Will MPF management fees fall after the Employee Choice Arrangement?

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

Workers hoped “semi-free choice” would cut fund fees, but the industry poured cold water first: one trustee ruled out starting a price war. The MPF management fee battle was uncertain even before kickoff.

Why wouldn’t the industry cut across the board?

Because costs were rising, not falling. Fee models might change — perks for accounts over HK$250,000, or unit rebates above 0.1% — but no across-the-board cuts, mainly because the new regime added costly “spicy measures”: the arrangement’s proposed 10-day rule meant an old trustee receiving a transfer application with form errors had to flag them to the “defector” within 10 days — no more stalling to keep clients; repeated obstruction would draw penalties, even licence consequences.

The chief executive of fourth-ranked BOC-Prudential said tightening regulation forced extra hiring and IT upgrades, pushing costs only upward and ruling out a uniform price war. Its index funds at 0.7%–0.99% were already the city’s cheapest, he added; further cuts would hit the bottom line.

So no cuts at all?

Not quite — just no blanket cuts. An MPFA senior manager conceded trustees reported rising costs and dimmer cut prospects; but the executive director (supervision) believed open competition would eventually lower fees (declining to say to what level). BCT’s managing director and chief executive also said the measures raised workload and costs, but operational and IT optimisation would create room for cuts over time.

Eleven years in, MPF had polarised: low-balance accounts were loss-making to serve, and uniform pricing looked like “robbing the rich to feed the poor” — so the industry preferred rewarding big contributors, as occupational retirement schemes did. Whether market leader HSBC would cut stayed low-key — the key variable.