Hong Kong Wealth Managers Cut Fees for Mandatory Pension Funds

Wealth Manager Manulife announced a cut in fees for its Mandatory Provident Fund (MPF) portfolios by about 0.35% to 0.5% per annum. The MPF (link) is a compulsory retirement programme for residents in Hong Kong where both workers and employers contribute up to 5% of the employee’s salary to the funds. Manulife alone manages total assets of HK$ 50 billion (US$ 6.25 billion) in its 17 funds. After the reduction, the fee for Manulife's MPF portfolios will be 1.25 % to 2.2 % of net asset value per annum.

It can be now be expected that other wealth managers will follow suit in the latest round of fee reduction. This is in response to the increased competition that is expected once the new rule that not employers, but employees can choose their own service provider, comes into effect. According to data from MPF authority the average yearly costs for the 431 MPF funds is on average 1.99 % of the fund size.

Two years after the last round of fee cutting by the MPF providers, the announced reductions will certainly benefit the investors. However, it also shows that the MPF providers only cut costs when forced to do so by the regulating authority. An opening of the market with more providers would increase the choices for the investors and certainly reduce fees further. In particular since the average fees in comparison to the United States or European countries are still much higher. According to a MyPrivateBanking study on the leading European private banks the average management fee for client portfolios was about 1.2 % per year. And the total expense ratio for funds is in Europe and the US is more in the 1% to 1.5% range. Furthermore the MPF authority is well advised to keep a close watch on the products the provider use within the funds to ensure that the investor does not pay hidden costs on top of the stated fees.