One of the headline findings of the Old Mutual Savings & Investment Monitor 2021 was that 47% of pre-retirees (meaning retirement fund members aged 50 and over who are close to retirement) said that their retirement plans had been affected by the Covid-19 pandemic.

Meanwhile, only about a third of the people surveyed in the monitor had retirement savings products at all. Now more than ever, management committees (ManCos) and retirement-fund boards of trustees need to ensure that their fund members have expert financial advice to help them attain their investment goals.

But that doesn’t just happen – not without careful planning and guidance from expert financial advisers. To this end, Delores La Vita, an investment consultant at Old Mutual Corporate Consultants, compiled a checklist of the most important questions to help ManCos and trustees stay on track to maximise their members’ investment success.>

1. Does your investment process incorporate an investment governance overlay?

South Africa’s retirement industry is undergoing sweeping changes, including the recent introduction of default regulations – 37, 38 and 39, and proposed changes to Regulation 28 and member-relief proposals. ‘Investment consultants have an important role to play in assisting ManCos and boards of trustees to ensure that – from an investment governance perspective – everything is being seen to and everything is as it should be,’ says La Vita.

2. Does your investment process cover the entire investment function?

A structured, robust investment process is important. Understanding the needs of a fund’s members by conducting a member needs’ analysis is a critical initial step which should take place before making decisions in respect of investment strategy and investment management, and certainly before giving any investment advice.

Once the investment strategy has been implemented, member communication has to be monitored on an ongoing basis and the investment strategy has to be reviewed annually. Various risks also have to be considered in the investment process. A critical risk that should be considered is that of a fund’s members not achieving their goals and objectives for retirement. Often this happens due to reckless conservatism. Unfortunately an investment portfolio is sometimes selected for inappropriate reasons, such as recent superior performance. This is not the correct approach, as there first has to be a clear understanding of the needs of a fund’s members to be able to find an appropriate solution that is aligned with their needs.

3. Are there clear investment objectives and a matching investment strategy?

‘If members require growth of inflation +6%, for example, but the entire share of the fund is invested in a money-market portfolio, there will be a misalignment,’ La Vita points out, ‘and the fund would be putting its members at a disadvantage.’

4. Is the portfolio construction, asset allocation, and manager monitoring and selection appropriate?

Saving for retirement is generally long-term in nature, and as such, requires a suitable long-term investment strategy. Fund management boards should ensure that their fund’s investment managers are adopting the appropriate approach. Asset allocation is one of the key ingredients of a successful investment strategy.

5. Are your active asset-manager selections based on their ability to exploit various sources of alpha?

Alpha, or excess return, is a term used to describe an investment strategy’s ability to outperform the market. There are various ways to achieve alpha, including employing active management. It is therefore important to ascertain whether your fund has asset managers who know how to exploit alpha, to the extent that an active approach is incorporated into your investment strategy.

6. Is the investment strategy being reviewed on an annual basis?

'Reviewing an investment strategy does not necessarily mean changing it on an annual basis, but rather looking at it to ensure that it remains appropriate to meet the needs of the fund – and if it does not, recommending the appropriate change,’ says La Vita.

7. Are the relevant functions being outsourced?

‘Have you appointed an actuary? An investment consultant? An administrator? What about an employee-benefits consultant? These functions should be outsourced as required.’

8. Are member tools appropriate for members’ financial literacy levels?

When it comes to the members, ‘it isn’t meaningful to provide them with intricate calculators that are too complicated to use,’ says La Vita. ‘Members have the right to know exactly what’s going on with their money – it is their money, after all – so it’s very important to provide them with tools, information, education and communication they can understand.’ (Old Mutual Corporate’s Financial Wellbeing Programme, for example, explains retirement concepts and important savings decisions in easy-to-understand videos and articles.)

9. Does the fund also offer investment advice?

‘Poor investor behaviour is an ever-present danger,’ says La Vita. ‘Investment advice is definitely required for defined contribution (DC) funds and their members to improve retirement outcomes – particularly in volatile times.’ This will become even more important should the new two-pot system come into effect in South Africa that allows fund members early access to some of their retirement savings.

To stay up to date with regulations around pension and retirement funds, read Our Expertise for Old Mutual Corporate’s expert insights into retirement and investment in South Africa.