Can Vanguard surmount stapling and indifference?
ANALYSIS
The question which should be occupying the minds of executives within Vanguard Australia is how its foray into superannuation will deal with a market much-changed since the company decided upon its move more than three years ago.
In the 36 months which have elapsed since Vanguard surprised the Australian superannuation funds sector with the announcement of its intention, some key changes have occurred, not least superannuation fund stapling and the superannuation funds performance test.
The other factor for Vanguard is that while its brand is both widely known and respected among the Australian financial services industry cognescenti, unlike the likes of Virgin Australia, it is not particularly widely known or recognised in the broader Australian community.
And the reference to Virgin Australia is important because even a brand with that level of recognisability has struggled to gain traction in the Australian financial services sector.
Then, too, there is the reality that superannuation funds stapling has already served to make fund memberships much stickier than it has been in the past.
As one senior industry consultant told Financial Newswire this week, “it is funds such as AustralianSuper, REST and HostPlus who are benefiting from stapling and good luck to Vanguard shaking those members loose”.
“The simple bottom line is that many employers are perfectly happy with the existing industry funds,” he said.
The other factor at play is that the Your Future, Your Super performance test has played a significant role in driving down superannuation fund fees with a number of significant industry and retail funds lowering their fee structures to ensure they passed the latest test.
Thus, whatever fee structure Vanguard ultimately announces as it comes to market over coming months it is going to need to be compelling to convince Australia’s traditionally disengaged or currently stapled super fund members to make a change.
On the available evidence, the most compelling argument that Vanguard will be able to make to super fund members will be consistent investment out-performance.
In the meantime, the major winners may prove to be the media as Vanguard spends up big to promote its super offering.
Doomed – will be sub-scale for years
If Vanguard isnt well known outside advisers, struggles to match some already sharp admin fee pricing in the market and needs to deliver investment outperformance while offering largely indexing, its going to struggle.