The expected introduction next year of the Employee Choice Arrangement (ECA) to Hong Kong’s Mandatory Provident Fund industry is unlikely to have an impact over the next several years, say distributors, unless providers are very aggressive in promoting the business.
Speaking at the Hong Kong Investment Funds Association’s fifth annual conference last week, executives representing banks, insurance companies and independent financial advisors expressed scepticism that giving employees choice with regard to their MPF provider would lead to immediate changes in market share.
“Initially people will be conservative,” says Glenn Turner, chairman of the Independent Financial Advisors Association, and also COO of Altruist Financial Group, a financial planner. “It will take five to 10 years to generate momentum, unless insurance agents are very proactive.”
Eric Fu, head of business development for HSBC’s retail wealth management business, says up to 30% of the MPF’s two million members could switch providers over the course of several years, depending on the degree to which there are incentives on fees, improvements to services or marketing efforts with regard to top-performing (or at least top-branded) products.
“But 10 years on, the average MPF balance remains quite low,” he says, noting that people are more likely to think about their MPF scheme only if it comprises the bulk of their savings.
ECA represents a big chance for insurance companies, whose tied agents will now be able to go after members directly, instead of having to go through corporate HR departments – which tend to be tied to relationships with banks.
“ECA is a chance for insurance companies to increase our MPF business,” says Clara Fan, senior branch manager at Sun Life. But she reckons the schemes need another five or six years of accumulation before they become big enough to make members pay attention.
Different types of distributors have their own take on what might induce a member to switch providers. IFAs can promote independent advice on the best products; insurance agents can push individual service, and if they are organised and aggressive, have the sheer numbers to change the tide; banks have automated platforms as well as a reputation for safety – and inertia is on their side.
The caveat: “This assumes that members can understand the differences,” says Kerry Ching, head of retail business at Fidelity International and chairwoman of the HKIFA.
The other caveat: “Things at the current provider have to be bad in order to get someone to switch,” says Turner, who notes that ECA will also prompt providers of all stripes to try harder at bedding down existing customers.
Ching also notes an inconsistency between what the government wants and what market providers want when it comes to ECA. The Mandatory Provident Fund Schemes Authority, the regulator, does not want to encourage cross-selling; it wants providers to deliver high-quality service to MPF members. But many distributors will no doubt seize upon this opportunity to provide a broader package of services.
Under the government proposal, MPF members will be able to choose the provider managing their contributions, but companies will continue to select the provider for their collective contributions. Today, each company selects just one provider, which provides a range of funds to the employees.
ECA is expected to begin in the first half of 2012.