BEA Fires MPF Price-Cut Salvos — Battle for Switching Members Begins

This article is a rewrite of a report from October 2012.

An MPF comparison of Japan equity funds put BEA’s MPF business in the spotlight — after the Consumer Council named its Japan equity fund the worst five-year performer. BEA trustee chief executive Lee Cheuk-ming stressed a two-pronged response: a 23% fee cut in July plus constant portfolio adjustments. On semi-portability’s eve, BEA fired the first shots in the battle for switching MPF members.

How deep was the cut?

Management fees from 1.55% to 1.2% — down 22.6%. Since 3 July, BEA slashed annual management fees from 1.55% to 1.2%. Lee said lower fees plus portfolio adjustments should lift investment results.

How did the Japan fund do?

Down just 0.84% over the past year — best of its peers. Of nine Japan equity funds on the market (seven with 5+ year histories), BEA’s fell only 0.84% in the year to September — best of the group; the other eight fell 1.72% to 6.66%. Worst over five years was history; this year it caught up.

What switching perks?

Up to 0.88% in unit bonuses. For semi-portability, BEA offered switchers fund-unit bonuses from HK$100 up to 0.88% of transferred assets; new preserved accounts got an extra HK$50 in units.

How big is the sales force?

88 branches, 950 intermediaries. Lee revealed 88 branches including the Central headquarters fielded 950 MPF intermediaries. Banks broadly found the new intermediary conduct rules overly strict and worried about cost-effectiveness — but BEA charged ahead regardless.

What’s the new scheme’s selling point?

Hang Seng index fund at just 0.7% — the market’s cheapest. BEA planned a third MPF scheme by month-end, with a Hang Seng-tracking passive Hong Kong equity fund at 0.7% — the cheapest of its kind on the market. Lee admitted the aim was new money. Its existing two schemes: the 16-fund integrated trust and an industry scheme for construction and catering workers (350,000 members, HK$5.3 billion assets, about 60% of the industry-scheme market).

What is the lesson from 2012?

Fighting back after being named is what competition looks like. BEA’s 2012 campaign was textbook: named worst by the Council, it answered with a 23% fee cut and a 0.7% index fund. The battle for switching members was opened by the one under fire — competition isn’t a slogan, it’s real money off fees.