Retail super funds fight back as Vanguard gains ground on industry giants

Perceived wisdom in Australian superannuation is that not-for-profit industry funds are the biggest and best option for storing your retirement savings.

However, retail funds are in the process of fighting back and are no doubt being helped along by the wave of scandals enveloping industry funds which have been caught out being very slow to pay out death benefits to survivors.

Small but growing fast

One retail fund to watch is the relatively young and small one run by US fund management giant Vanguard, which globally looks after an amazing $15.6 trillion of investments and is best known for its low cost index funds.

So far, its Australian super fund is a very tiny fraction of that total amount – just $2.8 billion – but it is growing quickly, up from just $1.7 billion at the end of last September.

That sort of growth is easily outpacing that of the much larger industry funds and looks set to continue with Vanguard also on the lookout for potential super merger partners.

It is also about to market more directly to financial advisers in addition to current efforts to appeal directly to new members.

Strong competition good for consumers

Competition is almost always good news for consumers and having an aggressive and experienced newer retail fund that is selling itself on having lower investment fees should have the effect of continuing the current compression of super fees overall.

Already Vanguard is estimated to have captured $540 million in super savings from its much bigger competitors.

Hopefully, the fee compression will also spark more account movement in the super sector.

There is certainly plenty of scope for moving funds given that around 60% of members remain in default funds that were assigned to them when they first started in the workforce.

With the total number of funds available also shrinking as the giant industry funds get bigger and smaller funds are consolidated, it will be increasingly important for the average superannuation fund member to become more active and engaged with their super fund.

That engagement should cover fees, investment performance over longer periods, appropriate insurance and good levels of customer service – all very important factors for the good overall long-term performance of your super fund.