One of the most significant trends in the retirement funding industry over the past two decades has been the remarkable drive from stand-alone retirement funds into commercial umbrella funds.
This shift has been informed by numerous factors including increased cost pressures, the burden of running standalone funds and regulatory change.
“Umbrella funds have also been met with some trepidation by trustees and industry stakeholders who are skeptical of the intentions of sponsors.”
“It may be tempting to place all such umbrella funds into the same bucket but substantial and meaningful differences exist that will ultimately impact the lives of members” says Elio E’Silva, Product Head – Alexforbes Retirement Fund (AFRF).
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A conflict of interests
There are often questions raised regarding whether members’ interests are the priority when umbrella funds are sponsored by commercial entities who participate in the lucrative group insurance and asset management value chains.
In effect, trustees and participating employers must question whether they receive best-of-breed solutions at the best possible prices when the umbrella fund itself is both referee and player resulting in a conflict of interests.
“Independence matters as, for instance, an effective umbrella fund must be able to provide insurance benefits across a wide panel of insurers without any bias to a specific provider ensuring that premiums are kept competitive.”
“Likewise, an impactful umbrella fund must be able to structure its investment portfolios (both pre and post-retirement) on a best-of-breed basis without having to accommodate in-house asset managers with a view to maximising group revenue streams as opposed to investment outcomes to members” emphasised E’Silva.
An advice-led alternative
The AFRF is unique amongst the large commercial umbrella funds as it is the only advice-led umbrella fund that puts members’ interests first as the sponsor does not participate as an insurer or asset manager.
“As evidence, the standard group insurance policy pioneered by Alexforbes ensures that cover is consistently placed at the most competitive insurer without fear of favouritism.”
“Furthermore, Alexforbes Investments is the largest multi-manager in South Africa with a track record of crafting investment portfolios sourced entirely from external asset managers.”
“In this manner, our portfolios directly reflect our best advice and we therefore have the mandate to hire and fire asset managers accordingly”
The AFRF is an extension of the consulting capability within Alexforbes and is therefore an advice-led solution which is built ground up based on the insights of our consultants into the real needs of clients.
This deep integration means that the AFRF delivers a seamless client experience as the operational, member engagement and financial advice requirements of clients are managed in a co-ordinated manner.
25 years of impact
“The AFRF celebrates its 25th anniversary this year and we have reflected upon our place in the world and how we can continue to make an impact.”
“All retirement funds have to evolve if they are to be relevant as members face a range of financial distractions resulting in retirement funding being deprioritised” added E’Silva.
“Today, the real value of an employer-sponsored retirement fund is increasingly being measured by the success of its ability to meet employees’ needs today while still helping them plan for tomorrow.”
“This could range from educating members on setting up and sticking to a budget, to seeing a financial adviser or buying a financial product that will help them be financially secure,” he says.
By making it easy and cost effective for employees to get access to independent expertise and advice for the right solutions and services when it matters most, we are helping them make the most of their long-term financial futures. This means improved financial security, mental and physical health, and work productivity.
Our participating employers and, ultimately, the members themselves can take great comfort that Alexforbes continues to act exclusively in their best interests.