1. FSB CIRCULAR PF 130: Just More Red Tape?
October 2007

2. Why Add to the Red Tape Now?
PF130 is not just about your next risk-based assessment
Policymakers have indicated that one reason for reform is that funds may be poorly governed and expensive
PF130 is the best indication we have of post-reform governance standards

3. Should Trustees Be Worried?
No!
PF130 highlights concepts that are familiar to trustees from:
The Act
PF circulars
Case Law
In many ways, PF130 should streamline governance for trustees by bringing together these concepts in a single document.
So it might not reduce the red tape but should help trustees untangle it.

4. Key Words From PF130 The following should be familiar: Integrity
Utmost good faith
Fairness
Transparency
Responsibility
Accountability
Avoiding conflicts of interest
Independence
Confidentiality
Code of conduct

5. Governance of the Board
Principles of PF130
PF130 sets out 13 principles
We won’t be focussing on the content of the principles today but rather seeing how they’ll help your fund.
Governance of the Board
Governance of Fund Operations
Management of Stakeholders
Interestingly enough, the best pnemonic I could make from the 13 principles was Regulation: Scream Recipe.
Service Providers, Composition and Competency, Roles and Responsibilities, Education, Assessment of Board, Mechanism of Governance, Risk Management, Experts, Communication, Investment Performance, Protection of Rights, Employer and Sponsor, Regulation

6. Principle 1: Roles and Responsibilities
Outlines the roles and responsibilities of the Board, Chairman and Principal Officer.
Trustees must act independently of their constituency
Funds must have a code of conduct, including a gift policy, acceptance form, declaration of interest.
Why is it important?
Ambiguity could result in important functions being overlooked or carried out incorrectly
Trustees could be sued as a result
Negative publicity may result

7. Principle 1:Roles and Responsibilities
How is your fund doing?
Have you read your fund’s code of conduct?
Does your gift policy cater for freebies at seminars and conferences?

8. Principle 2: Composition and Competence
Outlines composition guidelines for umbrella funds and criteria for employer-appointed trustees.
Defines Independent Trustees.
Why is it important?
Increase consumer faith in umbrella funds, which may be the only viable option for small funds in the post-reform world.
Clear terms of reference can avoid duplication of work
Risk framework should reduce the risks faced by your fund.

9. Principle 2: Composition and Competence
How is your fund doing?
Have you identified the risks relating to the function of each sub-committee?
How frequently are these risks reported to the Board?

10. Principles 3 & 4: Board Orientation, Assessment, Education & Code of Conduct
Initial and ongoing training for trustees at Fund Expense
Outlines composition guidelines for umbrella funds and criteria for employer-appointed trustees.
Annual performance appraisals with appropriate disciplinary procedures
Why is it important?
Reduced legal risk and reliance on experts resulting in better decisions
Can identify problems and retrain trustee before members experience a financial loss.
Aligns the running of a fund to the running of a company (King II)

11. Principles 3 & 4: Board Orientation, Assessment, Education & Code of Conduct
How is your fund doing?
How often do you do a performance appraisal of yourselves as a Board and as individual trustees?
Do you get anything out of the appraisal system or is it a matter of going through the motions?

12. Principles 5 & 12: Internal Controls, Service Providers and the Governance Mechanism
Oversight function of Board where services are delegated:
performance appraisals of service providers,
regular rebrokes and benchmarking exercises
Awareness of conflicts of interest
Clear written rules needed on the evaluation and appointment of service providers
Why is it important?
Legal risk
Rebrokes and benchmarking can help improve value for money
Fidentia

13. Principles 5 & 12: Internal Controls, Service Providers and the Governance Mechanism
How is your fund doing?
Do you know your consultant’s gift policy? Do you know which service providers have shareholdings in others?
How do you choose a service provider? Do you simply appoint on price?

14. Principle 6: Expert Advisors
Responsibility and involvement of expert advisors
Independence of expert advice
All relationships with expert advisors must be direct
Why is it important?
Trustees responsible for decisions based on expert advice
How is your fund doing?
Is your advisor linked to a financial services company? What assurance can they give that they are acting independently?
Do you ever do independent checks on so-called independent consultants?

15. Principle 7: Risk Management
Risk Management Policy to be updated annually
Fidelity Cover and Cover for Service Providers
Why is it important?
Fund can manage or reduce risks before they have a financial impact
Fund is adequately protected if things go wrong
Fund can only explore efficient ways of dealing with risk once the risk is identified

16. Principle 7: Risk Management
How is your fund doing?
What cover does your service provider have? Would you have any protection in the face of massive governance failure?
What are the three biggest risks your fund faces and how are they managed?

17. Principle 8: Investment Performance of Fund Assets
Funds must have an IPS that is reviewed annually
Fund must be happy with manager mandates.
Must appoint custodian of Fund assets directly
Why is it important?
Investments have a direct link to replacement ratios and the efficacy of funds
Investments link directly to some of the social security’s health checks
IPS needs to capture the complex circumstances of the Fund

18. Principle 8: Investment Performance of Fund Assets
How is your fund doing?
Do you have an IPS? When was it last updated? If you can’t remember it was too long ago
Who is the custodian of your fund’s assets?

19. Principle 9: Communication, Access to Information and Protection of Rights
Trustees should have access to all relevant information
Requirement to have a communication policy statement in line with minimum disclosure standards
Increase credibility and trustworthiness of fund operations e.g. AGM
Why is it important?
Members and beneficiaries can only make appropriate financial decisions if they have an understanding of rules and developments relating to their fund
Protection of information and member rights (look out for more legislation to come)
May assist in areas like obtaining dependent/beneficiary information for death benefit distribution

20. Principle 9: Communication, Access to Information and Protection of Rights
How is your fund doing?
Do you have a communication policy statement? Do you know what the minimum disclosure standards are?
Do you have an AGM? Is there a creative alternative to this?

21. Principles 11 & 13: Employer, Sponsor and Regulator
Relationship between fund and sponsor one of mutual co-operation, independence and good faith.
Communication between Fund and Sponsor through Chairman
Board must comply with regulatory authorities
Why is it important?
Fund is a separate legal entity.
Trustees need to avoid bringing work-politics into the fund and concentrate on only the running of the fund.
Regulator can shut down your fund

22. Principles 11 & 13: Employer, Sponsor and Regulator
How is your fund doing?
Are you up to date with PF circulars, changes to the Act and FSB queries?
Is there a perception that employer-appointed trustees are the mouthpiece of the employer?

23. Summing Up PF130 highlights some familiar themes
But many funds may require fund rule amendments, policy revision and training to comply fully.
So what’s next?

24. Next Steps Perform a gap analysis Identify:
What is missing
What needs work
What is working
Understand Current Situation
Prioritise

25. Thorny Issues Should Trustees be remunerated?
Should your fund outsource to an umbrella?
Do you have measures in place to ensure compliance?

26. THANK YOU
October 2007