MPF fund fees comparison: EY says no urgent need for cuts

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

As of end-April 2012, the average expense ratio across Hong Kong’s 525 MPF funds stood at 1.74 per cent, a figure long criticised as too high. But a fresh EY survey of the MPF system argues the city’s fees are not the world’s most expensive and sees no urgent need for cuts — though fee reductions remain possible as assets grow and operations go electronic.

Why are MPF fees so high?

MPF fees look high mainly because Hong Kong’s retirement asset pool is small and administration costs are spread thinly. According to EY’s survey, of the 1.74 per cent average expense ratio recorded in April 2012, only 0.57 percentage points were investment management fees; the remaining 1.17 points were administration costs — so the drag comes from administration, not fund managers. Australia’s retirement pool is 20 times Hong Kong’s, which dilutes costs far more effectively.

Breaking down the 1.74 per cent

Figures as of April 2012. On investment management fees alone, Hong Kong’s 0.57 per cent actually undercuts Australia’s 0.6 per cent. Still, some contributors disagree: the chairman of a local investors’ association argued that with MPF assets above HK$300 billion, fees are charged rain or shine, and feared market falls would eat further into returns.

How the industry answered the fee pressure

Hong Kong’s three industry bodies — the trustees’ association, the insurance federation and the investment funds association — jointly commissioned the EY study to benchmark fees against major overseas retirement schemes. Its two main defences: first, Australia’s retirement assets are 20 times Hong Kong’s; second, the oft-quoted sub-1 per cent fee covers investment management only and excludes administration costs, which are mostly borne by employers. EY’s conclusion: MPF fees can fall over time, but only as asset values grow and operations go electronic.