Never heard of this risk? Read on and I will explain!

Talking about ‘familiarity risk’ in the foregoing commentary - from our own experience I believe there is another risk that trustees need to consider seriously – call it ‘familiarity risk’ for the lack of a better description and for reason of its close relationship with the ‘familiarity risk’ now launched by NAMFISA, but do keep on reading because it is close to my heart and it does concern me!

As a new kid on the block in 1999 when RFS was founded, most funds we took on were actually taken over from another administrator. At the time, many trustees were sick and tired of poor service, poor turnaround times, poor data quality etcetera and were anxious to get out of the claws of their administrator. The fact that we have been so successful undeniably speaks for a reputation we developed in the market. Key to our success I believe has been our expertise and experience, our focus on fund administration and our reporting. In many instances it took us years to sort out the mess we inherited, but we did. Our reporting was designed to support our efforts of implementing and maintaining due risk management and governance for our funds and for boards of trustees who were mostly comprised of layman trustees with very little exposure to and knowledge of the requirements of risk management and governance.

With many funds having come from a frustrating era with poor or no reporting before appointing RFS, trustees initially keenly followed our reports, questioned, probed and actioned where required. Over the years of our tenure however, we find that trustees in many cases have become so acquainted with our reports and so comfortable that ‘things are running smoothly’ that we are often not provided an opportunity to present our reports anymore! Of course our reports are extensive because they cover everything that is happening in the ‘engine room’ of the fund. Where the oil level is low, the report would point this out. Where a gear is worn of the report would say so. The meters are all there – it is left to the board to take the readings and make sure they are comfortable with the readings or take corrective action! Much more time it often spent on investments. But which fund takes active investment decisions? None I know of other than perhaps GIPF so, trustees award full discretion and cannot and do not want to intervene. The only active decision is the decision to hire and fire, but how often can you do this and how often can you do this meaningfully and with conviction?

So here is a true risk! Trustees get all information they need but choose to take the information as a given having developed a high level of comfort with their service provider. Shall we coin a new risk – the ‘comfort in a service provider risk’? If this is what NAMFISA had in mind when coining the new ‘familiarity risk’ I would be fully on its side! Who wants to live with this risk – any takers?

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.