Any financial services company that in future attempts to hoodwink consumers, by either lawful or "not lawful" means, is just plain stupid. A formidable line-up of institutions and people is now effectively tackling the excesses of what was a very arrogant industry - an industry that thought it could pick our pockets at will.
This line-up is headed by Finance Minister Trevor Manuel and includes his competent teams at the National Treasury and the South African Revenue Service.
Other members of the line-up are:
- Parliament's portfolio committee on finance;
- The Financial Services Board (FSB), which regulates most parts of the financial services industry, under the capable leadership of Rob Barrow, and supported by people such as Dube Tshidi, a deputy chief executive;
- The offices of Pension Funds Adjudicator Vuyani Ngalwana and Charles Pillai, the Ombud for Financial Services Providers, as well as, to a lesser extent, the various voluntary ombudsmen and adjudicators;
- The Council for Medical Schemes under Patrick Masobe, the Registrar of Medical Schemes;
- The Department of Trade and Industry's consumer protection division; and
- Importantly, the media.
The R380 million acknowledgement of wrongdoing by Alexander Forbes, one of the most powerful financial services companies in South Africa, for the "not lawful" secret profits it made by bulking the bank accounts of the retirement funds it administers, is proof that times have changed.
Many of the people on my above list, from Manuel down, played a role in supporting Personal Finance in ensuring this significant payback by Alexander Forbes took place. This payback to retirement funds will ultimately benefit the pensions of many thousands of fund members.
Alexander Forbes did not seem to realise that it was not taking on only Personal Finance when we exposed the bulking practice on March 18.
Prior to publication, Alexander Forbes tried to pretend the issue was not serious, it turned nasty and made legal threats. When we published nevertheless, it dismissed our reports, particularly in letters to retirement fund trustees, as vindictive, sensational and biased.
Alexander Forbes has also continually refused to answer, or avoided answering, our questions on the bulking issue and many other unacceptable practices that we have since revealed about its operations.
Perhaps if the formidable line-up of institutions and people were not in place, Alexander Forbes might have got away with it.
Alexander Forbes has now done the right thing by admitting guilt and paying up.
The admission of guilt comes on the heels of the virtual R2.6 billion admission of guilt Manuel wrung out of the life assurance industry last year.
Manuel's action followed rulings by Ngalwana that the confiscatory penalties levied by the life assurance industry on ordinary people who, for one reason or another, could no longer afford to maintain their premiums on their retirement annuity policies, were unacceptable.
These paybacks do not mean that other nefarious schemes will not continue to take place or that Alexander Forbes now has a clean bill of health.
It has set aside a further R100 million to cover any other unacceptable practices that may come to light.
Unanswered questions
Many unanswered questions remain about Alexander Forbes's current, and particularly its past, operations. Peter Moyo, the chief executive of Alexander Forbes's operations in Africa, has given a public undertaking that he will not accept the unacceptable, and Moyo has invited his staff to provide him with information about these practices.
I also think it is about time that Rael Gordin, the chief executive of Alexander Forbes, started to take a higher profile instead of placing the responsibility on Moyo, who had nothing to do with it all. Gordin has been at Alexander Forbes/Investment Solutions for quite a while.
He should tell us what he knows about all the issues that have been revealed and how much money he made when Investment Solutions listed on the JSE.
The FSB's investigation into bulking practices in the retirement fund administration industry will reveal that other companies (a number of which are known to Personal Finance) have been involved in scandalous behaviour.
One thing that concerns me is that if, as Alexander Forbes's lawyers, Routledge Modise Moss Morris, put it, "not lawful" actions took place with regard to bulking - or any other practices - surely some sort of action must be taken against the individuals who initiated and maintained these "not lawful" practices?
It is simply not acceptable to say they were "common industry practice", as if this is a valid excuse. Moyo has given me an undertaking that Alexander Forbes will review the actions of all individuals involved.
Dubious schemes
The much improved consumer protection we currently enjoy does not mean you can sit back and take it for granted that your investments will be safe. There are many dubious schemes out there, not least of which is the flourishing property syndication market.
Most of these property syndications are riddled with major problems that are likely to explode into the open as property markets cool off, leaving thousands of people, particularly pensioners, out of pocket.
Deon Basson, the award-winning, independent journalist who has done much to expose the excesses of the property syndication industry, is currently fighting a R2 million libel action from Sharemax, a property syndication company. The surprising thing about this action is that only Basson is being sued and not the publications that have printed his exposés. This reeks of intimidation.
Incidentally, the 1st quarter 2006 edition of Personal Finance magazine also tackled Sharemax, but the company has not had the courage to attempt to intimidate us with threats of legal action.
I have also heard that it is telling brokers that I have retracted the statements I made about Sharemax in the magazine. For the record, I have not retracted anything, and I stand by every word I wrote in that article.
And I notice that Blue Everest Investments of Pretoria, another property syndication company I dealt with in the magazine article, has had its application for a Financial Services Provider licence turned down by the FSB. This should serve as a warning sign to potential investors in property syndication schemes.
Finally, it is great to know that with the Alexander Forbes settlement, Personal Finance has been vindicated, yet again, for taking up the cudgels on behalf of our readers and consumers of financial services products.
Alexander Forbes broke contract with pension fund
The manner in which Alexander Forbes skimmed additional profits off the bulked bank accounts of retirement funds was not limited to the company taking advantage of trusting trustees. Even where Alexander Forbes had a contract with a retirement fund stipulating that it must provide the fund with the "best" interest rates, it continued to rake in secret profits.
In 2000, the Cape Municipal Pension Fund signed a contract with Alexander Forbes which included a clause stating that Alexander Forbes must pay the best interest rate to the fund less a fee of 0.7 percent.
In 2003, the Cape Municipal Pension Fund established that Alexander Forbes "was not paying over the best interest rate" to it. The fund took action and Alexander Forbes was forced to pay up about R500 000. The fund also punished Alexander Forbes for not sticking to its contract by reducing the fee to 0.3 percent. The fee was reduced to zero in 2005.