Vanguard enters Aus super market

The $10 trillion US funds management giant is coming in with a low cost suite of superannuation products that launch on Friday.

Vanguard Australia chief Daniel Shrimski says its products will be “an alternative which will be worth Australians having a good, hard think about”. Picture: Luis Enrique Ascui

The $10 trillion US funds management giant, Vanguard, is set to take on the Australian superannuation sector with a low cost suite of superannuation products launched in Australia on Friday.

The company, which already manages more than $100bn of funds in Australia, is signalling its intention to use its global scale to hold down costs, starting off with a default option superannuation fee of 0.58 per cent – one of the lowest in the Australian market.

The company will launch a unique MySuper product, which automatically adjusts the investment strategy to become more conservative each year after a member reaches the age of 48 — at no extra cost to the member.

It will also launch a suite of 11 Choice products giving members a choice of different options from having all their money invested in one sector or having a mix of investments.

Vanguard Australia’s chief executive, Daniel Shrimski, said the company saw its new products as providing a “really strong alternative” to current offerings in the Australian superannuation market.

He said Vanguard’s entry into the market would be a “much needed change in the industry.”

“There are opportunities out there to improve the super system,” he said in an interview with the Australian.

“We are going to be able to offer greater transparency, our investment expertise and our ability to engage with members.”

“It will be an alternative which will be worth Australians having a good, hard think about.”

Mr Shrimski said Vanguard was hoping to promote its products to 90,000 Australians who were investing in Vanguard products which have been sold in Australia for the past 25 years.

He said Vanguard already had 20,000 expressions of interest registered from people interested in its superannuation product following the announcement of its plans to move into the superannuation earlier this year.

He said Vanguard would also be promoting its superannuation products through the financial adviser network in Australia.

“Some 65 per cent of Australian financial advisers have at least one dollar with Vanguard,” he said.

He said advisers promoting the Vanguard products could access it through the existing Vanguard platform without having to pay an extra fee.

“We believe advisers will be a good opportunity for growth where it makes sense for their own clients,” he said.

He said members would have a single point of access to their Vanguard super investments as well as their Vanguard investments outside super through a Vanguard personal investor account.

Some $38 billion of Vanguard’s existing investments in the Australian market are in exchange traded funds (ETFs) with the rest in a range of managed funds.

Mr Shrimski said the Vanguard name was already well known in the Australian wealth management industry.

“We are not starting from scratch,” he said.

“We’ve been in Australia for 25 years. We’ve built a fantastic brand with financial advisers.”

He said the company would be stepping up its advertising to promote the new products “but first and foremost we are about making what we think is a compelling offer.”

The Vanguard MySuper product, called Lifecycle, will see the investment automatically recalibrated over the life of the member to become more conservative as they get older between the ages of 48 and 82.

Vanguard says the series of 36 yearly adjustments was far more fine tuned than other MySuper products in the market which only offered around four to five adjustments over the life of the fund.

The company says the Lifecycle product will provide members with “the peace of mind of automatic derisking of their portfolio up to and during retirement.”

The company plans to have a heavy emphasis on its low cost fees, publishing them on a yearly basis incorporating investment costs, administration costs and transaction costs.

Vanguard is the first new company to be given a registrable superannuation entity (RSE) license in Australia in several years.

While other super funds have been launched in recent years, they have been done using existing RSE licenses.

The company has been working for more than a year with regulatory authorities in Australia, particularly the Australian Prudential Regulation Authority (APRA).

“It has been a lot of really hard work to get to this point and we couldn’t be more excited about it,” Mr Shrimski said.

While he said Vanguard had no specific financial goals on how large its superannuation business would be, he said he believed the company would be playing a “meaningful role” in the market in Australia within the next five years “as more Australians become aware of what our offer is and how it is differentiated.”

He said Vanguard had drawn on its extensive experience in the US pension market in designing its Australian superannuation products, particularly the Lifecycle fund.

He said Vanguard would also be looking to launch a pension offer for Australians in the near future.

“We think it’s going to be an important offering as we work with a broader section of the Australian population,” he said.

He said the Vanguard would also be looking to keep downward pressure on its fee structure as its superannuation assets in Australia grew.

“When Vanguard goes into markets, it has a history of building scale and lowering fees to the end investors- or members in this case,” he said.

“As we see Vanguard super grow over time, we absolutely commit to lowering our fees further.”

“We’re going to continue to listen to members and continue to refine our offer.”

He said Vanguard would be using technology to have an active engagement with its super fund members.

He said research done by Vanguard showed that 25 per cent of Australians did not know the size of their superannuation balance and 44 per cent were uncertain if their fund was a low-fee fund.

He said 28 per cent of Australians with super had never initiated contact with their fund.

“We firmly believe that, for many people, superannuation is the second largest asset they have after their home,” Mr Shrimski said.

“As a result, they should be engaged and in touch with their fund, including knowing what their balance is.”