The Employee Benefits Industry Has a Trust Problem
By Henry Dul
Trust sits at the epicentre of any retirement system.
Employees contribute a portion of their income over many years with the expectation that those funds will be managed responsibly, governed effectively and used to support their financial security in retirement. That expectation depends on confidence in the people and structures responsible for making decisions on their behalf.
There are increasing signs that this confidence is under pressure.
Where the trust gap begins
The employee benefits industry operates within a structure where decisions are made on behalf of others.
Members rely on trustees, administrators and advisors to act in their interests. This dynamic is widely recognised in governance literature as the “principal–agent problem”, where decision-makers do not always operate with the same incentives or access to information as those they represent.
In practice, this creates the potential for misalignment in how decisions are made and whose interests are prioritised. Over time, this affects confidence in the system.
Conflicts of interest are part of the structure
Conflicts of interest are a recognised feature of the industry.
In South Africa, this has been the subject of ongoing regulatory attention. In its review of commercial umbrella funds, National Treasury raised concerns around the influence of service providers on trustee decision-making, particularly where governance structures are closely linked to product providers.
Research in the local market has also pointed to governance weaknesses, including challenges around oversight and accountability within some funds. One such study can be accessed here: https://actacommercii.co.za/index.php/acta/article/view/1208/2226
Even where decisions are made appropriately, the presence of these structural dynamics can influence how those decisions are perceived.
The tension between product and advice
Many industry structures combine administration, investment management and advisory services. This creates operational efficiency, but it also introduces complexity in how advice is positioned.
When advisory services are closely linked to product provision, it becomes difficult to clearly separate independent guidance from commercially aligned recommendations.
This is not always the result of intentional bias. It is often a function of how the industry is structured. The result is that stakeholders may question whether recommendations are fully aligned with member outcomes.
Governance frameworks have improved, but concerns remain
Regulation and governance standards have strengthened over time. Conflict of interest policies and disclosure requirements are now well established.
Despite this, governance challenges continue to be identified globally.
The OECD has published extensive work on pension fund governance, noting that the effectiveness of oversight structures remains a key area of focus in many jurisdictions. The research can be found here: https://www.oecd.org/en/publications/pension-fund-governance_241402256531.html
This reflects a broader reality: formal frameworks provide structure, but they do not automatically resolve underlying governance challenges.
The role of independence
In a complex environment, independence plays an important role in supporting effective decision-making.
Independence in this context refers to:
- Clear separation between advisory input and product provision
- Governance structures that prioritise member outcomes
- Decision-making processes that are transparent and well-documented
It also requires acknowledgement of where potential conflicts may arise and how they are managed.
Maintaining this clarity supports stronger confidence in the system.
Strengthening confidence in practice
The employee benefits industry has strong technical capability and an established regulatory framework.
Strengthening confidence requires consistent application of:
- Clear governance practices
- Transparency in decision-making
- Appropriate separation of roles
- Ongoing focus on member outcomes
These elements contribute to a more stable and trusted environment for all stakeholders.
The employee benefits industry carries significant responsibility. It manages long-term savings that individuals depend on for financial security. Confidence in how those savings are managed is essential to the effectiveness of the system. Supporting that confidence requires continued attention to governance, independence and the quality of decision-making.
