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Retirement Planning
Sunday, February 1, 2004
Peace of mind

The latest Glenrand MIB Investment Survey, issued late January “probably marks the end of an era,” says Andrew Crawford, CEO of Glenrand MIB Benefit Services. “Draft Regulation 28 has been around for some time and was expected to be promulgated in 2003. The revised Regulation 28 deals with the way trustees of retirement funds are obliged to approach investment matters. It requires an understanding of the underlying needs and risk profile of a fund; an Investment Policy Statement, a regular review process, and a compliance sign off.”

And it will mean the end of the ‘tables of relative misery’.
Explains Tom Barlow, head of Asset Consulting at Glenrand MIB,
“The reporting against specific and well articulated benchmarks should see the demise of the tables of relative performance because the figures would not highlight an investment manager’s area of excellence or relative underperformance.
“In a defined contribution environment, where fund members carry the risk and reward of investment returns, judging managers on their average performance is not optimal.
“The critical factor when drafting an Investment Policy Statement is the needs of the member,” he adds. “The obvious objective or need of the member is the ability to retire with sufficient capital to sustain a certain lifestyle. This is a function of three variables: savings made for retirement, performance achieved on retirement savings and the size of cash flows required to sustain the lifestyle after retirement.”
For the first time in South Africa, regulators have given financial institutions the blue print as to how to achieve the objectives of the member in the form of the Financial Advisory and Intermediary Services Act (FAIS). This represents the process through which financial advisors should take clients prior to advising them on savings for retirement, and how they should manage their personal cash flows both pre and post retirement. The revised Regulation 28 gives guidelines as to how investment managers should be selected and monitored, thereby ensuring that trustees focus on the performance of retirement savings.
Comments Mr Crawford, “Unless funds compare to the top quartile, they are unhappy. The new Regulation is best practice and most funds have adopted parts of it already. However, the compliance reporting and, in most cases, the specific benchmarking has not yet been addressed.”
Industry speculation is that the new Regulation was not implemented in 2003 because the authorities were not in a position to monitor and check the compliance reporting. However, with the release of Reserve Bank Circular D403 at the end of last year, funds have already had to embrace reporting on the asset class composition, including taking a ‘look through’ approach to insurance policies. The industry is now reporting on a quarterly basis and the Financial Services Board will have the ability to cross reference and check the compliance reporting it receives.
“By combining the disciplines of FAIS and the pending Regulation 28, we at Glenrand MIB believe that our clients - both trustees and members of retirement funds - will have a greatly enhanced opportunity to achieve the simple objective of a retirement fund member, which is to retire with peace of mind.”
 

Copyright © Insurance Times and Investments® Vol:17.1 1st February, 2004
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