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Alexander Forbes - bulking resolution

25 May 2006 Bruce Hetherington Beachhead Media

In March this year the Financial Services Board (FSB) called on all industry players to provide detail on bulking and any form of undisclosed fees earned in the past. Bulking is the term used to describe the practice of aggregating, on a notional basis, the total value of all pension fund clients current accounts in order to negotiate better interest rates with the banks on behalf of clients.

Alexander Forbes commissioned an independent review that indicated 1700 pension funds had been affected. The company will put these clients in the position they would have been in had a full corporate cash management rate of interest been paid on their current account balances over the period. The total amount to be paid is approximately R 368 million which also equates to the total net amount of income earned by Alexander Forbes from the practice.

Peter Moyo, the chief executive officer of Alexander Forbes Africa operations said although clients had benefited significantly over the period from bulking and had earned interest amounting to in excess of R1 billion, Alexander Forbes had received income from the banks in this regard which was historically not adequately disclosed to clients.

This non-disclosure was an historic practice which does not conform to our required high levels of client disclosure. When it was highlighted we said we would have it investigated. At the time we said we would do the right thing, both in terms of responding to the FSB and for our clients. Corporate Governance remains of paramount importance in Alexander Forbes.

I am very pleased that we are able to do what we promised, and apologise sincerely for the disruption both to clients and colleagues while we sorted this out, Moyo said.

This issue was complicated and we needed to get it cleared up beyond dispute. I also want to stress that the financial cost of doing the right thing here for our clients does not impact on the financial security of the company or on job security, Moyo said.

To the many, many clients who believed we would do the right thing, and who stayed with us while we did, I wish to express my most sincere thanks and I look forward to our future together, Moyo said.

He said the total amount and the amount in respect of each client are still subject to verification by independent auditors Ernst & Young but the final cost is not expected to be materially different from this amount.

As soon as the verification process is complete Alexander Forbes will give each client the specific details as they pertain to their accounts, Moyo said.

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