MPF price war ahead of the ECA: BCT and Fidelity cut, more room to fall

The Employee Choice Arrangement — giving employees at least one chance a year to switch trustees — was not expected before Q3 2012, but the price war was already burning. On 10 November 2011, fifth-ranked BCT and seventh-ranked Fidelity announced management-fee cuts on the same day, with the industry insisting more cuts could follow.

BCT cuts 2%–17%: 370,000 clients to benefit

BCT cut management fees on 14 MPF funds from 1 January 2012, from 1.2%–1.84% to 0.99%–1.725% — reductions of 2%–17%, benefiting nearly 70% of clients (about 370,000). Fidelity moved even faster, cutting 15 funds 7.6%–20.6% from 12 November: conservative funds to 1.08%, others to 1.45%.

Why is there still room to cut?

Ka Shi Lau, BCT’s managing director and CEO, offered three reasons. First, Hong Kong MPF assets totalled just US$50 billion — “Australia’s pension pool is 40 times Hong Kong’s, yet average fees there are still 1.25%” — so scale economies were far from exhausted. Second, trustees were burdened by compliance costs from new regulations. Third, as MPF kept accumulating and new products launched, fee room would inevitably open. She conceded, though, that getting every fund under 1% remained difficult.

75% of assets sit in the priciest funds

About 75% of Hong Kong MPF assets sat in equity and mixed-asset funds — yet these charged mostly above 1.4%; sub-1% fees belonged largely to conservative funds. BCT’s post-cut menu: conservative 0.99%, mixed-asset 1.45%, Hong Kong equity 1.435%, global equity 1.625%. In other words, most people’s money sat in the most expensive category.

ECA timetable: the intermediary bill is the key

Lau said the ECA was under consultation on intermediary conduct benchmarks, then industry vetting of code feasibility, aiming to pass the bill before LegCo’s summer recess — earliest launch late Q3 2012. Market watchers expected trustees to cut conservative and passive funds first, saving the full-line price war for the ECA’s eve.

What members can do

The price war comes in two waves: conservative funds now, the full line-up on the ECA’s eve. The smart move is homework today — rank your funds’ fees within their categories — so you can act decisively when choice arrives. The MPF education hub shows how to compare.