Haitong's lower fees a small step in right direction for retirement fund

Among the many flaws of the Mandatory Provident Fund that critics have pointed out, the one that is the most detrimental to retirement savings is the high fees and charges that funds levy on customers. At the current market average of 1.71 per cent, such charges amount to an astronomical cost over the course of a working life. Despite repeat complaints from the government, the MPF Schemes Authority and labour groups over many years, most fund fees have stayed unjustifiably high, both in absolute terms and when compared to similar charges in other developed economies.

Enabling workers to choose their own funds with their portions of the accounts to which they contribute gives them more choices. But that still does not generate enough pressure on funds to lower their fees. It is clear that only greater market competition could do that.

So the announcement by Haitong International, the Hong Kong arm of a large mainland securities fund, to waive investment management fees for three years is a welcome development, though clients still have to pay trustee and administrative charges.

The latest news would certainly be a positive development if it sparks a price war among other funds to lower their fees. However, Haitong only has a tiny market share of the total MPF fund pool. It won't disclose it, but according to data company Gadbury Group, Haitong 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.

Given its small size, bigger funds may not feel the same pressure to lower fees than they would otherwise with a major competitor. Employers also prefer funds with a long track record and sizeable assets under management.

So it remains to be seen how big a challenge Haitong's fee waiver will be to the rest of the industry, which has enjoyed a bonanza from the charges they have levied over the past decade.