RFS dismisses reports on NaCC findings
Misplaced and misleading statements
RFS Fund Administrators, Alexander Forbes Financial Services Namibia, Metropolitan and Old Mutual were being investigated for anti-competitive conduct.
The Namibian Competition Commission (NaCC) completed an investigation which it started in 2017 against RFS Fund Administrators (RFS) and other pension fund administrators, including Alexander Forbes Financial Services Namibia, Metropolitan and Old Mutual.
RFS along with other competitors was alleged to have “tied and bundled together administration services with services that are non-administration in nature such as actuarial services, consulting services, legal services, insurance, and investment management”.
The investigation did not find RFS and other fund administrators to have contravened the relevant section of the Competition Act as alleged.
According to RFS managing director Marthinuz Fabianus, NaCC’s findings enjoyed a lot of media attention with various misplaced and misleading statements being made without appropriate context.
To provide appropriate context, below is a summary of industry aggregate fund administration competitor statistics as at July 2018 when the investigation was underway.
As can clearly be seen from above statistics, five administrators serving the private funds industry, were accused of anti-competitive practices, although these five represented 38% of the overall membership of the pension fund market and only 24% of the overall pension fund assets.
It is interesting that these five players, representing a mere 38% of the total market, should be accused of being monopolistic, he questioned.
A quick reference check to South African pension fund market, which is similar in many respects to Namibia, revealed the following: South African Financial Services Board 2018 report, indicated that the number of pension funds registered were 5144, with a total membership (active members and pensioners) of 16.6 million members. There were 170 registered pension fund administrators at the time, which produces a ratio of 98 000 members per administrator.
In contrast, Namibian pension fund administrators on average must survive with 25 000 members per pension fund administrator which makes some operators not economically viable. Given the fiercely competitive nature of the Namibian pension fund administration market, one must conclude that the economic theory that best describes the Namibian market: it is a “perfectly competitive” market. Fund administrators provide the same type of services, and, to our knowledge, at least 3 of the service providers use the same pension fund administration system. Moreover, there’s full disclosure of fund administration fees in the service level agreements and there’s no price fixing amongst competitors.
Findings
The most contestable findings by NaCC however are a market structure in which a small number of firms have a large majority of the market share and administrators have the power to increase administrative costs beyond reasonable levels.
In addition, NaCC also found that there is no possibility for market expansion due to exclusivity and cross selling strategy and lastly the administrators and associated pension funds operate with the same common purpose, as a single economic unit, being vertically integrated with one another.
“I have already dispelled the first statement with reference to the table above. It is factually not correct,” he said.
“On the second and third statement it was shown over the years it that our pension funds market is too small to carry more than three administrators. Whenever more than three were active one or more closed doors for not being economically viable. While competition in the market will ensure that no single competitor can charge significantly higher costs than the others, too many players competing for unviable shares of the market will lead to all having to increase their costs beyond reasonable levels to survive,” he said.
With the last statement the NaCC is generalising. While it may apply to some administrators, it does not apply to all. Vertical integration is a business strategy in which a company controls multiple stages of its production process and supply chain. RFS, is the administrator of both private and stand-alone employer pension fund arrangements and founder of an umbrella fund, the Benchmark Retirement Fund.
“All our funds make use of different and unrelated non-administration service providers, such as actuaries, consultants, insurers, auditors, and investment managers. RFS thus only performs fund administration services and nothing else. The Financial Institutions and Markets Act (FIMA) will also now require fund administrators to be registered and regulated by Namibia Financial Institutions Supervisory Authority (NAMFISA) as pre-empted by NaCC.”
“We have jealously guarded our independence and believe this is what helped RFS to be one of the few viable fund administrators, with at least 25 000 members under our administration,” Fabianus said.
RFS along with other competitors was alleged to have “tied and bundled together administration services with services that are non-administration in nature such as actuarial services, consulting services, legal services, insurance, and investment management”.
The investigation did not find RFS and other fund administrators to have contravened the relevant section of the Competition Act as alleged.
According to RFS managing director Marthinuz Fabianus, NaCC’s findings enjoyed a lot of media attention with various misplaced and misleading statements being made without appropriate context.
To provide appropriate context, below is a summary of industry aggregate fund administration competitor statistics as at July 2018 when the investigation was underway.
As can clearly be seen from above statistics, five administrators serving the private funds industry, were accused of anti-competitive practices, although these five represented 38% of the overall membership of the pension fund market and only 24% of the overall pension fund assets.
It is interesting that these five players, representing a mere 38% of the total market, should be accused of being monopolistic, he questioned.
A quick reference check to South African pension fund market, which is similar in many respects to Namibia, revealed the following: South African Financial Services Board 2018 report, indicated that the number of pension funds registered were 5144, with a total membership (active members and pensioners) of 16.6 million members. There were 170 registered pension fund administrators at the time, which produces a ratio of 98 000 members per administrator.
In contrast, Namibian pension fund administrators on average must survive with 25 000 members per pension fund administrator which makes some operators not economically viable. Given the fiercely competitive nature of the Namibian pension fund administration market, one must conclude that the economic theory that best describes the Namibian market: it is a “perfectly competitive” market. Fund administrators provide the same type of services, and, to our knowledge, at least 3 of the service providers use the same pension fund administration system. Moreover, there’s full disclosure of fund administration fees in the service level agreements and there’s no price fixing amongst competitors.
Findings
The most contestable findings by NaCC however are a market structure in which a small number of firms have a large majority of the market share and administrators have the power to increase administrative costs beyond reasonable levels.
In addition, NaCC also found that there is no possibility for market expansion due to exclusivity and cross selling strategy and lastly the administrators and associated pension funds operate with the same common purpose, as a single economic unit, being vertically integrated with one another.
“I have already dispelled the first statement with reference to the table above. It is factually not correct,” he said.
“On the second and third statement it was shown over the years it that our pension funds market is too small to carry more than three administrators. Whenever more than three were active one or more closed doors for not being economically viable. While competition in the market will ensure that no single competitor can charge significantly higher costs than the others, too many players competing for unviable shares of the market will lead to all having to increase their costs beyond reasonable levels to survive,” he said.
With the last statement the NaCC is generalising. While it may apply to some administrators, it does not apply to all. Vertical integration is a business strategy in which a company controls multiple stages of its production process and supply chain. RFS, is the administrator of both private and stand-alone employer pension fund arrangements and founder of an umbrella fund, the Benchmark Retirement Fund.
“All our funds make use of different and unrelated non-administration service providers, such as actuaries, consultants, insurers, auditors, and investment managers. RFS thus only performs fund administration services and nothing else. The Financial Institutions and Markets Act (FIMA) will also now require fund administrators to be registered and regulated by Namibia Financial Institutions Supervisory Authority (NAMFISA) as pre-empted by NaCC.”
“We have jealously guarded our independence and believe this is what helped RFS to be one of the few viable fund administrators, with at least 25 000 members under our administration,” Fabianus said.
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