Stand-alone funds employ service providers who are paid in accordance with the service level agreement entered into between the fund and the service provider. But this is mostly not where things end. Funds often also remunerate their trustees and boards of trustees often incur discretionary expenditure on trustee compensation, trustee training, trustee meetings, travelling, entertainment, communication – going as far as employing staff renting office or investing in office space, effectively running a business.
Should trustees be concerned about all these costs their fund incurs? When considering administration fees and fees for other services provided by service providers, it is common cause for trustees to pay close attention to these costs. These costs also can generally be benchmarked to some extent if trustees bear in mind that barring auditors and actuaries, no standards exist as to what the consultant’s or the administrator’s services must entail as the result of which it will be difficult to compare apples with apples.
So what about the other costs incurred at the discretion of the trustees, particularly any costs incurred on and in respect of the trustees themselves? Undoubtedly, this area becomes a lot trickier but is the area that the trustees should probably be even more concerned about than the costs of services acquired in the ‘open market’. Trustees should not be complacent in this regard in the light of their fiduciary duties and the personal liability they may face should any court of law rule that trustees acted negligently. Those trustees that attended the recent trustee training seminar organised by Elite Consulting and conducted by Peter van Ryneveld, will remember that Peter cautioned delegates of trustees misusing their powers and incurring excessive expenses.
The Namibian pension fund industry being as small as it is, it is difficult to determine any norm in respect of what is reasonable and what is well over the top when questioning the discretionary trustee expenditure level. From our data base the following statistics should assist trustees to measure their fund’s expenditure levels, bearing in mind that the larger the fund the lower the expenditure levels should be:
| Range |
% of payroll
|
% of assets
|
| Lowest |
0.340
|
0.126
|
| Median |
1.333
|
* 0.489
|
| Highest |
2.491
|
2.119
|
* The industry average for 2015 according to the Namfisa statistical bulletin was 0.58%.
Note that these amounts include the cost of all external service providers as well as trustee discretionary expenditure but exclude the cost of investment management.
Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.