Towers Watson: How should members be equipped to cope with ECA when it is enacted?

五月 6, 2011
Joe Chan

With the potential implementation of ECA, MPF members would have more choice. But can they make a good decision? What should they consider before making a change? Let’s hear what the market players’ think on this issue:-


Elvin Yu, Head of Business, Hong Kong and China, “Members are likely to take their time to get accustomed to the new process and to learn about the funds provided in the market. Given greater choice, members should recognize that the changes should not be short-term incentive and it is important for them to evaluate their investment needs and risk tolerance level so as to choose the right platform. Under the ECA, intermediaries will start to approach individuals directly. There may be greater potential for a conflict of interest between the intermediary and the MPF member and investor education becomes all the more important to help members make the right decision.”


Kelvin Lee, Head of Institutional Business, “Members tend to focus too much on fund performance and fees only. We would recommend MPF members should also take into consideration other qualitative factors, such as services and credibility.”


KP Luk, Head of Institutional Business, “Members should get enrolled in investor education programs and acquire knowledge on retirement planning. For instance, Who is your provider? What funds to invest in? How was their performance in the last few years? Consult professionals when needed too.”


Stanley Yip, CEO, “MPF is a long-term investment and therefore one should not only look at the shortterm performance or be affected by the market fluctuations when making investment decisions.


Members should understand the 5 key factors when choosing MPF service providers: service providers with strong financial strength, management fees, fund performance, fund choice

and customer service.


Proven financial stability of the service provider – since the collapse of Lehman Brothers in Sep 2008, financial stability and trustworthiness of a financial institution are the key factors when choosing an MPF service provider. It is believed that a provider that is financially stable and trustworthy will be able to offer reliable financial services, including enhanced system and customer service that meet the members’ need.


Management fees and fund performance: the fees charged on each fund has been widely discussed but employees should not only focus on the management fees but also the fund performance. Employees should compare the longer term performance of the fund in the same category and select funds with proven consistent good performance.


Fund choice: variety of fund choices to maximize clients’ investment flexibility is critical. However, employees should understand the various aspects of the funds being offered including the risk factors, asset allocation, etc when deciding if the funds are suitable for them.


Customer Services: quality customer services include a wide range of services such as internet services and market information sharing, etc.”


Desmond Ng, Chief Operating Officer, Asia ex Japan, “With the new MPF rule, we may see the creation of even more MPF accounts when members change their jobs. This may happen especially if members start choosing different MPF service providers for their voluntary contribution portion under different employments. We suspect that this situation may be most probable if members choose service providers based purely on short-term performance. The result is a member having a pool of MPF accounts each with a

relatively small sum.


As such, it is important that for those members who are interested in choosing their own MPF service provider, they do a thorough review of the available services, and pick the one that they like and stick to that service provider.


We would encourage members to look at a more comprehensive range of factors when choosing their ideal MPF service provider:

Does the MPF scheme have the investment choices that fit my needs?

Does the MPF service have sufficient resources to do global investment management?

Is the fund performance consistent?

Are fees clearly defined and competitive?

Is the service platform convenient?

Is the MPF service provider committed to member communication?


In particular, post-financial tsunami, members should also look at the financial health of service providers, and not just look at the fees. Whether the MPF service provider is dedicated to asset management or has other business arms, such as banking and insurance, would influence the stability and prospects of their overall financial health. Taking Invesco as an example, we focus purely on asset allocation, because we believe that dedication and focus are crucial, and this allows us to concentrate all our resources on this single focus.”


Bonnie Tse, Senior Vice President and Managing Director, “Although the implementation of the ECA is deferred, members can take the time to learn more about the ECA, and what are their rights and benefits. At the end of the day, MPF is their retirement investment and it finances their retirement life. Members should at all times get involved and keep themselves updated on the latest developments.


At the same time, members are advised to consolidate the preserved accounts into one for easy management.


Recently, members may notice that many services providers have announced to cut management fees. When comparing the fees of different funds / schemes, members are advised not to simply look at the management fees, but should compare their Fund Expense Ratio (the “FER”). The FER indicates the total amount of expenses charged by an MPF fund as a percentage of fund size. Management fees are just part of the total expenses.


Besides, rather than solely focusing on fees, members should take a total retirement solution approach, including fund performance, administration services, after-sales services, eplatform, etc.”


Alan Tsang, CEO, “成員應多了解各強積金供應商提供的基金選擇和服務,從而選擇適合自己的強積金計劃和基金,亦可找中介人提供專業意見。”


Benjamin Li, Chief of Pension and Broker Channel, “As we approach ECA, I am sure members will receive more information on different providers and comparison etc via the media or all sorts of channels. We suggest they are well informed (through their advisors) in decision process.


Employees should be clear-minded and choose wisely amid the variety of providers and products in the market. To help them make the right choice, members should focus on the following aspects when evaluating different providers:


Services: Services would be the most important of all. ECA is going to transform the MPF system to a personal service, as member who will take the lead to make their own choices.

Investment Choice: Select the MPF provider that would provide the right range of products and fund choices that is likely to offer competitive potential returns, create a diversified investment portfolio and suit the risk profile of our members.

Financial Stability: MPF is a long-term investment that stretches across different stages in life. It is very important for members to choose a provider with a sound financial position who is likely to be with you by the time you get retired.”


Patrick Li, Chief Executive, “Members should take the time to assess their existing MPF service provider, taking a close look at services offered, performance, fees and reputation. They should also perform a cost-benefit analysis when considering a switch in their service providers by gaining a thorough understanding of the fee structure.”


Wilsome Chow, CEO, “Education on retirement and financial planning should be provided. Also, resemblance to that of the investment rule, members should have a clear vision of their goals matched by their respective risk tolerance in order to enjoy investment autonomy under this new scheme.”

Sun Life Financial

Billy Wong, Vice President, “Members should pay more attention to the MPF news.”


This article is not intended to provide investment advice. Action should not be taken on the basis of any opinion, view or statement contained in this article without seeking specific advice. Towers Watson neither endorse nor are responsible for the accuracy or reliability of any opinion, view or statement made in this article, and under no circumstances will Towers Watson be liable for any loss or damage caused by any reliance thereof.