, ASISA Foundation and ASISA Enterprise & Supplier Development Fund are the three independent entities formed to deliver ASISA’s Foster the Future initiative. For more information please visit www.asisaacademy.org.za.


todaystrustee.co.za For more info about partnering with Today’s Trustee for future TT Education Supplements, please contact: Allan Greenblo: allan@totrust.co.za Adrian Bertrand: adrian@sixcapitals.co.za

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