While Hong Kong society indulges in the healthy local economy, one area that has not been given the best press of late is the mandatory provident fund (MPF), in particular its fees and charges and its investment choices limited to preserved account holders. The CEO of Hong Kong's largest independent provider says this is not an accurate portrayal of the sector, which she believes is in good shape.
Despite dissatisfaction among some Hongkongers with the level of fees and charges, Lau Ka-shi, managing director and CEO of Bank Consortium Trust Company Limited (BCT), says they are at a reasonable level. "In just seven years the fees and charges for MPF funds as a whole averaged 2.06 per cent. Its complexity is similar to the respective system in Australia where it is 1.55 per cent, not including front- and back-end charges plus other charges, and that has been around for 16 years with total asset size over 32 times that of Hong Kong MPF assets."
The MPF scheme in Hong Kong is still relatively young but the top five providers, of which BCT is one, and indeed the industry as a whole are going strong. According to Ms Lau, the first three years were difficult for providers as the system stabilised and the next three years were focused on enhancement to services and products, and responding to regulatory changes. The industry is now at a turning point as the players — government, regulators and providers, as well as employers and employees — map out the next phase.
The future of MPF is greater member choice. Responding to what the people want which, Ms Lau says, is also in the best interests of the industry, providers are currently working with the regulators to allow employees more freedom to decide who oversees their money. However, Ms Lau notes, there are cost implications in the short term. "To change MPF to give more choice means that with changes required on the legislative and regulatory fronts, all scheme documents will have to change. All materials relating to employer and member communications, and administrative systems will change," she notes.
Unfortunately, many people do not realise this tenet. Therein lies Ms Lau's greatest concern — investor education. "People need education. Their financial literacy is relatively low. MPF investment has a longer-term perspective and it is not an IPO or making a quick buck on the stock market. Everyone wants low risk and high return." However, as Ms Lau points out, it doesn't work that way.
MPF, highly regulated by the government, is different to retail funds. Providers can invest only in approved exchanges, which currently do not include those in China, Vietnam or the Philippines.
Ms Lau wants people to be more interested in their future and to learn more about what is happening with their MPF money. For example, once an individual reaches retirement age he or she might be inclined to withdraw all of the money out of MPF but Ms Lau advises against this. "It is cost effective to leave the money in the MPF system if these retirees don't need to use the money yet," she says. "Even with my own money, global markets are so interconnected and complex now that professional investment and management is better than what I can do on my own." She says that the government, regulators and providers all publish information aimed at educating investors and often all it takes is tapping into the wealth of information available through various channels.
Despite her concerns about members' need for improved financial literacy, Ms Lau is optimistic about the future of MPF. BCT hopes to become a major third party provider, acting as third-party scheme and fund administrator for other providers' schemes and unit trusts. Ms Lau believes this system will be more cost effective and likens it to outsourcing in other industries. "A lot of restaurants serve dim sum," she says, "but they don't all make their own."
BCT requires people in all areas but Ms Lau says good marketing people, with managerial skills and the ability to think strategically are especially hard to come by. "Getting the job or promotion is not just based on your qualifications. Your ability, motivation and drive are what make you perform," she says. The screening process for new hires is usually quick — a must given the fierce competition for talented people — and Ms Lau says the interview is the candidates' chance to demonstrate their worth. "We don't so much ask technical questions to test mentality and thinking ability. If you don't know the answer, say so, and show how you would use your logic to approach the challenge. It's not what you say but how you say it. And definitely come prepared: know your company and be ready to ask questions."