The world's second-largest fund manager Vanguard launched a pension fund in Australia on November 11, after obtaining the first new fund license to be granted in six years from the Australian Prudential Regulation Authority (APRA).
After successfully managing money in Australia on behalf of superannuation funds, financial intermediaries and small retail direct business for the last twenty-four years, Vanguard’s team believed they could build a compelling offer that could also disrupt the market, Michael Lovett, head of superannuation at Vanguard Australia told AsianInvestor.
“Getting closer to the client is something that we feel really strongly about, so about four years ago we decided to pivot away from managing money for other superannuation funds, and to become a fund ourselves,” said Lovett, who has led the endeavour for the last three years.
There have been more Australian super fund mergers in the past year than ever before, largely driven by the increased scrutiny on funds brought about by the new super fund comparison tool and its performance test, released by the Australian Taxation Office in 2021. This test shone an unprecedented spotlight on funds that weren't competitive in terms of fees and investment performance.
“There's also been a stated intent from the government regulator, to actually see fewer superannuation funds in the marketplace. They’ve brought in regulation and some policies and as a result, the number of funds has come down dramatically over the last five years,” said Lovett.
“This in turn has diminished the appetite for other new funds to seek a super license when the market wants less of them,” said Lovett.
However, while the drastically changing landscape of Australia’s pension sector has served as a deterrent for most, the changes were actually part of the reason Vanguard decided to apply for the super fund license.
“We felt there was an opportunity on the back of the change in market, bolstered by the fact that there was going to be less committed competitors,” he said.
“We knew we could create a compelling offer to the marketplace built around our investment expertise with 45 years globally, 25 years in Australia. An offer that is low cost and also with the ability to bring a very personalised experience, both in the investment and also the member experience. The timing of getting into the sector made a lot of sense with the market consolidating and we continue to believe that.”
The licensing process with APRA was very long and the local regulator has a very high standard, which Lovett feels is very appropriate.
“We've worked closely with APRA over the last couple of years. It’s a big undertaking, you have to write all your policies, procedures, and you have to essentially be ready to manage money on behalf of the members to an appropriate standard. It takes time and I think a lot of people will look at that and think there's just too much work before you even get a dollar in the door,” said Lovett.
LOWER FEES OVER TIME
Vanguard Super opens with 12 products, which include the default "Lifecycle" fund that gradually shifts a member's holdings into more conservative investments as they age.
The fees for the default option will be the lowest in the Australian pension market for younger members and those with balances under A$50,000 ($33,080), according to analysis from accounting firm Deloitte commissioned by Vanguard.
“We're a $10 trillion-dollar firm globally and we are bringing that scale to the Australian super marketplace. We are starting with low fees, but we want and expect the fees to be lower as we develop scale over the next few years,” he said.
“Vanguard is all about low fees. From the very beginning when Jack Bogle started this business, it was about low fees, and the fees getting lower in time. It’s in our mentality and it’s what drives us,” said Lovett.
Within the super products for members, their Lifecycle product offers 36 cohorts of asset allocation which Lovett said is unique. But on top of that the fund will offer a personalised member experience.
“Because we were starting from scratch, one of the things we’ve been able to do is build the experience from the ground up. We chose a start-up in Australia out of Sydney called Grow, who has given us the ability to build state-of-the-art technology and experiences we believe will be a game changer for the industry,” he said.