Union+counts+cost+of+Fidentia+fiasco,+Irene+Louw,+City+Press

City Press, 17/02/2007 19:44 - (SA)
=Union counts cost of Fidentia fiasco=


 * Irene Louw**

Not even the fact that the Mineworkers’ Provident Fund (MPF) was regarded as one of the National Union of Mineworkers’ (NUM) biggest victories was enough to shield the fund from probably the biggest scandal to rock the local investment industry. Established in 1989 to cater for the dependants of departed comrades, the MPF is regarded by NUM general secretary Frans Baleni as the union’s “baby”.

Yet the MPF and, more significantly, its beneficiaries are casualties of the Fidentia investment scandal which is threatening to leave thousands of widows and orphans destitute.

“Coming on the back of bulking shenanigans, the curatorship of Fidentia has once again exposed the governance of retirement funds as vulnerable to sharp practices by big companies in the retirement funds industry,” said actuarial consultant Donald Molema.

Analysts are in agreement that trustees of such funds tend to not question what is presented to them by fund managers.

Molema advocates strong trustee education and training and the introduction of competition among the service providers in the retirement fund management industry.

“Trustees should improve the governance of their funds. They must split their services among services providers to ensure professional oversight.

“There are instances where an actuary and a consultant would not report flaws within his or her company to protect his company or fellow employees. If actuarial and consulting services are provided by different firms, checks and balances automatically kick in,” said Molema.

He said trustees should also subject their service providers to a formal review by putting their funds on tender every three years or earlier if there are governance failures.

“Current practices, where funds continue with a single provider for years on end, sometimes up to 20 years, invariably leads to laxity, poor service to members and double dealing,” he said.

Molema also voiced his concern with “excessive courting; wining and dining of trustees by big service providers”.

He said this could lead to trustees turning a blind eye to poor service within big companies.

Argon Asset Management managing director Mothobi Seseli said proper trustee education can play an important role in monitoring and understanding the investments made.

“Even though regular reporting on investment performance does take place, it can be difficult to pick up irregularities,” Seseli said.

The relationship between trustees and fund managers also relies to some extent on a level of trust. He said trustees tend to “hope that people are true to regulation”.

Information on the extent of the misappropriation of funds by asset manager Fidentia is still trickling in, but inspectors from the Financial Services Board put the amount of money unaccounted for at between R406 million and R689 million.

And it is looking increasingly grim for the 500 000 beneficiaries covered by the company.

The MPF invested R1.4 billion with Fidentia through service provider Living Hands Trust.

It is certainly with an open-eyed approach that the trustees should consider any other investments, advised Baleni.

“If you are a trustee or a board member of a company, it simply means there must be a very high level of vigilance.

“In most boards, directors and trustees are entitled to external advice and expertise and in most instances our trustees and board members have not used that,” said Baleni.

He said they need to exercise their right to ask for independent advice rather than approve decisions they do not understand.

The Fidentia fiasco also questions the level of skill that may or may not exist with trustees.

“Obviously there will always be a shortcoming because you are not dealing with professional trustees. These are workers who are employed by mining companies and trustees coming from management. But you draw in expertise.

“The fact is that nobody could have foreseen this because we have a service level agreement with Living Hands, not Fidentia,” he said.

“We have not been told that the beneficiaries will not be able to get their money next month. What has been flagged is that in the short term, there might be cash-flow problems.

“As a union we will try by all means to get cash from those who have wronged us to the extent that there should be no gaps in terms of payouts,” Baleni said.

Curators this week announced a retrenchment round of 280 staff members of Fidentia in a bid to ensure beneficiaries will be paid.

Baleni said the union is “optimistic that there should be recovery and since a crime was committed, there should be prosecution”.

Going forward, the MPF has to review its service level agreement with suppliers and possibly look at spreading the risk instead of giving a huge chunk to one service provider, Baleni said.


 * From: http://www.news24.com/City_Press/Finance/0,7515,186-246_2070996,00.html**

788 words