Big players unlikely to heed welcome move by smallest MPF provider

Market leaders unlikely to follow Haitong's move to reduce management fees on their products

PUBLISHED : Monday, 17 February, 2014, 11:27am
UPDATED : Tuesday, 18 February, 2014, 2:30am

Haitong International Securities having to resort to waiving its investment management fees on Mandatory Provident Fund offerings for three years shows the difficulty small players face in capturing a piece of the HK$514 billion market.

With an average fee of 1.71 per cent, the MPF generates fee revenues for fund houses of HK$8.79 billion a year.

Ben Zhang Yibin, the managing director of the mainland firm's Hong Kong asset management arm, admitted its share of the market was so small it decided only such an aggressive promotion could make a difference.

Figures from data provider Gadbury showed Haitong was the smallest MPF player, with a market share of 0.071 per cent at the end of last year and about HK$364 million of MPF assets under management.

HSBC and Manulife combined controlled almost half the market. HSBC, together with subsidiary Hang Seng Bank, had a market share of 30.8 per cent, while insurer Manulife had 18 per cent, the Gadbury report said. Next was AIA, the city's largest insurer, with 9.8 per cent, followed by BOCI-Prudential with 7.9 per cent and Bank Consortium Trust with 6.1 per cent.

This means the top five MPF providers had a combined share of 72.6 per cent, and the other 14 shared the remainder.

The next top 10 houses had less than 5 per cent of the market each - Fidelity (4.6 per cent), Sun Life Financial (3.9 per cent), Principal (3.4 per cent), Bank of East Asia (3.3 per cent) and AXA (3 per cent), the report said.

Other small players find it hard to compete with the big banks and insurers, which have a large number of branches and agents.

The big banks also benefit from the fact that the MPF scheme lets employers pick the providers for their employees. Firms often choose the banks that supply them with lines of credit as their MPF providers.

Although employees are now allowed to choose the providers for their contributions, bosses still pick the providers for the employers' contributions. Only about 89,000 employees, or 3.7 per cent of the total, have opted to move their contributions to other providers.

Lawmakers, government officials, the Consumer Council and the Mandatory Provident Fund Schemes Authority have complained that providers' fees are too high compared with those in other jurisdictions.

The top five providers have reduced their fees, but if they would go as far as Haitong in reducing fees for contributors, it would benefit a lot of employees.

That seems unlikely, however, as the top five have such a big market share that they do not have to worry about what the smallest player is doing.

According to a study by EY, the total MPF management fee in 2012 averaged 1.74 per cent in Hong Kong, considerably surpassing similar fees of 0.56 per cent in Chile, 1.19 per cent in Britain, 1.21 per cent in Australia and 1.41 per cent in Singapore.

This is one top ranking that Hong Kong could afford to lose - doubtless to the cheers of the city's workers.