'Is it just me or is this city going bonkers?' Email from a reader May 16 Iknow how this reader felt. I had much the same reaction on my first flip through yesterday's newspaper - 'Good heavens, do we live on the funny farm out here these days?' I mean, not only did we have Ma Lik of the Beijing Lapdog Party treating us to some curious views on the legitimacy of government but civil servants are to get pay rises in the 25 per cent range, far above even any dreams in the private sector, and they are already paid three times more than their private-sector equivalents. Even the gossip pages ran more than their usual share of the sillies. I am pleased to tell you, however, that there was one front-page item of news to assure us that this city has not gone bonkers and that we do not live out on the funny farm but are firmly rooted in sanity. The new boss of the Mandatory Provident Fund Schemes Authority, Henry Fan Hung-ling, wants to give MPF beneficiaries their own choice of MPF fund manager. It is an obvious and desperately needed reform, one crying out for adoption from the first day that the first dollar was collected for MPF funds, and I think the greatest credit for recognition of it should go to David Webb of Webb-site.com, who has campaigned the hardest for common sense about this. The story here is that MPF was taken off the rails at the start by financial institutions that aimed to be the biggest MPF managers. They said that the best way to invest this pension money was to give the employers, rather than the employees, the choice of who was to run it for those employees. This curious approach is indeed the best one, but for the financial institutions which advocated it, not for the MPF beneficiaries. Employers don't really care much about how well or how cost-effectively the money is invested. Their interest lies in keeping up good commercial relations with their banks and, yes, you guessed it, it is these banks that are MPF managers. Our bureaucrats had their eyes closed, however, and were conned. The result is that you cannot change an incompetent manager of your MPF pension money unless you can convince a majority of your workmates to go along with you and even then the boss is likely to turn you down as it is not in his interests to offend his bankers. I say incompetent manager, but the real damage is done by the rapacious one. Even Mr Fan admits that the average MPF management fee is 2 per cent annually, which he still seems to think is reasonable until total funds under management grow much larger than the present HK$216 billion. It is not reasonable. Mr Fan has sat on many boards and committees but he is light on fund management experience. An MPF manager just collects a regular income every month and funnels it into a predetermined line of stocks and other securities. There is very little work involved and that kind of fund management shouldn't incur a management fee of more than 0.5 per cent at best. In fact, there are funds that charge no management fee at all for easily managed portfolios such as these. They make their money from stock lending and other uses of the portfolios under their control. Bear in mind also that the annual management fee is only part of the administration costs you pay. When your MPF manager buys or sells stocks for you, the commission and other charges go on top of the management fee. And the manager doesn't really care if the stockbroker has charged too much in commission. Leave aside that the stockbroker may just be another arm of the same bank, which would make it in your manager's interest to overcharge you on commission, there is nothing you can do about it anyway. You're a captive client. You can't leave. There are a good number of other charges with which your manager can hit you too, for instance a fund-shifting fee, an initial investment fee, and a custodian fee. I'm sure they have thought of many more ways to sting you than I can think of and I'm also sure that they invoke them all and at much higher percentage rates than they would dare to ask of clients who can take their money away. You can't. You're captive. In fact, I wouldn't be surprised if someone were to tell me that the fees and costs with which you get stung are really more about 4 per cent to 5 per cent a year. I can't tell you so for a fact, however, as the whole MPF business has been a secretive one from the start. Rip-offs are more easily conducted when no one sees them but the ripper. So, hurrah for the sanity and common sense that Mr Fan has now tentatively introduced. Once you yourself are given the choice of who will handle your MPF money for you, a proper market will evolve for this service. The costs will go way down and the attention to performance way up. My only fear is that the banks will try to subvert this initiative in the same market-busting way that they earlier subverted your pension interests - behind closed doors. Make sure you scream if you see them do it.