MPF fees: cheapest and priciest differed nearly 10-fold; industry urged a 3–4% cap

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

(Note: parts of the original text were garbled; they have been conservatively reconstructed from context.)

A new ranking of MPF fund fees showed the cheapest and priciest differed by nearly 10 times, prompting industry calls for a fee cap — pitched at 3% to 4%.

Which MPF funds charged the most and the least?

Per the MPFA fee comparison platform:

AMTD had once cost nearly 25 times the AIA product; the gap had narrowed to 9.5 times. Notably, the AIA fund’s fee had risen from as low as 0.18% to 0.44%, which the market attributed to shrinking assets — regulators rarely approved fee hikes on existing MPF products.

The fund expense ratio (FER) is annual total fund expenses as a percentage of assets; the higher the ratio, the more net returns are dragged down. Lipper and Morningstar rankings showed the cheapest funds weren’t necessarily the best performers — but the priciest generally lagged, with expensive global bond funds at the bottom.

Why was the priciest a “lazy fund”?

Across 530 MPF funds surveyed by the MPFA, the highest fees sat with target-date “lazy funds”, which adjust the equity-bond mix by the contributor’s retirement age. AMTD had responded that the fund’s small asset base inevitably pushed its expense ratio up.

How did the industry propose capping MPF fees?

The chairman of a financial planners’ institute and managing director of a fund house argued for a 3%–4% cap. Since a cap might need legislative change, a compromise borrowed from retail funds: equity funds generally charge no more than 2.5% annual management fees, so any peer charging above the average should flag it prominently in the offering document.

The 500-plus MPF funds then averaged a 1.74% expense ratio. The planner warned high fees would eat returns over time and shrink retirement payouts; an MPFA non-executive director had repeatedly slammed the authority as a “toothless tiger” unable to rein in trustee fee models, urging action as semi-free choice launched.