Principal joins Hong Kong’s MPF price war: conservative fund fee cut 5%, up to 20% off Series 600/800

Hong Kong’s MPF price war kept escalating. After Fidelity and Bank Consortium Trust announced cuts, Principal said in November 2011 it would lower the management fee on the MPF Conservative Fund under its Series 500 by 5% from 1 February 2012, and overhaul the unit classes and fee structures of Series 600 and 800 on 30 December, with reductions of 10% to 20%.

How cheap do Principal’s MPF fees get?

The Series 500 MPF Conservative Fund (Class A and Class T units) drops to 0.95% of net asset value per year, down 5%; after restructuring, Class I units across Series 600 and 800 will charge 1.35%–1.49%, down 10%–20%. Three constituent funds in Series 600 and six in Series 800 are affected.

Why cut? Cost efficiency plus the coming ECA

葉志良, Principal’s Hong Kong CEO, said the firm regularly reviewed market dynamics and, after internal deliberation, decided to simplify its fee model — lifting overall cost-effectiveness and cutting operating costs while guaranteeing existing members would pay no more. With the Employee Choice Arrangement due in the second half of 2012, the move also positioned Principal for fiercer post-liberalisation competition.

The late-2011 MPF fee-cut timeline

What members can do

The price war’s biggest lesson: fees are a hidden tax on MPF returns. Funds in the same category earn similar long-run returns, so 0.5% less in fees compounds into a wide gap over decades. Once the ECA takes effect, employees can move contributions to cheaper schemes — start by comparing your current funds’ fund expense ratios. The MPF education hub shows how to compare fees.