Beneficiary funds have been in existence for four years now, yet awareness of them remains frustratingly low.
by Richard Krepelka – Chief Executive Officer

Many retirement funds have not yet appointed a beneficiary fund service provider to their funds, very few funds include beneficiary funds as an option on member nomination forms or educate their members about beneficiary funds, and the personal finance media are slow on the uptake to write about these funds which are playing an increasingly important social role in maintaining and educating minor children whose parent(s) have died. When will this change? After all, the trust concept is well known in South Africa as a vehicle for housing assets for middle class and wealthy individuals and families. Why not beneficiary funds?

Recent research undertaken by Fairheads emphasizes the major role beneficiary funds are playing in education. Of the total number of ad hoc payments made to guardians of members in the Fairfund Umbrella Trust and Fairfund Beneficiary Fund in 2012, more than 70% of these were related to education. (Ad hoc payments are those made, on request by guardians, over and above monthly income payments). The table below shows the categories in which education related payments occurred. Of all payments, nearly 51% were for school fees, followed by uniform and transport costs.

A savings mindset

This research points gratifyingly to the way in which beneficiary funds are helping to promote a savings mindset among guardians in which children’s assets are used first and foremost for education. This is a mindset that the authorities are trying hard to promote and the private sector needs to do all it can to assist. Through our annual guardian workshops, last year Fairheads had face to face contact with some 5 000 guardians and members around Southern Africa. These workshops serve an important educational purpose in themselves as we explain to guardians how beneficiary funds work, emphasise the importance of updating contact details and address questions guardians may have one on one in their home language. Many guardians express concern about what will happen to funds when children turn 18. They question whether 18 year olds have the understanding and discipline to use a lump sum payout sensibly. In the experience of many service providers in the industry, funds are rarely kept in the account and used for tertiary education, but rather withdrawn and spent irresponsibly. This situation has prompted the industry to approach the authorities with a request to reverse the age of majority from 18 back to 21, specifically for beneficiary and trust funds. The response has been positive and further discussions are taking place. There are exceptions, as a case study elsewhere in this newsletter describes. Some students choose to leave funds in their account and use them for tertiary education, rather than withdrawing the funds and having to invest them elsewhere – there is trust and an established relationship in place.

Drawing up budgets

Another way in which beneficiary funds are promoting a savings culture in South Africa relates to budgeting. Once the funds have been paid into a member account, the trustees ask the guardians to give a breakdown of costs needed for minor children in their care. This basic exercise is helping with financial literacy. Indeed, although there is often confusion surrounding the retirement fund trustees’ decision to use a beneficiary fund, we are finding that once the member account is set up and running, the guardians and members themselves often express and acknowledge the benefits of the fund as a means of protecting assets and using them appropriately.

Welcome to the first edition of Fairheads Times for 2013. Already our financial year end is upon us.

I am pleased to say we have achieved another solid year of results in difficult times. The results reflect a combination of the financial sustainability of the business and the quality of service delivery to our members. It is only by constantly working on fiscal discipline and proving our service to members that the desired results are achieved. I would like to thank all involved for their hard work and dedication.

Our busiest period in terms of ad hoc requests relating to education has come and gone and it is encouraging to note how many members are taking education seriously, some achieving exceptional results. Education and job creation are pivotal to South Africa’s future and beneficiary funds play a small but vital part in helping children to complete their education and enter the job market.

It is important for the motivation of staff and the overall organisation to have a higher purpose in our work. I believe we are privileged to be able to provide a service to our members that not only assists them in their daily living but in many cases empowers them to a great future.

Our key focus remains to service and deliver to our members through many important interventions such as our state of the art call centre, guardian roadshows and other forms of communication.

A Case Study

In 2012 the beneficiary graduated with a Bachelor’s degree in Sociology From the University of Maseru. Her funds came into trust in 2007 after both her parents had passed away prior to her finishing Grade 10. Her grandparents were appointed as guardians.

The beneficiary’s educational expenses have been covered by her funds in trust, from Grade 10 to completion of tertiary education. Despite facing challenges of having limited resources, she excelled academically. In 2010 Fairheads staff
met the beneficiary’s grandmother at a guardian workshop in Maseru where she praised her granddaughter’s hard work and dedication. The beneficiary is currently 24 years old and is seeking employment. She has chosen to keep her funds invested in the trust for the time being as she knows they are secure.

Take a look at our first member newsletter! It’s bold, bright and informative, and is published in Zulu and English.

Asikhulume engages with our members and guardians in an informal manner, educating them about important issues relating to their funds. In our first issue published in November 2012, we explained how to complete a certificate of existence correctly and provided an update on the guardian road shows.

We especially hope to reach our younger members through Asikhulume. The November issue featured an article on the importance of applying for an identity document at age 16 and the need to start researching career options. We also profiled a beneficiary who is heading for soccer stardom.

To see the full issue, go to www.fairheads.com, to the Media Room page.

You know you are in the business of helping young people obtain an education when your company makes nearly 26 000 payments for educational costs from the beginning of November to the end of January. Monica de Oliveira Vilabril, Chief Operating Officer, provides some insight into how Fairheads manages the huge influx of requests for educational expenses for the new school year:

Q: When do educational requests start increasing, and for how long do you experience high volumes?

Monica: The new school year actually starts early for us. Requests start flooding in in late November before schools close, and continue until February when tertiary enrolments are done.

We’ve been encouraging guardians and members to submit their documents as early as possible so that we can make payments timeously. Many have responded positively, and in the past two years we’ve seen an increase in these ‘early birds’.

Monica: Constant improvements in systems and procedures are essential. We review the experience of our past busy periods and build on what worked well and try to fix what didn’t. We try to listen to our guardians, members and staff in this regard. For example, members brought to our attention the fact that they were having problems with tertiary institutions tracking registration payments made by Fairheads. We immediately enabled our call centre agents to access and send the proof of payments to the members or institutions requesting them.

A definite advantage in the quest to improve our service is our team of in-house IT professionals who have the advantage of face to face interaction with the users of our customised administration system. They respond to our challenges with innovative solutions.

We also ensure that we have sufficient staff on board to deal with the volumes. Staff leave is limited and staggered throughout the period.

Q: What are some of the challenges Fairheads faces during this busy season?

Monica: The biggest frustration experienced is the delay of payments due to guardians and members not having complied with our procedural requirements. In order for a request to be considered compliant, the correct documentation from the educational institution must be provided, together with consent from the guardian or major member that we can make the payment. It is also important that a valid certificate of existence for the current year should have been returned to our offices. Guardians and members often become frustrated by these delays but we cannot bypass measures that are in place to protect members’ funds.

There is also the issue of unregistered educational institutions. Fairheads will not make payments to institutions that are not registered with the Department of Education. There are many so-called ‘fly by night’ institutions that end up closing shop a few months into the year and are unable to refund students the fees paid. The qualifications received from these institutions may not be valid if they are not registered with the department.

We are going to work much harder in 2013 to educate our guardians and members on issues like those mentioned above. One of the communication tools we intend to use is our new member newsletter – see page 3).

Q: How do you keep staff motivated and energised during this time?

Monica: It can be tough for our staff to maintain the pace at a time when their family members are on holiday, or they too are preparing their children for the new school year. We value staff’s input into initiatives that motivate them. For example, staff requested to wear sports shoes on Tuesdays – the motto of ‘Takkie Tuesdays’ was ‘fit and on our feet’ – referring to our desire to be ready and willing to deliver excellent client service.

Teams are encouraged to do their own energisers. Some teams hold quiz sessions at lunchtime, others join in the inter-departmental table tennis tournament, and some staff do creative activities during scheduled mini-breaks. Most importantly, we keep reminding each other of the lives we enhance when we deliver excellent service. There’s nothing more satisfying than being sent a picture of a member sporting a brand new uniform, ready for the new school year!

In October 2007, Fairheads appointed William Lourens to head up the internal audit function in the company. William provides an update on this important area.
by William Lourens - Internal Audit Manager

The functions of the internal audit department are now embedded in the DNA of the company. Synergies have developed between operations, IT, HR, finance, compliance and internal audit - the net result of which means that beneficiaries, guardians and trustees can know that they are safe with Fairheads.

We have a risk-based auditing approach and focus on critical point auditing to ensure maximum value add and optimal use of resources. (In critical point auditing, audit efforts are focused on the identified risks, with high risk areas getting more attention.) Perhaps the greatest evidence of our success as a department is the fact that Fairheads’ external auditors, KPMG, have placed reliance on our internal audit work and this has made our annual financial audits more efficient and cost effective.

In the field of risk management we have matured to a point where every conversation starts with “what are the risks involved and what controls do we have in place to manage these risks?” Detailed risk assessments are performed prior to any process or procedural change.

The internal audit function also includes disaster recovery management and business continuity. The status of these areas allow us comfort that our data is well secured and that should a disaster take place, we will be able to recover and continue to service our clients in the shortest possible timeframe.

We are looking to invest in software that will further enhance our use of resources and ensure effective administrative management. The internal audit department has interests in all aspects of the company and we are passionate about helping to grow the company responsibly.

Children from seven institutions benefitted from the generosity of Fairheads staff when the company’s “Back to School” campaign concluded in February this year. The CSI initiative garnered more than 2 100 items of stationery and uniforms which staff personally delivered to the recipients.

The objective of the “Back to School” drive was to collect good quality second hand and new school supplies and uniform items to donate to selected underprivileged schools and child welfare institutions. CSI representatives in each department within Fairheads mobilised their colleagues to contribute to the cause. The end result was that more items were collected than initially anticipated, and perhaps even more gratifying, was that the delivery of goods was not a one way exchange.
Natalie Forgus, personal assistant at Fairheads, was one of the team which delivered goods to Lelieblom House in Cape Town: “The children were so happy and excited, it really warmed my heart. We are so quick to complain about what we don’t have yet there are people with nothing who are grateful for the smallest of things. I definitely want to make more of an effort to help these children.”

Toni Clark, a trustee of the Fairheads Development Trust and the company’s CSI coordinator, also expressed her appreciation of the way staff members embraced the project. Toni explained that Fairheads’ approach to social responsibility was to align it with the company’s business focus and values. She elaborated, “Our clients are mainly minor members, from disadvantaged socio-economic environments, who depend on their funds in trust to see them through their education. However, many don’t have large amounts available to cover their every educational need. As a company we deal with this every day, so focusing on contributing to the lives of underprivileged children in our CSI initiatives, is an extension of what we do every day. I believe it is this insight which fosters empathy and a willingness to give.”

“The aim of Fairheads’ corporate social investment strategy is to build relationships and give sustained support to specific institutions, rather than embark on once-off donations on an ad hoc basis. This has also been applied to the staff CSI initiatives. Departments chose the recipient they wished to sponsor going forward, giving each project a more personal connection,” said Toni.

The CSI programme for staff for the rest of the year includes an Easter egg collection, winter blanket and clothing drive and participation in the Santa Shoebox Project.

What a proud moment to see Thulani Madondo, founder of KYP, being nominated as one of ten finalists for CNN’s Hero of the Year Awards.

Fairheads Benefit Services has contributed R50 000 per annum for the past two years to the Kliptown Youth Programme (KYP) in Soweto as part of the company’s CSI program. What a proud moment to see Thulani Madondo, founder of KYP, being nominated as one of ten finalists for CNN’s Hero of the Year Awards. This is an annual CNN project which allows the public to nominate an individual who is making extraordinary efforts to uplift his or her community. Thulani and KYP’s mission is “to eradicate poverty of mind, body and soul and to fight the disadvantages imposed on the children of Kliptown by providing educational support and positive activities to engage in after school”.