Council calls for greater reduction of MPF fund management fees -CHOICE # 381

Check out your MPF funds to ascertain if you have benefited from any reduction in fund management fees over the past year.

The chances are, despite more MPF trustees cut their fees, you may still be paying the same level of fees without any change.

A Consumer Council study has revealed that less than half of the MPF funds have been subject to any fee reductions during the period between July 2007 and June 2008.

The study showed that only 36% of MPF funds surveyed - 113 out of 313 constituent funds (representing close to 95% of all MPF funds in Hong Kong) - have trimmed their management fees.

This means that an estimate of at least 26% of MPF member accounts, or 1.44 million accounts, have benefited from any fee reductions. (These figures are only an estimate as 2 MPF trustees who had reduced fees had not provided their member accounts information).

Conversely, the fees paid by the remainder of a total of 5.55 million MPF accounts in Hong Kong remained largely unchanged.

In dollar terms, the total asset values of the 113 MPF funds with their management fees lowered were $93,010 million or 36% of all MPF fund assets of a total of $255,024 million.

Asset values totaling $162,014 million were not subject to fee reduction.

The study does not take into account incentive rebate which may be offered to individual scheme participants.

Amongst the funds that reduced their fees, the majority (63% or 22 out of 35) were in the conservative investment option, the capital preservation funds (CPF).

In terms of the percentage share of funds that cut fees, fee reduction was considerably less in other fund types: 52% bond funds (11 out of 21), 33% mixed asset funds (42 out of 129), 32% guaranteed funds (8 out of 25), and 27% equity funds (27 out of 99).

The study made comparison of the present and last year's levels of management fees of 5 major fund types, in terms of their range between the highest level charged and the lowest charged.

It showed a more narrow fee range in 3 of the fund types, namely, CPF (this year 0.663% to 1.78%; last year 0.663% to 2.25%), global bond fund (this year 1.213% to 2.55%; last year 1.213% to 3.05%), and balanced fund under the mixed asset fund type (this year 1.5% to 2.65%; last year 1.5% to 3.05%).

Despite lower management fees at the high-end, the highest fees of some funds were nonetheless by comparison still some twofold of the lowest fees.

There were no changes in the management fee spreads of guaranteed funds and Hong Kong equity funds during the period under study.

MPF scheme members are advised to check out the actual fund fees and make "like-with-like" comparison.

It should be stressed that since the management fees charged by some MPF funds in the market are already at low level, the MPF funds which had their fees reduced are, therefore, not necessarily the lowest consumers can find. Some funds, despite reduction, remain the most expensive in fees.

The study found also that some funds with high management fees have remained unchanged without any downward adjustment.

Further, they should evaluate the fee level of their individual fund by comparing its fund expense ratio (FER) to the expense ratios of other funds or the average expense ratio of all funds within the same type.

They should take a holistic approach, i.e. apart from fund fees, also look at their own personal profile as well as other factors of the fund, including long-term performance, volatility as well as services of providers, before determining which fund to choose.

Overall, in conclusion, the Council is of the view that since the MPF system has been in place for about 8 years and more and more fund assets are injected into the system, further fee reductions is called for under such economies of scale.

On the other hand, the Council believes that at least two crucial factors may further enhance market competition. The first is to launch the second phase of the MPF fee comparative platform by the MPFA, and the second one is to allow employees to choose their own MPF trustees.

Faster development on both fronts, together with the necessary safeguards to protect the interests of scheme members, should be in place.

Detailed information on MPF management fees (before and after fee reduction), including the FER and other fees, of 313 MPF funds of 35 registered MPF schemes by 16 approved trustees covered in the study is available on the Council's website.