As the various MPF service providers continue to launch their products, it is becoming an increasingly competitive and somewhat confusing marketplace for employers. How should they decide which MPF service provider to choose? It is not an easy question because each service provider will want to promote their relative strengths and downplay their relative perceived weaknesses. For example, some organisations claim that they have been around for a long time, therefore they should be in some way better than an organisation that has been operating for less time. Sounds fair enough, but does that also mean that the organisation with a longer history also has more administrative baggage, more inefficient processes and older systems which have been modified to handle MPF? Will that lead to worse service for you the employer? Being big can obviously have its advantages, but sometimes 'big isn't always beautiful'. Amid all this confusion, it seems clear that an employer should consider some basic criteria when choosing an MPF service provider. These so-called basics are in part determined by the legal requirements that an employer must fulfil - so it makes sense they can choose a partner who can help them address their legal obligations. The employer should also consider some other issues which might help them and possibly their employees. These include: Payroll obligations: Under MPF regulations, an employer must issue an MPF payroll record to each of their employees which shows the amount of relevant income (salary plus bonuses etc), and the amount of mandatory and voluntary MPF contributions which were made to the trustee. It should also show the date these contributions were sent to the trustee. How will the employer do this? It seems likely that most employers who do not automate this process will have difficulties. An MPF payroll software solution should help, and you should consider picking a service provider that offers such a service. Guidance: Who is going to help you understand MPF and give you guidance. This has nothing to do with the product but has everything to do with the service offered by your agent/broker. You may need to develop a strong relationship with this person(s), particularly in the early days to ensure that you get used to administrative procedures and timing of making contributions. There are a lot of complexities here and you will need help. So make sure you are dealing with someone that you like and is genuine about helping you. Investment options: An employer should take a look at the investment options be ing offered. Are they easy enough to understand. Will his employees understand them? Does the investment manager(s) have expertise? Most providers offer four to five investment options. If you have more, will that create confusion for employees? Education materials: Does the service provider have any educational material to support your employees about MPF and about investing? Remember, MPF will probably be the first investment that employees will have ever made for the long-term. MPF is not about speculating and making a quick short-term investment on the stock market. It is for the long-term, and most people will not be able to access their funds until retirement. Some basics about investing would help to educate and should minimise complaints about investment performance by employees. Fees: These should be competitive. An employer should always consider the effect of fees on their MPF plan. Quite a few service providers have entry fees on contributions (some even as high as 5 per cent). These fees are sometimes referred to as contribution fees, entry fees or bid/offer spread. With the employer and the employee each contributing 5 per cent of the employee's relevant income, these fees will erode the potential value of your MPF funds over time. The other major type of fee that gets charged under these plans is an ongoing fee, or asset charge. These ongoing charges can be made up of investment management fees, custodian fees, trustee and administration fees. Again, you should look for a service provider that offers lower fees as the effect on your MPF asset value can be significant over time. Let us look at an example. If MPF contributions equal to $2,000 per month (indexed by 3 per cent pa), and the assets within the MPF fund grow at 10 per cent pa, at the end of 40 years a member would have $11.3 million (if the ongoing asset charge is 1.5 per cent). Increase the ongoing charge by only 0.5 per cent to 2 per cent pa then the account value at the end of the 40 years would be only $9.9 million. In other words, the extra 0.5 per cent yearly asset charge would reduce the final figure by $1.4 million (88 per cent of the amount received if the ongoing charge was 1.5 per cent pa instead of 2.0 per cent pa). Take a look at other fees. Some banks are charging employers extra fees on contributions if you make contributions more frequently than monthly. If employees are paid bi-weekly, you must make bi-weekly contributions to their MPF and will be charged higher fees. Sometimes the fee can be as high as an extra 7.5 per cent charge on contributions to the fund, depending upon the frequency. Jerome Bleijie is general manager for MPF and employee benefits at CEF Lend Lease Life Assurance. He recently moved to Hong Kong after spending 12 years in Australia where he worked for the Lend Lease group. Most recently, Mr Bleijie held the positions of national business development manager, general manager of sales and director of commercial-wholesale investment, handling client responsibilities for more than A$2 billion (HK$9.4 billion) in assets under management.
