MPF Comparison: Choosing a Trustee as the Pre-“Semi-Portability” Fee War Heats Up

In November 2011, with MPF “semi-portability” (the Employee Choice Arrangement) expected by the end of 2012, trustees were already cutting fees to win business — Fidelity, Bank Consortium Trust and Principal announced cuts in November alone. Cheaper is tempting, but a proper MPF comparison before switching is the smart member’s self-defence.

Which MPF is the best? How should members compare in a fee war?

Before switching trustees in a fee war, compare the performance of funds in the same category first, then fees. Gain Miles’ CEO warned that MPF is a long-term investment: on HK$50,000, the gap between a 3% and a 5% annual return compounds to HK$40,000 over 20 years — so never choose on price alone.

Why are trustees cutting fees?

She expected the fee war to escalate as semi-portability approached, for two reasons: to attract and retain members, and because growing assets under management spread fixed costs thinner, creating room to cut. Good news for members — but cheap does not mean good.

Performance first, fees second

Her advice: before switching, compare like-for-like fund performance — a fund that clearly trails its peers is a poor pick no matter how low its fees. Over the previous decade average MPF fees had fallen only from 2.1% to 1.78%, a 0.32 percentage-point drop far smaller than performance gaps between funds. Members can check fund performance on the MPFA’s or the Hong Kong Investment Funds Association’s websites.

Fees vary wildly by fund type

Members should also know which of the six fund types they hold — aggressive, balanced, conservative and others differ hugely in cost. The cheapest are ETF index funds at 0.5%–1%, which need no stock-picking manager and simply track the market; guaranteed funds cost the most at over 3%, because they must back their guarantees. Fee and performance data are explained at the MPF education hub.