Interesting read to do with currencies!
Fedgroup argues that investment choice is not suitable for retirement funds and should be abolished. But their arguments are a bit muddled:
– on the one hand, they argue that members don’t look at their investment choices frequently enough, which means that they are not able to react to markets timeously and so end up chasing bad returns, switching at the wrong time and making more losses than anyone who just stays put in their portfolio
– on the other hand, they admit that most people who are in individual member choice just use the default anyway and don’t ever switch.
They also argue that individual member choice is very expensive and not transparent since it comes out of the savings (presumably, as opposed to an additional investment fee?). I am not sure what they mean – some administrators charge a higher rand per month fee for more investment choice, while others charge a higher asset based fee. Asset based fees have a vastly higher effect on savings than monthly fees, and both are usually declared quite clearly (but the consequences may not be clear to members – how does R15 per month compare to 10 basis points (0.1%) of assets per year?).
My final complaint, though, is that they say that choosing individual member choice means that the member is the asset manager, and needs to react to situations like African Bank by changing their investment choice. I think this is completely wrong – the choices selected by members are still asset management houses, who are equipped to manage stock selection and tactical asset allocation. The only reason to switch asset managers is because you believe they no longer have the expertise or that their investment philosophy is wrong.
But none of this really settles the question of whether investment choice is a good thing or not for retirement fund members – what do you think?
A disturbing number of our lecturers seem to want to convince us students that their topic is the “sexiest’ one of all. Unfortunately Accounting and Disclosure has the reputation for not come close to topping that leaderboard. I have looked in vain for an article regarding disclosure with respect to benefit schemes but in my search I did come across a very interesting article regarding the disclosure of Naspers’ complicated control structure. It turns out that companies can have very convoluted ownership structures and sometimes it is difficult to determine who is really in control. Disclosure of these structures become important when things like mergers and acquisitions occur and a possible collusion or monopoly is on the cards.
About a month ago, Media24 (a subsidiary of Naspers) was going to merge with Paarl Media. However, Napers’ competitor Caxton applied to intervene in the merger application and said it was “defective due to insufficient disclosure of the direct and indirect interests of the controlling shareholders in Media24 and the Paarl Media Group”. The Competition Tribunal granted Caxton their application and ordered Media24 to submit all information regarding all firms directly and indirectly in control of Naspers. In less than a week later, Media24 and Paarl Media called off the merger. Read the following articles to decide whether or not Media24 is justified in thinking they are being made to jump through unreasonable hoops or whether Naspers wishes to avoid disclosing their true owners?
Who controls Naspers? http://www.moneyweb.co.za/moneyweb-special-investigations/who-controls-naspers
Tribunal orders investigation into Naspers control structure. http://www.moneyweb.co.za/moneyweb-special-investigations/tribunal-orders-investigation-into-naspers-control
‘Caxton circus’ slammed. http://www.moneyweb.co.za/moneyweb-south-africa/media24paarl-merger-abandoned
P.S. I will continue to search for a more actuarial example of disclosure
While frantically searching for articles, I conveniently stumbled across a huge accounting blunder committed by Tesco* that was also overlooked by its external auditor PwC.
On Monday, 22 September 2014, Tesco was forced to admit a major accounting error which resulted in overstating first-half profits by £250m. It is suspected that this was due to the early booking of commercial income and delayed recognition of costs. The “commercial manager” who found the error has been kept anonymous. Of course shareholders were first to the scene which resulted in a share price drop of nearly 13%.
Tesco has now appointed a new adviser, Deloitte, to investigate the issue. Interestingly Deloitte will be working closely with Freshfields, its external legal advisers. After reading between the lines a Bernstein analyst, Bruno Monteyne, states that including Freshfields “implies there is potential foul play, beyond simple account stretching.”
Below is the link to a Reuters article which provides all the necessary information:
The following link provides the comments made by various analysts:
Finally the last link provides a brief overview of a few accounting blunders we have seen in the past as well as Tesco’s:
*For those who don’t know “Tesco PLC is a multinational grocery and general merchandise retailer headquartered in Cheshunt, Hertfordshire, England, United Kingdom.”
• The choice a country makes in adopting any regulatory model will depend primarily on analysing the existing industry structure, consumer protection, as well as the the nature of the relevant financial markets
• Twin Peaks can be described as an approach to regulation where there is a separation of regulatory functions between two regulators.
• The bill proposes the establishment of two regulators
– a prudential authority (housed within the Reserve Bank), which will focus on safety and soundness of financial institutions, and
-a market conduct authority (formerly the Financial Services Board), which will focus on business conduct and consumer protection
• Prudential regulation will be more concerned with financial institutions’ solvency and liquidity. The market conduct regulator will look at banks and insurers and the design and price of their products.
• The Netherlands and Australia are perceived to have benefited from a twin-peaks structure, having been less badly affected by the global financial crisis than countries where a centralised regulatory authority responded too slowly.
1. Twin peaks regulation deserves a fair chance
2.Regulation shrinks retirement fund sector
3. Banks brace themselves for twin-peaks model
“Common sense” is a buzzword that politicians like to throw around, but one man’s common sense is another man’s burden. Countries all over the world go through periods, usually during times of great economic growth, where regulation is viewed as a sin that inhibits economic growth instead of an attempt to force businesses to recognize the costs they might displace onto their workers, communities, the environment, and so on.
During these times, people advocate for “common sense regulation.” However, the result is undermining all regulation and negligence by regulators.
So what is “common sense regulation?”
When Chile experienced an earthquake 500 times more powerful than the devastating 2010 tremor that leveled Port-Au-Prince weeks earlier, the world was forced to face the reality that the poor are more likely to die in a natural disaster than the rich. Chile suffered far less devastation thanks to better construction and stronger regulation. Unlike Haiti, Chile has strict building codes. However, a wave of anti-regulationism may lead to many newer buildings collapsing during a future powerful quake.
Buildings are technologies composed of several little technologies. Like all technologies, their quality depends largely upon the business models behind their design, marketing, and distribution. During the 2009 Padang Earthquake, as well as the 2008 Sichuan Earthquake, the most modern buildings collapsed, leaving only older structures standing.
From Chile to China, good economic times have lead to deregulation and weak regulatory oversight, just as it has in the United States. While a push for better regulation of the banking industry in the face of the Great Recession resulted in reforms and the Deep Horizon oil spill lead to a review of policies, the rotten fruits of weak regulation have not been realized in the US construction industry, so far.
The tendency of governments to rely on reactionary policies based on “common sense” regulation leaves the fate of many Americans in the hands of business interests. Unfortunately, trends in business have been to focus on short-term profits without regard to the long-term needs of human beings. This short-sighted view has lead to faulted, lower-quality products that are designed to last a very short period of time, at best.
Meanwhile, the functional of products and technologies must account for environmental conditions, such as the possibility of a strong earthquake, and available resources, yet current business models push one-size-fits-all blueprints. When regulation fails to address these shortcomings of business, the cost is far greater for far more people, instead of those who profited the most.
When the economy is good, those against regulation and government influence step up their campaigns to push for deregulation. Although they supposedly target unhealthy and nonsense regulation, these activists generally show no regard for “common sense” regulation until devastation strikes, thus the consequence of this sentiment on a national scale is deregulation and weak applications of regulations across the board.
After crises like the Great Recession fueled by the cost of Wall Street’s sins and the Deep Horizon oil spill, people suddenly wanted massive regulation.
The resulting vicious cycle of too little than too much regulation ultimately hurts society while unnecessarily endangering lives. Moreover, people must learn to define what is meant by “common sense” regulation before communities can break this viscous cycle.
Not a bad summary, and a lot of it also applies to South Africa. Not sure about listing “we are working longer” as a cause of poor retirement results (it’s more of a consequence), but the other points are not unreasonable. The point about divorce is interesting – undoubtedly true, but being alone in old age has huge financial as well as happiness (hobbyhorse alert!) implications.