Check the MPF fund expense ratio: a 0.85pc management fee that really costs 1.79pc

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

After covering fund types and performance figures for employers choosing MPF schemes, an MPF business development director at a financial advisory firm turned to fees — where several traps awaited.

How had fee models changed?

Constituent funds deducting management fees in fund units had dwindled to a handful of MPF conservative funds. Anyone invested in a conservative fund was advised to check the scheme’s principal brochure for its fee model — or simply ask a neutral professional MPF adviser.

Why must the fund expense ratio be verified?

Never trust the management fee on the marketing flyer alone. One constituent fund on the market advertised a 0.85 per cent annual management fee — genuinely cheap-looking — yet its actual fund expense ratio was 1.79 per cent, more than double. Flyer-only shoppers were “had”.

Two more to watch: guarantee fees — most guaranteed funds charged them, so know the details; and performance fees — similar in nature, which employers and managers had to identify in their schemes, lest staff suspect the boss of “splitting the family fortune” with them.

Scheme set-up and annual fees were by then rarely charged, but asking cost nothing — and those were usually the employer’s bill anyway.

Be a sharp employer

Verifying the fund expense ratio meant keeping all seven eyes open and never deciding casually. With fees, the devil was in the details.