The case of Old Mutual Unit Trust Managers Limited v Living Hands (pty) ltd and others (18/2023) [2024] highlights important issues around fiduciary duties and corporate governance within the context of trust fund management.
Section 13B of the Pension Funds Act requires retirement fund administrators to be licensed, ensuring that only qualified entities perform these critical roles. The Financial Institution Act imposes fiduciary standards on financial institutions, including those that manage trust property. This includes duties of utmost good faith and proper care, aligning with general fiduciacry principles.
The Financial Advisory Intermediary Service Act (FAIS) and The Financial Sector Conduct Authority (FSCA) supervises financial services providers, including retirement fund administrators, ensuring compliance with fiduciary standards and other regulatory requirements.
Section 2 of the Financial Institution Act provides that the directors, partners or employers of institutions/financial institutions have the capacity to act in the following:
2. A director, member, partner, official, employee or agent of a financial institution or of a nominee company who invests, holds, keeps in safe custody, controls, administers or alienates any funds of the financial institution or any trust property-
(a) must, with regard to such funds, observe the utmost good faith and exercise proper care and diligence;
(b) must, with regard to the trust property and the terms of the instrument or agreement by which the trust or agency in question has been created, observe the utmost good faith and exercise the care and diligence required of a trustee in the exercise or discharge of his or her powers and duties; and
(c) may not alienate, invest, pledge, hypothecate or otherwise encumber or make use of the funds or trust property or furnish any guarantee in a manner calculated to gain directly or indirectly any improper advantage for himself or herself or for any other person to the prejudice of the financial institution or principal concerned.
Retirement fund administrators act as agents of the board of trustees. While their primary fiduciary duty is to the trustees, they must perform their roles with integrity and diligence, indirectly affecting the members' interests.
Members typically do not have direct legal standing against administrators. Their recourse is through the trustees, who are expected to ensure that administrators meet their contractual and professional obligations.
It is indeed advisable for the Pension Funds Act to be revised to explicitly state the fiduciary duties of retirement fund administrators. Clear legal standards would enhance transparency and accountability, providing a more straightforward legal framework for addressing breaches of duty. Alternatively, a separate piece of legislation specifically addressing retirement fund administrators could provide targeted regulatory guidance and ensure that fiduciary responsibilities are well-defined and enforceable.
The issue of fiduciary duties in the context of retirement fund administration highlights the need for clarity and comprehensive regulation. While the existing framework provides some oversight, explicit fiduciary duties outlined in the Pension Funds Act or a specialised legislative framework would strengthen the governance of retirement fund administrators, ensuring better protection for fund members and enhanced accountability.
Legislative development is crucial in ensuring that retirement fund administrators are held to clear and enforceable standards of fiduciary duty, ultimately benefiting all stakeholders involved. The case of Old Mutual Unit Trust Managers Limited v Living Hands underscores the importance of clearly defining fiduciary duties in the management of trust and pension funds. While current laws impose certain fiduciary standards indirectly through various acts, explicit provisions within the Pension Funds Act would enhance clarity and accountability.
Retirement fund administrators, given their critical role in fund management, should be subject to well-defined fiduciary duties to ensure they act in the best interests of the trustees and, by extension, the members of the pension funds.
AUGUST 2024
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