Competition hots up as managers fend off flak
Competition in Hong Kong's HK$229 billion Mandatory Provident Fund is heating up, with another major provider cutting fees in response to criticisms of overcharging.
Fidelity Investments Management has cut fees on all MPF products, joining market leaders that have been attacked over the high costs for overseeing easy to manage capital preservation funds.
While Fidelity only has 4 per cent of the market and is the seventh-largest MPF provider, it is now offering some of the most competitive fees - a move that could signal a new level of competition in the sector.
MPF providers have come under heavy criticism from investors for charging too much to manage 'plain vanilla' funds that preserve a client's capital but usually have poor returns.
The Mandatory Provident Fund Schemes Authority is studying a proposal to allow employees to choose their own MPF provider to increase competition and lower fees. Employers now choose the provider.
'Competition will be keener but fees are only one aspect,' said Sally Wong, an executive director of the Hong Kong Investment Funds Association. 'As employees get more say in which funds they use, selection and performance will be just as important.'
AIA-JF, Manulife and Bank Consortium Trust announced in August the first fee cuts since the MPF was launched in 2000. The industry has said its fees are reasonable given that the scheme is relatively new and it has taken time to build sufficient assets to generate a profit at lower fees.
Fidelity said it would lower fees by 55.5 basis points to 1.57 per cent for life-cycle, equity and bond funds, and to 1.77 per cent for multi-manager life-cycle funds.
Management fees for its capital preservation fund, which offers the least risk - and the lowest returns - and requires the least management will be cut to 1.36 per cent. The price cuts will be retroactive to October 1.
'This fee reduction will benefit every single one of our MPF members,' said Evan Hale, Fidelity's managing director in Hong Kong.
Fidelity's new capital preservation fund fee of 1.36 per cent surpasses the 1.25 per cent charged by industry leader HSBC, Hang Seng Bank and AIA-JF. Manulife International charges 1.75 per cent.
Fidelity's fees on other funds are generally in line or lower than those of other managers, and 90 per cent of the MPF money it manages is in funds other than capital preservation funds. It charges 1.57 per cent for its equity and bond funds.
Fidelity has 300,000 MPF members, or 4.2 per cent of the market, and manages US$1.3 billion in assets.
Fifty-two per cent of all MPF money is in life-cycle funds, also called balanced funds, which invest in both bonds and equities. Fidelity's MPF investors have 69 per cent of their money in this type of fund.
'There is sufficient scale in the business to allow this to happen now,' said Mr Hale, adding that Fidelity was making a profit from managing MPF funds.
The regulator says 12 per cent of the HK$229 billion in MPF assets being managed at the end of June was in capital preservation funds, 52 per cent in balanced funds, 24 per cent in stock funds, 10 per cent in guaranteed funds, and 2 per cent in bond and money market funds.