Employee Choice Arrangement Incoming: Don’t Pick Your MPF Provider on Fees Alone

The MPFA has abruptly delayed the MPF “semi-liberalisation” (Employee Choice Arrangement) until intermediary-conduct guidelines are enacted — expected no earlier than 2012. Cheng Kim-wai of Fidelity Hong Kong reminds members that once ECA lets employees choose their own MPF schemes, fund performance matters more than fees when picking a provider.

Why does performance matter more than fees?

A cheap but poor-performing fund can leave you worse off than a pricier strong performer. Fees do affect final returns, but fees and performance are unrelated. Gadbury Group MPF data to December 2009 shows Hong Kong balanced funds’ top-quartile performers beat bottom-quartile ones by 5.3% annualised over ten years. Even assuming the top group charged 0.5% more per year, net of fees the pricier-but-better funds still delivered 4.8% more per year. So don’t fixate on cheap fees alone.

What else should you weigh when choosing a provider?

Five essentials: fees, performance, service, fund choice, and company background. Beyond fees and returns, members should assess service standards, how diversified the fund range is, and the provider’s reputation — do your homework first. With ECA coming, many providers are already marketing aggressively and cutting fees to win business; all the more reason to compare calmly.

Is delaying ECA good or bad?

Disappointing short-term, possibly beneficial long-term. Some employees were let down by the news, but the delay gives members more time to understand the new arrangement and prepare, while intermediary regulation is legislated to protect investors. Better to launch well-prepared than rushed.

To compare charges and returns across MPF funds, visit MPF fund comparison.