Once again it seems as if the year has only started, yet Christmas decorations in the stores clearly tell another story. Operationally we continue to focus strategically on efficiencies, technology and risk management. Service delivery is key to all that we do. We sometimes feel that the industry does not always understand the complexity of what we do and how far we endeavour to go to deliver the best possible service. We recently invited our professional/industry clients to presentations in Cape Town, Johannesburg and Durban and hope that this opportunity for feedback and communication was beneficial to all parties.

Our “real” clients, that is our beneficiaries/members, continue to receive our highest level of attention. This is reflected in the highly successful guardian roadshows that we are currently conducting. To date, the turnout for 2013 has exceeded expectations and feedback from attendees has been very positive.

Notwithstanding the challenges we face, Fairheads continues to grow from strength to strength and this, together with continued improvement in service delivery, should ensure our long-term success.

Thank you to all of our clients for your ongoing feedback and support and best wishes over the festive season.

These lump sums can range from R20 000 to over R400 000. We have invariably found that 18-year-olds receiving a lump sum do not complete their education, choosing to squander the money and opt out of school instead. All the feedback we receive from guardians and caregivers confirms this distressing trend.

Exacerbating the problem, only 50% of 18-year-olds are in matric, the rest are in lower grades, or have dropped out of school already. This leads to a very low literacy level, and an even lower financial literacy level.

At Fairheads we make a point of counseling beneficiaries before termination payments are made to advise them to leave the money invested in the beneficiary fund until they complete their education, but most of them opt to have the money paid out. This leads to more youngsters being insufficiently educated and dropping out of school, and therefore becoming unemployable, which perpetuates an already unacceptable employment rate. This is contrary to a key objective of a beneficiary fund which is to ensure children get sufficient education to be self-sufficient in society and the economy.

Fairheads has been lobbying for the Pension Funds Act to be amended to allow minors’ benefits to be managed until age 21 so that they can at least complete their secondary education. We have made proposals to the FSB and National Treasury who are both fully in support of this, but also need to know that stakeholders are similarly in agreement. If you would like to contribute, please contact Giselle Gould in this regard at Giselle@fairheads.com.

The role of intervening in the economies was to a large extent taken up by the central bankers who responded by dropping interest rates and adding liquidity (money) into the markets. This action led by the US Fed, more than any other action, kept the world economy afloat. Europe was late to respond but in 2012 relented in the face of certain depression and started to add massive amounts of liquidity into the economy. Ben Bernanke will probably be judged in history as the man who prevented depression.

…and what it meant for investors in South Africa
So what did the US central bank policy mean for South Africa? Effectively it meant that investors could borrow money in the US at close to 0% and then invest in emerging markets like South Africa where interest rates were higher – around 7%. As long as the “game” continued and everyone was doing it, capital would continue to flow into South Africa, the Rand would be steady and investors would reap handsome profits.

July the 13th – that’s 2013
July 2013 was a significant time in the life of the financial markets when the US Fed announced a change in policy in response to an improving economy. Until then the Fed had relied on two major policy tools to add liquidity to the economy or make money cheap to borrow in an attempt to get consumers and corporates to borrow. The first was to keep short term interest rates close to 0% and the second was buy long dated US bonds in the market in an attempt to keep long term interest down. In July the Fed announced that they would keep short term interest rates near 0% but indicated that they would allow long term interest rates to rise. The effect of this was profound in that the long term cost of borrowing rose and the market has now started to expect interest rate hikes down the line. The cost of money is going up over time, was the message!

.…and what it means for South Africa
An increase in the cost of money globally has severe implications for a country like South Africa that has VERY large current account and fiscal deficits. Over the last few years South Africa’s current account deficit or overdraft as it were, has been funded by foreigners investing funds here in search of high interest rates. Since the US Fed’s announcement, these capital inflows have pretty much stopped. If the current account deficit persists and the Fed continues with its policy and capital does not flow back in in a meaningful way, the Rand will likely continue to fall. This will lead to further inflation and possibly higher interest rates locally.

The fiscal deficit is the amount that government spends in excess of revenue it collects – its overdraft. This is also VERY high and without foreign inflows investing in government bonds, long term yields in SA are likely to go up.

The amount of money that government will need to borrow on the local markets in this scenario is just too high and they will have to borrow at higher yields to entice investors to increase investments or loans to them. The long term cost of money will rise just at a point in time where there is significant pressure on government to spend more and roll out services and invest in infrastructure in South Africa!

So what are the likely outcomes? If foreign capital does not flow back into SA, the Rand is likely to remain under pressure, long term interest rates will continue to rise, short term rates may be forced up and the chance of tax increases looms large over all of us.

Good news, bad news
So is it all bad news? It’s bad news for borrowers, but it’s good news for savers. Over the last few years interest rates have been around inflation which means the real return on money was zero. As interest rates go up and hopefully above inflation, then the real return on your investments will rise. The income fund that Prescient manages for Fairheads is focused on delivering real returns and rising interest rates is good news for the investors in the fund.

The company has traditionally encouraged staff to study further and we have a generous bursary scheme to enable this. We take a broad view of education, recognising that we have a responsibility to train and educate our staff in the interests not only of the company and its clients, but in the interests of the country in general.

In this light, a few years ago we identified a need to develop a learnership for staff that would lead to improved customer service while allowing successful attendees to obtain an accredited qualification at the NQF Level II.

The challenge was to find a learnership that would cater both for customer service training, as well as administrative functions in the financial services industry. The one that fitted the bill was the National Certificate Contact Centre Support learnership, which is registered with the Services SETA and endorsed by the financial services SETA, FASSET.

The course modules are as follows:
• Contact Centre Orientation and People
• Contact Centre Customer Service
• Contact Centre Systems and Data handling
• Contact Centre Problem Solving

Fairheads launched the learnership in 2010 in conjunction with an external service provider which liaises with our internal training officers. There were 18 learners in the first batch, split equally between staff from the call centre and staff from the administration teams. The course comprises 18 full days, but we stagger this over 12 to 18 months, so that learners have time to apply the principles they have learnt in their work. In addition, no learnership sessions take place during our ‘peak period’ from November to March.

We congratulate our first batch of learners on officially receiving their certificates (see photo) and wish the third and current group, well.

The learnership has evolved over the years as the facilitators have grown to know the Fairheads business. As a result, the course content has become highly relevant and the examples set are very practical and useful to learners.
As part of the learnership, smaller groups are required to identify a challenge within their work area, devise a solution and present this to Fairheads’ management committee. In this way the learnership has become fully integrated into the business, showing true commitment from the company to take the learnership seriously. One such solution has already been implemented, that of adding a beneficiary’s photograph to the operating system. Many beneficiaries send us photos and, by adding them to the system, the administrator or call centre agent can identify more closely with the person they are helping on the phone.

Feedback from learners
The feedback from learners has been overwhelmingly positive. For some, the learnership was their first qualification; the experience has had a transformative effect as four of the first group have gone on to study towards getting their matric.

Originally introduced in 2010 as an enhanced member communication intervention on the back of the PF130 requirement, this large-scale annual initiative has evolved since its inception in 2010, and has firmly established itself on the Fairheads member communications agenda. Not only has it become a strategic business imperative, but it is also a critical and much anticipated annual engagement platform through which we communicate the essence of our Fairheads Benefit Services offering to those who directly benefit from it.

The objectives of the 2013 roadshow can be summarised as follows:
• Fostering two-way communication
• Imparting education and information
• Collecting documents and information
• Building long-lasting relationships

With a few venues still to go before the end of November, we estimate we will have seen more than 5 000 attendees. This year, for the first time, we included Saturday workshops to cater for working guardians/major beneficiaries, which seems to have gone down well.

Feedback from the roadshows thus far indicates an improved understanding and knowledge of how the trust/beneficiary fund works, its processes and procedures, as well as improved understanding of the relationship between the retirement fund and Fairheads. As in 2012, we received many requests for an increase in capital payment and regular payment amounts. Our response here is to explain that increased payments can lead to an erosion in capital but wherever possible we see if we can assist with the request. Feedback indicates that the termination of accounts at age 18 remains a concern for many guardians. See the article on page 3.

This year we commissioned a video recording of the roadshow which we hope to make available to clients over the coming months so that they can see for themselves the power of this extraordinary grassroots communication exercise.