'Zero fees' pledge to spark MPF price war

Haitong throws down the gauntlet to providers with a three-year offer that makes it first fund house to waive investment management bills

PUBLISHED : Monday, 10 February, 2014, 11:42pm
UPDATED : Tuesday, 11 February, 2014, 1:28am

A price war is looming among Mandatory Provident Fund providers after Haitong International became the first fund house to waive investment management fees.

The company has announced it will waive the charges for the next three years. Employees will still have to pay trustee and administrative fees, but they will be reduced.

As a result, total management fees for Haitong's 10 MPF investment funds will range from 0.37 per cent to 0.58 per cent for the next three years, down from 0.9 per cent to 1.68 per cent. The market average is 1.71 per cent.

"We are part of a very big mainland securities house, but we are a very small MPF provider in Hong Kong," said Haitong managing director Ben Zhang Yibin yesterday.

"We want to expand our MPF market share and hope the aggressive fee cut will bring more public awareness of our brand. This will increase our competitiveness and attract more new employees to our MPF schemes."

Haitong did not reveal its market share, but according to data company Gadbury Group it had a market share of only 0.071 per cent at the end of last year - the lowest of all providers - with about HK$364 million of MPF assets under management.

The Mandatory Provident Fund Schemes Authority (MPFA) has been a frequent critic of the high fees charged by providers and a spokeswoman welcomed Haitong's move. "We definitely would like to see other providers follow Haitong," she said.

The average total MPF management fee in Hong Kong in 2012 - at 1.74 per cent - was higher than the 1.41 per cent in Singapore, according to Ernst & Young.

The government hoped to force providers to cut fees by changing the law so employees could choose to shift their own contributions to preferred providers from November 2012.

But just 3.7 per cent of the 2.4 million employees chose to switch, while total management fees averaged 1.71 per cent last month, only slightly down from 1.74 per cent in October 2012.

Insurance sector legislator Chan Kin-por said: "Haitong is the first provider to go this far, so it is going to raise some eyebrows in the market and some providers may consider following.

"However, I do not expect all MPF providers will rush to cut their fees as they compete not only on fees, but also on service quality and fund performance."

An executive at one MPF provider, who did not want to be named, said Haitong was "spending money to buy market share", which he described as "a risky bet" because it was an expensive exercise.

"Most importantly, Haitong's promotion plan will last only three years," he said. "The employees attracted by the zero investment fee may well depart three years later when the company will charge them again."