Towers Watson courts controversy in new MPF magazine

The fourth edition of MPFexpress.com, the quarterly magazine and website launched by Towers Watson this March, has hit the streets – and it sets a potentially controversial precedent in the process.

In the final issue this year, the consultancy invited MPF scheme providers to contribute short articles in a sponsored supplement inside the magazine, under the proviso that they stick to industry topics and don’t try to sell their funds.

All along Towers Watson has sold MPFexpress.com as an independent source of information to educate MPF members about the city’s mandatory retirement savings scheme. But introducing paid-for content by providers potentially brings the project’s independence into question.

In all, seven scheme providers set out their views in the latest edition, namely JP Morgan Asset Management, RCM, Principal, BCT, Fidelity, Invesco and Schroders. Their contributions largely focus on broad themes, including inflation and most-frequently-asked questions.

But in its article, Fidelity focused on target-date funds and quoted KP Luk, its head of institutional business for Hong Kong, as saying: “Fidelity is the first asset manager to bring target-date funds to Hong Kong’s MPF market and also the foremost to provide a sophisticated, hassle-free retirement solution to MPF members.”

That would appear to contravene Towers Watson's own guidelines. Fidelity is one of only a handful of providers that offer target-date funds within MPF, with others being BCT, HSBC, Hang Seng and Sunlife.

Asked about the potential for conflict of interest, Philip Tso, director of investment services at Towers Watson, points out that the sponsored section of the magazine is to help with sustainability costs, but says that providers are not allowed to use the magazine to sell product.

“When they submit their articles, we look at them and make sure they are not promoting any of their services,” Tso stresses.

It was Towers Watson that chose the topics for the MPF providers to write about and asked them to choose one, he notes. As chance would have it, they each selected different options.

"They did not suggest these topics themselves," states Tso. "We said we believe these are the seven topics worth talking about, and they all had the opportunity to pick. We don't think there's a conflict of interest."

Industry sources suggest any conflict might be down to an editorial slip in this instance. "I would say it is borderline, because it is moving into an area that could potentially provide a bit of conflict, especially if they are allowing certain providers to promote themselves," says one.

Tso says that at the outset Towers Watson highlighted the opportunity for scheme providers to support the initiative in the magazine's fourth issue, and plans to do so again next year.

"We started with a level playing field for all the providers and they knew if they participated that there would be an opportunity to write an article. There is only very small monetary support from the providers.”

He says he spoke to 21 MPF providers in all and that seven expressed an interest in participating. “Hopefully we will see more providers join us in future to promote a positive image of MPF to the market.”

The main focus of the fourth edition is identified as the four key risks within the MPF universe: investment concentration, market timing, inflation and out-of-market exposure.

Tso says members should be aware of the need for diversification, while at the same time not reacting to today’s volatile environment by exiting and potentially missing out on a market rebound.

In all there are 438 constituent funds within the MPF universe, comprising mixed asset (177), equity (152), conservative (41), bonds (36), guaranteed (28) and money market and others (4). It means there are almost four times as many pure equity funds as bond funds.

Tso also warns of the dangers of underestimating inflation since it affects purchasing power in the future, and also of losing out via out-of-market investment, for example through the incoming Employee Choice Arrangement (expected to be introduced in the second half of 2012).

“Members need to prepare themselves to understand the out-of-market exposure if and when they chose to move from one provider to another,” says Tso. “The documentation process can take time, and nowadays being out of the market for two or three days can hurt performance.”

The fourth edition of the magazine is being distributed with a print run of 70,000 in collaboration with the Hong Kong Economic Journal. Tso says he expects the print run to increase gradually next year, especially when members seek more information on ECA.

In a reflection on the first year of the MPFexpress.com initiative, Tso says market feedback has been positive, with members finding it informative, particularly on how to read fund fact sheets and benefit statements.

“We feel that people do appreciate our efforts in this commitment,” he adds. “It’s a good thing to keep doing this for the next couple of years at least. In fact we are just getting even more committed to provide more information through the website and magazine on a regular basis.”