The problem with a financial scandal is that it takes many years before the air clears. Actions taken by the transgressor to atone for its sins do little to wipe out the lasting damage caused by negative press and publicity.
Alexander Forbes is one company that is learning this lesson the hard way. As a regular FAnews Online reader you should be familiar with the 'bulking' scandal which rocked the pension fund industry in 2005. You should also be aware that the Financial Services Board (FSB) conducted extensive investigations to determine which other pension fund administrators were guilty of the practice.
At the time, the practice was thought to be widespread with the FSB suggesting that between 20 and 30 pension fund administrators were guilty of pocketing secret profits earned from the 'bulking' pension funds. Yet the only name bandied about in the media thus far has been that of Alexander Forbes. In fact, since the company agreed to repay R368 million to pension funds under its administration the name Alexander Forbes has become synonymous with the term 'bulking'.
In addition to their undertaking to repay R368 million Alexander Forbes also paid a fine of R12 million to the FSB. Has the company done enough to repair their tarnished image?
Alexander Forbes in the news again
Not according to this Saturday's Personal Finance. The publication reported extensively on dissatisfaction among certain pension fund schemes over the manner in which the repayments are being made. While as many as two thirds of the affected pension funds have accepted Alexander Forbes' offers of compensation, the balance are proceeding with caution. There seem to be two stumbling blocks.
The first is that Alexander Forbes expects the pension funds to accept the settlement as 'full and final', issuing letters to this effect. And the second relates to the method used by Alexander Forbes to determine the amount of compensation. Some advisers believe that the secret profits withheld by the company should have been declared and paid to the funds concerned at the time they were earned. Because this money was not available to the funds when it was earned it was not applied in generating the substantial returns earned by other assets managed in the funds.
From a layman's point of view the argument is very convincing. The bulking practice resulted in significant amounts of money being withheld from various pension funds and these amounts did not benefit from any further growth in the respective funds. Alexander Forbes' offer to repay only the withheld profits seems inconsistent with the requirement to put the funds in a similar financial position had the transgression not taken place to begin with.
Is this simply a case of company bashing?
There is not enough space in this forum to expand the debate and include the views of Alexander Forbes, the FSB and the various retirement fund trustees. What is clear from the various reports and allegations is that seemingly insignificant amounts of cash can quickly manifest as larger financial problems over time. That's what compounding is all about.
The latest round of negative press in Personal Finance led to Alexander Forbes placing an advertisement in that publication in which they state: "We have decided that we will no longer engage with Mr. Bruce Cameron or his publication [Personal Finance]. We will, however, continue to keep open communication with all other media outlets, as has been our policy."
We understand Alexander Forbes' frustration. A quick look at Personal Finance's track record reveals the publication has been doing a hatchet job on Alexander Forbes since they first broke the 'bulking' story. The fact that other pension fund administrators were involved seems lost in the fallout, and the public perception is that Alexander Forbes is the only bad apple...
As we mentioned in the opening paragraph Alexander Forbes will have to accept that recovering from the negative publicity of its previous actions will take a substantial amount of time. They are best served by atoning fully for their previous poor decisions and putting the problem behind them once and for all.
Editor's thoughts:
Alexander Forbes has become so frustrated with the Personal Finance newspaper that they placed an advert in which they refuse to deal further with the publication. Is their stance justified, and has the press been unfair in continually singling out Alexander Forbes for a practice which was widely applied in the industry? Send your comments to gareth@fanews.co.za
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