The best way to stop MPF managers ripping us off with high fees
'At present, about 250,000 employers choose the MPF providers and salespeople seldom lure them to shift. If we allow the 2.3 million employees to make their own choices, MPF salespeople may get more aggressive. We need legislation to regulate and penalise salespeople who mislead customers.'
Senior treasury bureaucrat,
SCMP, March 29
So there you have it. Without our zookeepers to lock us in at night, goodness knows what we might do.
You have to wonder sometimes whether these lordly bureaucrats don't get a little tired of having to deal on a daily basis with such a subspecies as ourselves. We must be grateful that they do it because it is their calling and not just because they are paid more than three times as much as the rest of us.
But at least we now have the reason why last year they again refused to let us to choose our own pension fund managers. Let us examine Ms Au's remarks more closely.
Yes, it is true that employers are seldom lured to change the Mandatory Provident Fund providers whom they impose on their employees. The only lure that a provider can dangle in front of them is the prospect of generally easier financing terms from an affiliated big bank.
But we mustn't talk about such things. The practice is frowned upon. An MPF provider isn't meant to lure employers with such bait and, anyway, all employers have been lured that way long ago. If they had not been caught then they won't be hooked on a new lure now.
Thus, while there was initially a good deal of competition between MPF providers, there is little of it any longer. It's so unseemly too. One shouldn't step on another's patch without his or her permission, you know. Can't have that kind of thing.
It was precisely to achieve this state of affairs that the big banks convinced gullible bureaucrats more than ten years ago to let employers choose their employees' MPF managers. The employers don't care. They are quite happy to let the big banks charge outrageous MPF fees. It is the employees who pay these fees, not the employers.
Ms Au is also absolutely right in saying that if we allow 2.3 million employees to make their own choices, MPF salespeople may get more aggressive. In fact there is no may to it. It will inevitably happen.
But why is it such a bad thing? They would become more aggressive in competing with each other and the result would be lower fees plus greater incentives to performance. I rate that a good thing.
Ms Au hesitates of course because she has the Lehman Brothers minibond disaster in mind. She fears that MPF sales jockeys may pitch similar derivative instruments to an unsuspecting public and that she may be blamed for letting them do so.
But the two are not comparable. Employees would not choose individual securities. They would choose fund managers and a range of approved pension funds. It is the fund managers who would choose the securities to go into the funds. There is a very strong level of protection here immediately.
What is more, employees would not be able to choose just any fund manager. They could only choose from a list provided by the MPF Schemes Authority. Ms Au proposes they now also get protection from the Securities and Futures Commission or the Monetary Authority but it isn't really necessary. The safeguards already in place are sufficient.
They are particularly so because neither the SFC nor the HKMA are particularly good watchdogs. These are the very two agencies that let the minibonds into Hong Kong. They have done little since that time to demonstrate that they could keep such things out now.
In fact, they probably could not have kept them out at the time. These minibonds cleared the regulatory hurdles. To keep them out the SFC and HKMA would have needed sure knowledge Lehman Bros was likely to go bust and that sales reps were misrepresenting the risk to retail clients. They had no such knowledge. They know now in hindsight.
There is also such a thing as building too many safeguards into investment decisions. Risk is an inherent part of investment after all.
Thus I cannot see why Ms Au wishes to delay reform so that we can first have legislation to regulate and penalise salespeople who mislead customers. We already have such legislation and there is no end to amendments that we can and will add to it. We also already have protections built into the structure of the MPF.
But where we really need protection is from rapacious MPF managers who rip us off with high fees. Yet this is the protection Ms Au wishes to stall. I just don't get it.