Treasury secretary urges MPF trustees to reduce fees

Any means to bring management charges under control 'not ruled out', says Chan

Secretary for Financial Services and the Treasury Chan Ka-keung said on Wednesday that a study currently being carried out by the Mandatory Provident Fund Authority (MPFA) will determine whether there is room for Mandatory Provident Fund (MPF) trustees to reduce existing fees, and to ascertain if they were adequately serving the public objectives of a retirement fund.

Chan has always said that there was room for trustees to lower their fees, which has become the subject of fierce public criticism. In the past, he has maintained that he looked to the market to offer competitive fees in the face of the new portability arrangement, which will allow MPF contributors to shop for trustees offering the lowest rates, effective Nov 1.

"Is the situation of these funds meeting our requirements for MPF provided on a public platform? I think, from today's (Wednesday) point of view, it is inadequate," said Chan. "We will investigate whether the products offered in the market are meeting (goals) of the MPF policy and whether there is room for fee reductions."

Other than a possible fee cap, he also suggested that trustees offer funds that buy particular combination of assets, following the investment pattern of the Exchange Fund run by the Monetary Authority, in favor of steady performance.

He noted however that the people have been under-informed about options of lower fees, such as index-tracking funds. He speculated that it could be caused by "inactive marketing", but mind-sets behind the employees' choice will be examined in future to find the answer.

The overall review will aim to make the MPF more user-friendly and cheaper, Chan said, but he provided no timetable as to when the government will revise its policy. He disagreed with suggestions it was too late already for the authority to tackle the prolonged controversy over high fees trustees charge MPF subscribers.

Commenting on the MPF fees, Chan said, "You call it expensive, but how does it compare? What has contributed to the costs? The MPFA study on operational costs is necessary because we can only think further on our policy direction once we are informed about the numbers."

MPFA Chairperson Anna Wu Hung-yuk first revealed on Sunday that the authority will submit a report to the government next month to provide policy options on fund fee regulation and non-profit-making trustees.

Employees, starting from next Thursday, may move the employee portion of their MPF assets to other trustees and accounts of their own choice. Wu said a legislated fee cap would be a last resort, if the private sector failed to slash fees to meet the new scheme.

Trustees have already begun to reach out to employees with lucrative fee offers. BEA Trustees, for instance, will launch a new scheme that charges fund fees not higher than 0.99 percent, compared with the prevailing average of 1.74 percent. BEA's Director and Chief Executive Patrick Li said he expected up to 230,000 accounts to migrate in the early stage.

HSBC, which accounted for almost a third of the entire market, will cut fees by 20 percent for employees who move their preserved accounts to one of its three schemes. Manulife, which tailed behind HSBC in market share, also offered a fee cut of up to 36.8 percent for existing preserved accounts, in addition to bonus rebates.

Jeremy Gadbury, an independent consultant on MPF funds, noted in his blog that though the published fees have appeared high in the report published by Consumer Council, the numbers did not reflect the latest fees and many employees were paying reduced fees offered to large employers.

Though he was aware of a lack of transparency, Gadbury writes in his blog that, "Nobody seems to tell their employees what fees they are paying and there is no obligation on the MPF providers to tell the members." He wrote, "The fees you see are not always the fees that everybody pays."

kahon@chinadailyhk.com