Vanguard Super launch reignites fee war


Three years after it first announced plans for a superannuation offering, Vanguard is now home to one of the cheapest MySuper products - a lifecycle solution that auto-adjusts 36 times.

It was back in November 2019 that Vanguard's Robin Bowerman revealed the indexer's plans to re-enter the super sector. Later that month, Michael Lovett was appointed as head of superannuation, tasked with leading the development and launch.

Three years later, Vanguard has today unveiled Vanguard Super SaveSmart, a lifecycle MySuper product and series of index-based diversified options and single sector options.

vanguard launches vanguard super

The product has 36 cohorts, with the allocation to growth assets set to begin reducing when a member celebrates their 47th birthday. A typical lifecycle product adjusts allocations four or five times.

A key selling point of the product is its low-cost, including no dollar-based fees. The lifecycle option comes in at 0.58% total fees per annum which, according to Rainmaker analysis, makes it the cheapest in market for a $50,000 balance - but only just. ANZ Staff Super has fees of 0.588%.

But it will get cheaper, Lovett says.

"We've never set ourselves to be the lowest cost in every category, we are a low-cost provider, but I think the difference with us is that we're lower cost in time," he says.

"So, the more success we have, the lower our fees will drop. What we have now, we think is competitive, but it is going to be lower in five years' time with success; we've been in Australia 25 years, and we've dropped our prices 40 times, so we've got that history of doing it."

As of yesterday, about 18,000 potential members had expressed interest in taking up the product, in addition to several financial advice firms that will be able to access it through the Vanguard Adviser Portal, to be rolled out in the coming months.

"Not all of those will follow through, we know that. But we think a good number will, so we're really excited by the early opportunities for business. We've got both channels that are reasonably ready to move, so we think out of the gates we'll have some strong flows," Lovett says.

While he admits the recent stapling laws present a challenge, Lovett said it's all about perspective.

"In the short term, yes - stapling is a potential barrier for us. But there are two ways to look at stapling. One is that it's a challenge, the other is that it's an opportunity because once you win the client then they're stapled to you," he says.

He also conceded that being hogtied to listed investments in a time when most super funds are typically only generating performance from unlisted investments could be trying, but says he is confident it's a high-quality product regardless. He's also not ruling out the addition of unlisted assets down the line.

"Unlisteds go through cycles like most assets, but we don't inhibit ourselves. At some point in the future, we could add them; in the US, we have added some unlisted assets to our portfolios," he says.

"The biggest thing with unlisted assets is liquidity, knowing how many redemptions you're going to have coming out of the fund. For us, in our early days, we just need to get on top of understanding the type of client we're going to have and the liquidity we'll need before we add unlisted assets."

This marks the second time Vanguard has launched a super product in Australia, having previously taken up corporate mandates in a short stint with MLC Plum before packing it in in 2003.

The landscape is significantly different now, Lovett says. However, he does admit that in developing the offering, Vanguard looked at the mistakes made by the many so-called "disruptor" funds that popped up in recent years yet failed to actually disrupt, one from its own administrator GROW among them.

"There's been multiple of those, and we think we are very different. We've got a strong brand with financial intermediaries and that's going to be a key channel for us, but we've also got a strong brand with a small but growing population in Australia... so we think the natural advantage we have is the existing brand and capabilities with advisers and several consumers, and that's what we're going to focus on first," he says.

"There's no doubt there's really healthy competitors and good competitors out there, so it's going to be hard to disrupt but we're confident we can."

Rainmaker Information executive director of research Alex Dunnin is confident it will as well, saying: "This new fund is going to be a massive disrupter to Australia's superannuation system, and in a great way. They may not trouble the really big, long-established power funds, but smaller, mid-size or funds less sure of their footing will be watching Vanguard Super very closely."

Vanguard Super's administrator is GROW, its custodian is JPMorgan, and its group insurer is AIA Australia.

This article first appeared on Financial Standard

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Jamie Williamson is editor of Financial Standard. Prior to this she was a senior journalist, covering wealth management including financial advice, superannuation and life insurance. Before turning to journalism, she worked in public relations, specialising in financial services. She has a Bachelor's degree in communications from the University of Newcastle.