Insurance Related Legislation - Code on Disclosure for MPF Investment Funds
Amy SoVice President, Employee Benefits Administration & Services
12 October 2004
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Objectives of the Code
• Provide members with clear and easy-to-
understand information• Simplified language
• Improved consistency of presentation &
language
• Tools that assist understanding of MPF
information (e.g. Fee Table, On-going Cost
Illustration, Fund Expense Ratio)
• Provide guidance to trustees & other service
providers • Good Disclosure Principles
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Information to be Disclosed
• Information that enabled members to make informed in
vestment decision
• General content to be determined by trustees consider
ing the MPF (General) Regulation, SFC Code on MPF P
roducts, and Good Disclosure Principles
• Focus of the Code -- to provide clear and comprehens
ible information regarding fees & charges, in standardi
zed format & terminology
• Fund Expense Ratio (FER)
• Fee Table
• On-going Cost Illustration (OCI)
• Fund Fact Sheet
• Capital Preservation Fund (CPF) Illustrative example
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History of Code Formulation
• Discussion with industry started in late 2002
• 5 Papers regarding Fund Expense Ratio,
Performance Presentation Standards, Point
of Sale Disclosure, Member Benefit
Statement, & Fund Facts Sheets
• Consultation paper issued for comments by
members of public and industry from
February 2 to March 15, 2004
• Code finalized & published on 30 June 2004
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Good Disclosure Principles
• Information should facilitate decision
making
• Information should be timely
• Disclosure should promote comparability
• Disclosure should be consistent
• Disclosure should be clear and concise
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What the Code requires Trustees to do
• Distribute offering documents (“ODs”)
• Include Fee Table in OD, with CPF Illustrative example & On-going Cost Illustration (“OCI”)
• Signpost OCI & Fee Table in OD
• Prepare and distribute Fund Fact Sheetstwice a year
• Include Fund Expense Ratio (“FER”) in annual returns, fund fact sheets and OCI
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Offering Document (OD)
• Sections 31(2)(c) and 54 of Regulation
• Provide OD to all prospective or current
scheme members through a delegate; or
through employer
• Not adequate just to hold copies for reference
or available on request
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Fund Expense Ratio (FER)
• Fund Expense Ratio (FER)• Measure total level of expenses of a fund
• Apply to constituent funds and APIFs
• Include FER in (E1.4)• Fund Fact Sheet
• On-going Cost Illustrations (OCI)
• Annual return of a registered scheme & Approved Pooled Investment Fund (APIF)
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Fund Expense Ratio (FER)
Include• Management fees • Guarantee charge paid to
guarantor• Registration fees & compensation
fund levy • Insurance costs, legal &
professional fees • Printing & distribution costs• Banking charges & interest on
borrowings• Amortized expenses• Deferred expenses from previous
period in relation to CPF
Exclude
• Capital account movements
• Asset Appreciation / depreciation
• Fund income
• Non-fund fees paid directly by employers & scheme members
• Guarantee charge deducted & reserved within the fund
• Foreign exchange gains/loss of the fund
• Deferred expenses to subsequent period in relation to CPF
Expense amounts
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Fund Expense Ratio (FER)
• FER first calculated for financial period
commencing 31 December 2004 (G2.7)
• Auditors to ‘check’ calculation (E4.2)
• Trustees to retain calculation and source
data for inspection by Authority
• Authority will review accounting practices
for any inconsistency in application
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Purpose (C2.3) :• One point presentation for all classes of
participants• Consistent• Standardized terms• “At a glance” understanding
Fee Table
Complement to the existing SFC requirement (C2.4)
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Content (C2.6) • All fees & charges• What for• Amount currently charged• Payable from whom
Fee Table
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Fee Table
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Five Sections of Fees (C2.7)• Joining fee & Annual fee• Fees & Charges payable arising from transactions
in individual member’s account (e.g. Contribution Charge, Offer Spread, Bid Spread, Withdrawal Charge)
• Annual fund operating charges & expenses in relation to constituent funds of the scheme (e.g. Management Fees, Guarantee Charge, Other Expenses)
• Fees & charges payable out of underlying funds• Other fees & charges for providing additional
services
Fee Table
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• Fee information in documents other
than OD (e.g. guidebooks, brochures,
booklets) (C1.9)
• Consistent with OD
• Presented in same format as set out in
Fee Table
Fee Table
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• Include Fee Table in OD by 31 December 2005 (G2.1)
• Submit draft to Authority for approval-in-principle by 15 September 2004
• Provide Fee Table to prospective employers and scheme members one month after Authority approval as supplement information.
Fee Table
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Purpose (C2.8)• Understanding the effect of fees / charges in the
Fee Table.• Comparison of dollar costs among similar const
ituent fund of different schemes• Illustrate in dollars incurred in investing into the
funds across defined time horizons • Using an example of total fees & charges on
$1,000 contribution with 5% gross return each year.
• Not applicable to capital preservation funds, guaranteed funds or new funds (established for less than 1 year) (C2.10)
On-going Cost Illustration (OCI)
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• Use latest Fund Expense Ratio (FER)• Show all classes of fund• Use current contribution charge, offer spread to
arrive the net contribution invested• Use of current level of bid spread and
withdrawal charge to arrive the respective cost• Non-recurring expenses (set-up costs, system
changes etc) should be adjusted
On-going Cost Illustration (OCI)
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On-going Cost Illustration (OCI)
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• Prepare first edition OCI when Fund Expense Ratio (FER) first calculated
• Prepare within 6 months after each financial year-end
• File first issue of OCI with supporting calculations with Authority for information (G2.3)
• May form part of (MPFA approval needed) or as an accompaniment (signpost only) to a scheme’s OD (C2.9)
• Update annually
• OCI calculation verified by approved trustees (C2.16)
• Document verification procedures in compliance manuals
On-going Cost Illustration (OCI)
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Fund Fact Sheets (FFS)
• Minimum content (D2.3)• Fund size
• Launch Date
• Investment Objectives
• Portfolio Allocation
• Top 10 Portfolio Holdings
• Performance Over Time Periods
• Performance vs Benchmark
• Latest Fund Expense Ratio (FER)
• Appropriate Fund Risk Indicators
• Fund Descriptor
• Commentary
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• Meet requirements in Chapter 8.6 and Appendix D of SFC Code on MPF Products (D3.5)
• No prior approval by Authority required unless included in offering document
• Authority may review and comment on fund fact sheets
Fund Fact Sheet (FFS)
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• Frequency (D3)
• 2 fund fact sheets each financial year
• Timing
• One at financial year-end
• Distribution: mail with annual benefit statement 3 months
after financial year-end
• Signpost distribution of other fund fact sheet: when / how
• One at date six months after
• Distribution: mail, employers, email, internet, fax, call
centre
• Provided within 2 months of reporting date
• Provided with first annual benefit statement issued
after 28 Feb 2005
Fund Fact Sheets (FFS)
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Capital Preservation Fund (CPF) Illustrative Example
• May form part of (MPFA approval needed) or as an accompaniment (signpost only) to a scheme’s OD (C2.15)
• Verified by approved trustees
• Document verification procedures in compliance manuals
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Annual Benefit Statement
• Section 56 of Regulation requires trustees
to provide annual benefit statements
• Ensure each member is provided annually
with historical record of member’s
account at a point in time
• Align with good disclosure principles
• To be further developed
Questions & Answers Session
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Thank You!Thank You!