FSB to probe pension accounts ‘bulking’ policies

He said it was of concern that Alexander Forbes had appeared to have ‘enriched’ itself with money that did not belong to it. News of the bulking is the latest issue to tarnish the retirement funds industry. ‘There is nothing wrong with the concept of bulking, but you must disclose what you are doing with the clients’ money,’ Tshidi said. ‘The investigation will not just be into Alexander Forbes but all the players in the industry.’ Alexander Forbes negotiated higher interest rates on the current accounts of retirement funds by getting banks to recognise all its clients’ accounts in their ‘bulk’ rather than individually. The company then received a fee from the bank for the business. Full Business Day report

Earlier, Alexander Forbes denied it was under investigation. It admitted two former employees had been arrested after an investigation by the industry watchdog but that the company was not the subject of the probe as alleged in recent newspaper reports. A report on the FIN24 site says that according to Alexander Forbes, ‘the FSB has been conducting an investigation relating to alleged illegal accessing of pension fund surpluses during the mid-1990s reportedly amounting to some R213m. This has culminated in the arrest … of several individuals, including, regrettably, two former Alexander Forbes employees’. The firm added: ‘Alexander Forbes is not the subject matter of the FSB investigation. Alexander Forbes has co-operated fully with the FSB\'s investigators and will continue to do so if and when we are asked,’ it said. It made the point that it had’ received absolutely no compensation in excess of administration and consulting fees in line with industry norms.’ The firm also responded on the issue of ‘bulking’, saying the grouping together of the accounts enables their retirement fund clients to secure higher interest rates and Alexander Forbes received income from the banks as compensation. Full report on the FIN24 site

It was responding to allegations that it has skimmed off millions of rands in \'secret profits\' at the expense of funds and, ultimately, members\' benefits. These allegations were contained in a Personal Finance report that also alleged that Alexander Forbes has been attempting to keep the scandal of the ‘not lawful’ profits out of the public eye and away from the scrutiny of retirement fund trustees by reaching secret settlements, involving tens of millions of rands, with retirement funds that uncovered the ‘not lawful’ activities. Personal Finance claims that it was only the advent of the Financial Advisory and Intermediary Services (FAIS) Act, which requires that all costs and fees, whether direct or indirect, are disclosed, that forced Alexander Forbes to discontinue its ‘secret profits’ scheme at the end of 2004. Full Personal Finance report

The group has admitted it has not always met ‘the disclosure standards it aspires to’. According to an I-Net Bridge report, Alexander Forbes said it started rolling out new service-level agreements more than two years ago, which disclose the nature of the bulking arrangements and the fact that it received payment. ‘Virtually all our clients have received new service-level agreements and agreed to this arrangement,’ the group added. ‘After careful review of further legal advice, and considering the complexities of complying with new Financial Advisory and Intermediary Services requirements, in September 2004 Alexander Forbes stopped receiving payment but ensured that the bulking arrangements continued for the full benefit of our clients. On reflection Alexander Forbes recognises that in relation to this matter it has not, in the past, met the disclosure standards it aspires to.’ It added: ‘We are serious about governance and integrity and in the interest of open communications and continuing to maintain good relationships, we will be contacting all funds impacted by this to brief them fully and ensure that this matter is dealt with to our clients\' satisfaction.’ Full I-Net Bridge report