Vanguard for Australian Superannuation

[abyss]

My superannuation ( Australian tax advantaged retirement savings ) is currently in a fund with high fees and I'd like to move to a low-cost index fund like Vanguard.

Does anyone have their super with Vanguard? How have you gone about it? Some super funds allow buying ETFs, but the few I've checked (like Australian Super) don't have vanguard as an option.

I'm not keen on going the self-managed super fund route.

[AdrianM]

Here is the previous conversation about Aussie Super.
https://forum.mrmoneymustache.com/investor-alley/australian-superannuation/

I would suggest you get a SMSF if you want to have any sort of control over your super.
They are not as hard to operate as you are lead to belive nor do they cost that much.
Check out http://www.esuperfund.com.au/

[abyss]

Has anyone tried Plum Financial Services ( http://www.plum.com.au/ ) for super?

I rang Vanguard Australia to ask if they could recommend a way to invest my super with them and Plum is who they put me on to. The annual fees for Vanguard funds seem to be ~AUD$67/year + 0.30%-0.39% (depending on the fund).

I haven't applied yet, but on the surface the fees seem *much* better than my current fund.

[aaronhann85]

I have my superannuation with AustralianSuper in the 'Indexed Diversified' option. It has fees of only 0.09%pa and $1.50 a week for account fees.

[steveo]

Here is the previous conversation about Aussie Super.
https://forum.mrmoneymustache.com/investor-alley/australian-superannuation/

I would suggest you get a SMSF if you want to have any sort of control over your super.
They are not as hard to operate as you are lead to belive nor do they cost that much.
Check out http://www.esuperfund.com.au/

This states the cost is $700 per year to set it up and then manage the fund. I suppose after that you will have to pay a small percentage to Vanguard assuming that you choose to take an index investing approach.

I also saw that at 55 you can set-up a pension and it has it appears massive tax benefits.

I'm starting to like this option a lot. Has this worked for you ?

[superannuationfreak]

Hi,

If you mainly want index funds there are less expensive options than using a SMSF now available.

As mentioned previously, Australian super and ing direct are allowing purchase of etfs in their direct shares options. Ing include vanguard funds. Both do limit it to 80% of your total assets or 20% per etf. There are ways around this with ing though: split it between vanguard etfs and iShares index etfs. I think Australian super's Australian share fund is also pretty price competitive on its own too.

An even more cost effective option if you just want index funds rather than general share trading is with sun super
Hidden within their investment options are an Australian shares index fund, international index funds (hedged or unhedged, or some of each), aus reit property index fund, etc. All at competitive fees using state Street index funds (who have been doing index etfs over here the longest).

I'm starting a superannuation blog focused on index funds if anyone would like me to put a link here once it's ready.

[abyss]

I'm starting a superannuation blog focused on index funds if anyone would like me to put a link here once it's ready.

Sure, I'd love to read it when it's ready.

[marty998]

I work for a fund manager in Oz.

There is so much pressure to keep lowering our fees that I think it will soon get to the point where it is uneconomic for the boutique fund managers to remain in business.

Great for investors, lousy times for the industry notwithstanding the 9.25% rivers of gold. All the extra $$$ coming in is offset by margin compression.

For insto clients and the big industry super funds we manage cash and fixed interest mandates for under 0.1%, and Aus equities mandates for around 0.2%-0.25%.

You just cannot beat an industry super fund for the way they screw down fees. They are bastards :)

[steveo]

You just cannot beat an industry super fund for the way they screw down fees. They are bastards :)

I just checked my fees on an industry super fund and they do seem reasonable. They also provide a life insurance policy along with my super. I would typically not bother paying for the policy however it does provide some security in case anything happens and the fees appear to be no more overall than having my own self-managed super. I am married with 3 young kids.

In saying that I think when my super gets up to about $500k which means I am pretty close to being FI I think I will start to manage my super myself. I'd prefer not to have the life insurance policy especially if I am close to being FI and I would prefer to control my super myself.

[superannuationfreak]

I'm starting a superannuation blog focused on index funds if anyone would like me to put a link here once it's ready.

Sure, I'd love to read it when it's ready.

My blog now actually contains relevant information, not just introductory posts!

http://superannuationfreak.blogspot.com.au/

Appreciate any feedback from the Australian Mustachian community.

[CG]

Interesting discussion. However, I would add that it neglects the value of franking credits to minimize tax when in pension mode. If equities as a class have been tapered out with increasing age, the benefits of fully franked dividends would also have been significantly reduced.

[Ozstache]

Very timely thread for me. I'll be getting my golden handshake soon, part of which will be locked in super, and I'm shopping for low fee index super funds. SuperFreak's blog is a bloody good start for that.

[superannuationfreak]

I came across the following, scraping Long Term Returns' website using Bing.  I think it's valid in the Australian setting too: Vanguard is a great company but if there are other products that provide good diversification at lower costs (i.e. other index funds) then they're certainly worth considering.  Personally, I use Vanguard ETFs where that is possible (as they are great value) but in my superannuation I just don't have a high enough balance to make it worth the higher administration fees of a direct investment option (such as that offered by ING or AustralianSuper) or SMSF.

Q&A: Vanguard For European Investor
Reader Question

Hello, congratulations for your blog. I am a European citizen and I would like to know if the formula of investment funds through Vanguard that you indicates, is valid in the same way this side of the Atlantic. Thank you.

My Reply

From what I know, yes, Vanguard's offerings outside of the US are still some of the lowest-expense and best diversified available. They are not quite as cheap as US funds, but from what I know they are as good as any non-US investor can currently get. Start at https://global.vanguard.com/ and select your country and go from there.

Again, just to clarify, the only reason why I so strongly recommend Vanguard is because of its great selection of low-cost highly diversified index funds, both on fixed income and equity sides. That is it. I don't recommend Vanguard because they have genius quants who will beat the market. I recommend them because they do superb job of passing on market-level returns to the investors. From what I know Vanguard's European funds do this job as well as any other funds available to European investors.

Both of those things -- diversification and low costs -- are absolutely crucial for successful long-term investing. Both are completely ignored in most mainstream investing advice which is little more than marketing pitch for investment management industry. It's very simple: low costs to you means low profits for them. That's why mainstream investing advice will always steer you towards all sorts of high-expense investment choices. It is a colossal scam on global scale that very few investors have any awareness of because it takes years and decades for the full effect of these high expenses to be felt. You will not be a successful investor over your lifetime if you don't control your costs. You might have a lucky year or two in some expensive mutual fund, but over your lifetime your expenses and costs will be the determining factor in your (lack of) success. Vanguard is the preeminent provider of low-cost investing products in the US and I believe it is one of the best overseas as well.


Diversification is equally important. If you don't diversify across thousands of stocks, then you unnecessarily risk possibility of huge losses because your investments are concentrated in one losing company or industry or country or continent. Investing industry doesn't particularly like diversification because the more you diversify the closer your returns approach the market's returns -- at which time low costs become the determining element (and, once again, investing industry thrives on ripping off its customers with high costs). So typical industry funds will be focused on specific countries or industries or companies. This lack of diversification will be presented as a positive in their marketing because, supposedly, their fund managers can pick out the winning countries/industries/companies and invest only in those winners. Of course that is just wishful thinking. History and simple math dictate that picking winners at the cost of diversification is a losing game.

Vanguard provides superb diversification in its many index funds and it does so at absolutely lowest expenses. This is all any investor should care about. It does not mean that Vanguard's funds will deliver highest returns every year. That will never happen. But what will happen is every year Vanguard's funds will beat the average by some small percentage. And 10 or 20 or 30 years of beating the average by just a small percentage is all it takes to be among the best, if not very best.

And, of course, if you come across other investment choices that beat Vanguard on both diversification and low expenses, then by all means you should invest with them. But those are the keys: maximum diversification and low expenses, whether they come from Vanguard or somewhere else.

[marty998]

Interesting discussion. However, I would add that it neglects the value of franking credits to minimize tax when in pension mode. If equities as a class have been tapered out with increasing age, the benefits of fully franked dividends would also have been significantly reduced.

And that is why the budget is in deficit. There is no company tax being paid any more, cos it all gets refunded in franking credits to the bloody 0% tax rate pensioners.

Peter Costello fucked the country when he exempted pension assets from tax. Would you believe according to stats released by the ATO there is one SMSF out there with $100m in assets paying $0 tax on income? A multi squillionaire is out there earning shitloads and probably getting a refund from the gubbment.

Imagine all those hundreds of billions of super assets combined, not only not paying tax but getting refunds. I used to do the books for some of them, most had everything in shares and an effective tax rate of -15%.

It's a rort (not that I secretly wish to be old enough to take advantage of it :) hehe)

[misterhorsey]

Not sure if its better to start a new thread, but because my query relates to this topic I thought I'd piggy back.

Can anyone recommend a cheap super platform in which to invest in vanguard diversified multi-sector funds, i.e. the equivalent of the life strategy funds, rather than selecting ETFs.

I previously had my super directly with vanguard.  Then they stopped managing super and moved it to Plum Financial Services (previously a JV between Vanguard and NAB).  I recently got a letter advising that my super allocation had changed from a Vanguard option to an option called 'Moderate - Index Plus'. Bizarrely Plum provide no information on what organisation is managing this option.

I did call up Plum and they were able to advise that its an multi-fund manager.  The asset allocation is on the Plum website and it points to the indexes that the option is benchmarking, but no mention of whether it is Vanguard or other organisations managing each index. I called them for further information. They confirmed that it is Vanguard managing some of the indexes but couldn't confirm which ones. Or who the other managers were.  Weird.  I suspect that its MLC behind it. Not a fan of the Golden Egg so if fees are inevitable I'd rather pay someone else if I can.

Fees are at .39% for the new Moderate-Index Plus option.

As you can see (if you are curious) no actual detailed info:

https://www.plumfs.com.au/member/files/plan/PPP/499PPP940_Your%20Investment%20Options%20Explained.pdf

So hoping to keep it simple and switch to another provider where I can set it and forget it.

I'm aware of the ING super platform, the ability to buy and sell ETFs sounds great but too much managing and transacting and transaction costs for me I think.

[dungoofed]

Bait and switch!

Yeah, I'd drop them like a hot brick. Who has the best "target retirement date" offering these days? Assume you have read superannuationfreak's blog, right?

[FFA]

are you fixed on vanguard, or willing to accept other index managers provided fees are competitive ? several of the industry funds offer index options with low fees. sometimes it is not very clear who the manager is, you have to ask/dig. personally it doesn't bother me too much provided the fee is competitive, since an index is an index. i'm with sunsuper, they used to have state street as the index manager, but there was an alliance started with vanguard about 6-9 months ago (?), which gave the impression they might switch their index options into vanguard management, but I never checked if it actually happened or not ...

edit to add : mrs ffa is in hostplus. their balanced index option is hard to go past, provided you're ok with the asset allocation (around 75/25 and shares tilted to oz, also little or no reit/infrastructure/private equity/etc). MER around 0.04-05%. I think it would be an excellent default option for most people who want to set and forget!

[misterhorsey]

Thanks

These things take me forever to research so I've learnt from past mistakes that snoozers are losers, so rather than wait til I found the right provider I switched from the Moderate option to Assertive, the difference being 70/30 Growth/Defensive for Moderate or 85/15 for the Assertive option.

My reasoning being that its a good time to convert some cash into equities with the ASX still hovering closer to 5000 than 6000

Also, the cost of switching (buy/sell spread) was paid for by the upswing in a greater allocation to equities.

Lastly, I did some snooping around my previous plum statements.  I calculated the cost of the fees and it does come out as the .37% they advertised. So at least they're up front about that.

I notice some of the other retail super funds charge a MER for the fund that the super is invested in PLUS a admin fee for the super fund manager!  Either a percentage or a weekly fee.  Now that's a rip off!

[misterhorsey]

are you fixed on vanguard, or willing to accept other index managers provided fees are competitive ? several of the industry funds offer index options with low fees. sometimes it is not very clear who the manager is, you have to ask/dig. personally it doesn't bother me too much provided the fee is competitive, since an index is an index. i'm with sunsuper, they used to have state street as the index manager, but there was an alliance started with vanguard about 6-9 months ago (?), which gave the impression they might switch their index options into vanguard management, but I never checked if it actually happened or not ...

edit to add : mrs ffa is in hostplus. their balanced index option is hard to go past, provided you're ok with the asset allocation (around 75/25 and shares tilted to oz, also little or no reit/infrastructure/private equity/etc). MER around 0.04-05%. I think it would be an excellent default option for most people who want to set and forget!

Not really attached to Vanguard but I like their philosophy. And there's a slight unmmeasurable self interest.  The more I have invested in them the lower their fees so that my investments with them benefit.

That MER for the hostplus balanced index option is really low!!!  It's not 0.40% is it?  0.04% will definitely get me to research their options!

[misterhorsey]

hmm, just checked.  Plum Assertive Index option at .39% total fee looks cheaper than most of the Host Plus options:

http://pds.hostplus.com.au/6-fees-and-costs

except for the Index Balanced option (70 growth/30 defensive allocation) which has a very low MER of 0.03% + the standard $1.50 per week admin fee.

http://pds.hostplus.com.au/5-how-we-invest-your-money#a38cce86-7cbc-44f4-b220-b8f6bfd29656

I'd prefer a higher growth option but for such a low fee I reckon its a pretty compelling proposition. 

Thanks FFA!

[FFA]

Yeah, i tend to set my AA more aggressive to offset it, so on a collective basis its in line. I use sunsuper for more flexibility and mrs ffa 100% in hostplus index balanced to keep it simple and efficient.

edit to add : I just re-checked hostplus web, AA is 75/25 not 70/30%. and the shares are now split 50/50 oz/global, it used to be more in oz previously. 75/25 is quite aggressive for a "balanced" fund. especially in this case since it doesn't have any reits, infrastructure, PE, hedge fund, etc (stuff that i'm not keen on anyway). So the the 75% is fully in shares, which is probably comparable to the share allocation of many growth options.

[misterhorsey]

A rather late update to this long dormant thread...

In a few posts earlier I was trying to optimise my super, and noted that the my choice of fund, the Plum Assertive index, had a MER was 0.39%.  On this basis I thought it was pretty competitive with the offerings from Host Plus and Sun Super and so I decided to stay with Plum.

Randomly checking my Plum account tonight I discovered there's also an indirect cost ratio of 0.14% in addition to a Plum Management Fee that applies on a sliding scale: 0.80% up to 100k, 0.40% on the next 100k and 0.25% on the balance over 200k. 

The fees are all available for inspection on the Plum website. However, they are hidden away. Perhaps not intentionally, but they certainly don't draw your attention to them.

I previously thought other super funds were rip offs for charging MERs in addition to significant Admin Fees.  It seems that in my naivety I've unfairly disparaged them as those other super funds were at least up front with the fee structure, whereas Plum is a little less transparent.

So I guess over the past 5 years I've been paying about 1.33% instead of 0.39%, which would be the equivalent of about $6000-$8000 or so in super balance...ouch.

I switched over to Sun Super tonight.

Very disappointing to discover these fees years after I did my first switch.  If a relatively switched on financially literate person such as myself gets confused, what chance does the ordinary punter have?

[kiwiozearlyretirement]

I think many of us have had nasty surprises when you drill down on all the fees. I had a phone rep at my industry super fund say ‘ nooo’. in disbelief when I read off the website the fees were 0.79%. As she had been trained to believe their fund was low cost.
Problem with all those SMSF lite vehicles is they all want you to split your investments between 5 shares or ETFs. Ostensibly to spread your risk. So every time you make an investment you have to pay brokerage 5 times. That soon adds up. So I reluctantly started a SMSF.

[misterhorsey]

Yes, when I spoke to Mr Plum on the Plum hotline confirming the fees, and told him I would be moving to a low cost provider, he was kind enough to remind me that there would be an exit fee of $78. I chuckled and told him that the costs savings from moving out of Plum to a cheaper would would more than cover the exit fee.  He was happy to acknowledge that.

I investigated an SMSF briefly, but was put off by the audit requirements and cost of that.

The Sun Super option seems quite good. They push their own diversified package options, but they also provide single asset class options, which offer a range of low cost index choices - Australian shares, International shares (hedged), International shares, Bonds as well as some non-index options Emerging Markets etc etc. 

What they don't seem to emphasise is that you can choose any combination of 10 of these options when you join.  And you change allocation. And they also do automatic rebalancing if you want it.

Others have recommended Sun Super in the past - but it didn't quite click with me that you could do this within their offering. 

I was thinking about using an ING or Host Plus to buy my own ETFs, but the limits you refer to put me off it, as well as their relatively high fees for the service (in respect of ING).  If you could get a thin super admin account and just buy one of these that would be the way to go I think:

https://www.vanguardinvestments.com.au/adviser/adv/v/diversified-ETFs.jsp

Anyway, i'm hoping Sun Super will be okay. 

Just generally, I wish people, including my earlier self, would wake up to the death by a thousand cuts business model used by financial services companies in regards to their super.  The other week I was walking through the city and had to change course several times around newsagencies selling powerball tickets, collectively spending millions on a less likely than getting struck by lightning chance ofan  instant fortune. It would be great if these people would suss out their super balances and pick the low hanging fruits there - if only to spend it on more powerball tickets!

[marty998]

Just generally, I wish people, including my earlier self, would wake up to the death by a thousand cuts business model used by financial services companies in regards to their super.

I liked the quote from the HostPlus Super Chief at the Royal Commission when asked why he has to bribe employers to use Hostplus as a default fund, in order to compete with the banks.

(Paraphrasing) "Every day I wake up wondering why Hostplus gets $500 million of requests annually to transfer balances to higher cost and worse performing retail Funds. If the system worked, those retail funds would not exist anymore".

[misterhorsey]

Indeed.

It wouldn't be too hard for gov to require superannuation funds to prominently publish their fees in a standard format similar to the way banks are required to publish interest rates and comparison rates.  It wouldn't necessarily solve the problem of the industry making hay from investor inertia, but it would at least provide a reference point for people to be able to make comparisons.

[MrThatsDifferent]

Australia does a shit job talking about Supers. I honestly had no idea what the purpose was of it and it seemed irrelevant. At one point I had 6 different Supers and I thought I was clever because I had $1.5m in insurances and boy would my family be taken care of when I died. What a fucking idiot. It took the government making it relatively easy to merge supers, reading MMM and the Barefoot Investor before I finally came to my senses. It saddens me to think how much money I wasted. No one gets it and few are thinking about fees. I use Australian Super now and religiously check the app every day so I can see what is happening with my super, love it!  What really made the difference was counting Super as part of my NW.

[marty998]

Australia does a shit job talking about Supers. I honestly had no idea what the purpose was of it and it seemed irrelevant. At one point I had 6 different Supers and I thought I was clever because I had $1.5m in insurances and boy would my family be taken care of when I died. What a fucking idiot. It took the government making it relatively easy to merge supers, reading MMM and the Barefoot Investor before I finally came to my senses. It saddens me to think how much money I wasted. No one gets it and few are thinking about fees. I use Australian Super now and religiously check the app every day so I can see what is happening with my super, love it!  What really made the difference was counting Super as part of my NW.

Ok everyday might be a tad overdoing it. Do you really need to check it 20,000 times before you hit 60?

Relax... it's not going to disappear on you :)

[hm520]

I feel that Vanguard would make a killing if they were to set up their own Super product, not unlike their 401K product. That said, SunSupers direct investment index options aren't too far off the mark as they offer Vangaurd index products, I just wish they had a VTS equivalent.