KP Cheng: Semi-Portability Systems Not Ready, Fee Cuts Limited — Per-Account Charging May Replace Asset-Based Fees

MPF semi-portability (Employee Choice Arrangement) was due in 2011, but systems aren’t ready — earliest likely end-2012. Investment Funds Association retirement committee chair KP Cheng says the new arrangement will sharpen competition, but overall fee-cutting room is limited because fund-switching costs will rise.

Why won’t fees fall much?

Switching costs offset competitive pressure. Cheng said only the priciest funds — e.g. those charging over 2.5% a year — are likely to cut; overall, room is limited. Fidelity (where Cheng is Hong Kong MD) is reviewing whether it can cut, but she expects any cut to be small.

Why aren’t the systems ready?

Legislation and IT both take time. The MPFA must write intermediary-supervision rules into law via LegCo amendments; many trustees and administrators haven’t finished system changes, such as separating out insurance businesses, to meet the new arrangement.

Could the fee model change?

From asset-percentage fees to per-account or per-person charging. Semi-portability makes accounts more personal, with members possibly moving accounts more often; with volatile markets and near-zero deposit rates, the industry may push to convert personal accounts into private accounts so retirees can stay invested and avoid outliving their savings. Compare current scheme charges at MPF fund comparison.