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Articles: FSB to probe ‘bulking’ of accounts by funds

Posted by admin on Wednesday, March 22, 2006 - 07:39 AM

THE Financial Services Board (FSB) will investigate “bulking” of bank accounts by retirement fund administrators following reports that Alexander Forbes benefited financially from the practice, says FSB deputy executive officer for pensions Dube Tshidi.
Stephen Gunnion

Tshidi said on Monday it was of concern that Alexander Forbes had appeared to have “enriched” itself with money that did not belong to it. This follows reports in the Saturday Star that Alexander Forbes had been making undisclosed profits from about 950 retirement funds it administers. News of the bulking is the latest issue to tarnish the retirement funds industry. In a statement, Alexander Forbes said that it had stopped receiving these fees at the end of 2004 with the introduction of the Financial Advisers and Intermediary Services (Fais) Act and following legal advice to do so. Fais requires full and upfront disclosure on the nature and extent of all fees. Alexander Forbes MD for Africa Peter Moyo said the fees earned from banks fluctuated, which would have made it difficult for the company to comply with the disclosure requirement. He said that the fees would also have been difficult to distribute to clients as they were not related to single accounts but to the bulk of accounts. Last week seven people were arrested following an investigation by the FSB into pension fund fraud in the mid-1990s. Among those arrested were two former Alexander Forbes employees. 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. “There is nothing wrong with the concept of bulking, but you must disclose what you are doing with clients’ money,” Tshidi said. “The investigation will not just be into Alexander Forbes but all the players in the industry.” However, Tshidi said all money paid by the banks should have been for the clients’ accounts and should not have benefited Alexander Forbes. Moyo was unable to say how much Alexander Forbes earned from the fees as they were included in its accounts as fee income, and it did not split out fees. “The bulking was always for the benefit for the client,” Moyo said. Moyo said there was nothing unlawful about the bulking or receiving the fee, the only issue was the nondisclosure. “We started disclosing to all our clients going back towards the end of 2003, and explained that we do receive a fee from the bank for arranging this facilitation,” Moyo said. He said it was not clear whether the matter could lead to claims against the group and whether there would be any financial effect. Alexander Forbes advised shareholders to trade cautiously in its shares until a further announcement was made. Meanwhile, the group said it had not been included in the FSB’s probe into alleged illegal accessing of pension-fund surpluses in the mid-1990s amounting to about R213m. The group had co-operated with the FSB’s investigators and would continue to do so, it said. “Alexander Forbes received absolutely no compensation in excess of administration and consulting fees in line with industry norms,” the group said. Tshidi said more arrests were likely as the trial of the seven got under way. Shares in Alexander Forbes ended trade 3,93% lower at R14,90, after trading as low as R14,31.

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