Without transforming this industry it is near impossible to achieve equitable economic participation for SA’s majority
BUSINESSDAY 05 FEBRUARY 2020 – 14:45 SIBONGISENI MBATHA
The allocation of capital greatly influences patterns of ownership and production in the economy. So why has greater transformation and economic inclusion in the financial services sector been so sluggish, seriously lacking at best and at worst regressing?
Why is it that after more than 25 years of a democratic dispensation our country has yet to create the economic ecosystem necessary for transformation of the financial services sector to thrive through an integrated policy environment that encourages transformative ventures to take hold and succeed?
Institutions across the board — notably asset managers, which are among the least transformed subsectors — have had ample time to effect transformation but have chosen not to. They simply pay lip service to broad-based BEE (B-BBEE) codes and deliverables.
In my numerous engagements with the private sector, there is an unfair and frankly ridiculous expectation from the industry and its apologists that the people of SA need to be patient and understand that transformation will only be precipitated if and when the economy picks up. This has been a recurring theme and excuse for many years. This attitude is disingenuous and unjust.
An in-depth analysis by the Financial Sector Transformation Council (FSTC) based on the recalculation of data from the comprehensive scorecards to determine numeric, rand value and percentage BEE performance, concluded that there was lack of commitment by industry players.
For example, of the 167 entities that submitted scorecards and spreadsheets with the underlying data that informed their final BEE report and certificates, only 55% submitted enough detail to allow for in-depth analysis.
The financial services sector has not met ownership targets. Entities in the five subsectors, namely banking, long-term insurance, short-term insurance, asset managers and other institutions, did not meet the BEE goals across almost all indicators.
On management control, overall sector performance was below target. Based on the submitted scorecards, performance on the appointment of African managers and black female employees in senior positions as a percentage of all senior managers was low, with long-term insurers and asset managers performing best against targets on the two indicators respectively.
A recent report published by 27four Investment Managers on transformation in the asset management industry showed that of the R8.7-trillion assets under management in SA, about R5-trillion is available for management by the private sector, but only R490m is managed by black firms.
The FSTC report, titled “Moving Beyond the Scorecard”, confirms that while there are pockets of good performance the sector is still underperforming on transformation.
Outside the FSTC report, the culling of stand-alone retirement funds has been a significant factor. In 2012, SA had 2,761 retirement funds. Umbrella funds made up only 13% of these. By 2016 the number of retirement funds had dwindled to 1,572, with the market share of umbrella funds more than doubling to comprise 28% of all funds. While 28% of funds may seem a small proportion, umbrella funds make up a significant portion of all retirement funds in SA.
The umbrella fund industry is dominated by the largest players in the industry: Old Mutual, Alexander Forbes, MMI, Sanlam, Sygnia and Liberty, which wield significant management and investment control through multimanagers.
Multimanagers, discretionary fund managers and linked investment service providers, such as Analytics, Fundhouse, Sanlam Multi-Managers, Old Mutual, Momentum, Investec and PPS, are the most reluctant to consider emerging black asset managers. It is estimated that less than 10% of assets on their combined platforms are managed by black asset managers, let alone black asset managers who have consistently delivered exceptional long-term investment performance.
Workers have little say in the matter. If an employer decides to move from a stand-alone fund, where employees will legally have 50% representation on the board of trustees, to an umbrella fund where employees can participate in the management of the fund, they have no legal status or say. The sponsor and employer wield disproportionate influence in the running and management of the fund.
This trend is at odds with the government’s priority of broadening access to financial services for all South Africans, and raises the question of how transformed umbrella funds and the multimanagers that typically manage the allocation of those funds are, given the significant size of the market they control on behalf of members, who are largely workers.
With every stand-alone fund that joins an umbrella fund in SA, workers’ rights and participation in the management of their retirement is eroded further, with no legal say or any other recourse.
Transformation is more than just an economic term. It is about creating jobs, empowering people and giving individuals access to better lives for themselves and their children. That is certainly a development goal to which we should all aspire.
The Association of Black Securities and Investment Professionals, which advocates for black professionals and black-owned businesses in the financial services sector, supports the following FSTC proposals:
The financial services sector should be radically transformed to become a vibrant and globally competitive industry that reflects the demographics of SA and contributes to the establishment of an equitable society by providing accessible services to black people and directing investment into targeted economic sectors.
• Mr Sibongiseni Mbatha is president of the Association of Black Securities and Investment Professionals and chairs the FSTC.