The essence of the administrator’s job

The administrator of a fund is the custodian of the financial records of each member of the fund and of the fund as a whole. It is the financial manager and the accounting department in one person. Defective execution of the administrator’s responsibilities can expose the trustees individually and severally to the risk of liability for any losses incurred by a member or by the fund. In SA trustees were already held personally liable for not taking their fiduciary duties seriously. Besides this risk, any doubt that employees may develop about the reliability of information maintained by the fund administrator can lead, and has in the past led to industrial action by employees. This is when it can really become expensive for an employer.

In Namibia, there are currently no legal impediments for offering services as fund administrator. How can a board of trustees then be comfortable with the credentials offered by their administrator and how can trustees weigh up the cost of administering their fund against the risk mitigation factors their administrator offers?

Justifying their decision based purely on costs, a board of trustees recently expressed its view that the fund does not need to drive an expensive car but can also drive a cheap car. But is this an appropriate logic when you are dealing with trust money that represents the retirement nest egg of hundreds of members? We certainly believe this argument will not stand any board of trustees in good stead should their judgement ever be placed on a test bench.

Good governance comes at a cost but should at the same time serve to mitigate the risk a board of trustees faces. Applying proper risk management principles a board of trustees should really determine the net cost of the service provider, which is the cost charged to the fund minus the quantified benefit of any additional risk mitigation offered. Comprehensive and transparent reporting is the most important tool trustees can rely on to monitor the state of administration of their fund.

A due diligence questionnaire for fund administrators that trustees are duty bound to employ before appointing an administrator, should cover the following key areas:

1. General Firm Information a)?? ?Any business interests unrelated to fund administration? b)?? ?Any historic payment or business defaults of the business? c)?? ?Ownership continuity? d)?? ?Ability to manage the fund? e)?? ?Competitive advantages? f)?? ?Client monitoring policies? g)?? ?Fraud and corruption protection mechanisms?
2. Team a)?? ?Any known conditions (health, financial, litigation, personal, etc.) of any of the Firm’s Principals that might influence their ability to execute their duties to the Firm? b)?? ?Has a “Key-Person” event occurred in the Firm’s history? c)?? ?Any significant past or prospective staff departures (partner or director-level employee (or higher) with more than five years of history with the Firm)? d)?? ?Shared work history of team? e)?? ?Recruitment plans and procedures? f)?? ?Staff retention and training, including historical experience and internal promotions? g)?? ?Qualifications and experience of staff?
3. Alignment of Interests a)?? ?Any of the Firm’s Principals not invested in firm? b)?? ?Compensation structure?
4. Market Environment a)?? ?Business opportunities? b)?? ?Competitors? c)?? ?Impact of changes in environment?
5. Governance a)?? ?What structures in place? b)?? ?Monitoring and enforcement of policies? c)?? ?Historic, current and potential conflicts of interest in firm?
6. Risk/Compliance/ESG a)?? ?ESG risks identified and monitored? b)?? ?Compliance requirements defined and monitored? c)?? ?ESG policies in place and monitored?
7. Track Record a)?? ?Any past failures? b)?? ?Track record? c)?? ?Reputation? d)?? ?Expert references on state of data (e.g. actuary)?
8. Accounting/Valuation/Reporting a)?? ?Internal audits executed? b)?? ?Standard of reporting package?
9. Legal/Administration a)?? ?Past criminal or administrative proceedings or investigations? b)?? ?On-going or pending litigation? c)?? ?Counter party risk management? d)?? ?Business software? e)?? ?Disaster recovery procedures and facilities? f)?? ?Indemnity insurance?

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.