Vanguard Super will officially launch in November this year after APRA last week granted the $11 trillion US behemoth a licence as a public offer registrable superannuation entity (RSE).
Vanguard’s long-heralded superannuation plans come 40 years after the firm started in the US 401(k) retirement savings market and 26 years after first opening its doors in Australia. Its arrival represents a competitive threat to local players and was welcomed by consultants and others not directly competing.
SuperRatings chief executive Kirby Rappell said Vanguard’s emergence should lead to more innovation in the local industry and presented a competitive risk to the incumbents.
The firm’s focus on retirement savings is also well timed as the local industry switches focus from accumulation to retirement and decumulation. Given its mastery of index funds, its entry into the retail super space is a further push into passive funds management in Australia.
Vanguard’s financial heft is significant, with assets under management nearly four times the assets of the entire Australian superannuation industry and 42 times the size of local leader AustralianSuper.
Vanguard will face a number of challenges breaking into the superannuation industry, say industry insiders, including distribution, fierce competition from well-entrenched industry super funds as well as a lack of brand recognition.
However, Vanguard Super head Michael Lovett is well placed to overcome the distribution hurdle given his experience both in Australia and the US in distribution with a focus on the adviser market. A Vanguard veteran, he worked with HSBC and Challenger earlier in his career.
The firm will also face strong competition from the incumbent super funds. The present barrage of media advertisements by the industry funds is aimed in part at negating the impact of Vanguard and other retail funds. The profit-for-member funds got their break controversially by being attached to industry awards but have since, with a few exceptions, won their market war with retail funds.
While Vanguard is well known in the US market, the firm is not yet a household name in Australia, notwithstanding its lengthy operations. Having won its licence this month and three years after officially announcing its entry into the market, the firm will spend the next three months working through and validating its systems to ensure a flawless start.
In past statements, Vanguard’s Lovett has not ruled out acquisitions as a way of building its base in Australian superannuation. At a time when APRA is pushing for industry consolidation, Vanguard comes to the table with plenty of financial muscle.
Vanguard tried its hand in corporate super earlier with Plum Financial but sold out to joint venture partner MLC in 2003 after four years in which $65 million in losses were incurred.
Well advanced plans
After forfeiting $100 billion of local mandates to make the move, Vanguard is effectively taking on its former clients with the push into super. The company is well advanced on its plans, with around 60 of its 800 staff in Australia focused on the launch.
It has established a board under former Herbert Smith Freehills partner Peggy O’Neal and Lovett as chief executive. O’Neal said she was delighted to “play a part in delivering greater choice to the Australian superannuation market”.
Other board members include former RACV chief financial officer Anne Flanagan, former Vanguard Australia boss and SuperEd founder Jeremy Duffield, as well as Vanguard compliance chief Cynthia Lui.
“Vanguard brings a new proposition to the industry with its scale and low-cost index investing,” Andrew Boal, actuarial consulting partner at Deloitte, said.