Rebecca Pope

Vanguard Australia has launched the Retirement Income Builder (RIB), an innovative new tool for advisers to deliver client investment and drawdown strategies for retirement.

The RIB tool forms part of Vanguard’s broader commitment to building a digital ecosystem to help advisers streamline their client service offerings and create efficiencies in their business models.

“Following the introduction of our Vanguard Portfolio Builder tool, we’re excited to further add to our digital toolkit for advisers with the launch of Vanguard’s Retirement Income Builder tool,” said Rebecca Pope, Head of Intermediary at Vanguard Australia.

“We recognise the increasingly critical role that effective technology plays in enabling advisers to deliver more efficient and scaled advice to retiring Australians.

“Over 260,000 Australians retire each year and face the difficult trade-offs associated with creating a sustainable retirement income stream. The RIB tool is purpose-built to integrate seamlessly into the advice process and provide clients greater certainty in what can be an uncertain phase of life”.

The RIB tool takes into account a range of investment factors including client goals, spending glide-paths, tax implications and the age pension to forecast income and wealth in retirement.

“In discussions with advisers, it became apparent that existing tools were either too simplistic or overly complicated. The RIB tool has been designed to offer the right level of complexity; it is easy to use and client friendly while incorporating enough considerations to model retirement scenarios effectively,” said Ms Pope.

A total returns approach in a low yield environment

Traditionally, many investors have used an income-focused approach to meet their retirement needs, primarily relying on the interest and dividends generated by their investments to support ongoing expenses.

However, with falling distributions and interest rates likely to remain at historical lows, income-focused retirees will have to greatly elevate their portfolio risk to meet most income needs. This can translate into portfolios being 100 per cent equity allocated and reaching a level of risk that is generally incompatible with retired investors and their long-term interests.

The RIB tool provides an alternative by incorporating a total-returns approach to help advisers construct client portfolios.

Instead of focusing solely on selecting assets with the yield to match a client’s spending objectives, the RIB tool allows advisers to assess their client’s goals and risk tolerance, set asset allocation at a level that can sustainably support spending requirements and use capital returns when necessary.

“The RIB tool brings the total returns approach to life by enabling advisers to apply it simply and practically to their client’s individual circumstances,” said Ms Pope. “It will help advisers use both the income and capital growth elements of a portfolios to guide clients through different retirement scenarios”.

Bridging the advice gap

According to recent research by the Financial Services Council, there currently exists a gap between those who could benefit from advice and those who actually receive it.

More stringent measures to protect client interests, while very important, has played a role in increasing the cost and complexity of providing advice.

“The advice landscape is not what it was five years ago,” said Ms Pope. “Increasing regulatory requirements and competing demands are challenging advisers to better streamline their operations. Adopting advice technology can simplify the delivery of the more complex aspects of financial planning, while at the same time help to keep costs down”.

“As we reflect on our now 25 years in Australia, our business has grown with the support of like-minded advisers who put the interests of investors first. We will continue to add value to this partnership by first and foremost delivering high quality investment management, as well as relevant research, client education and technology solutions to enhance the delivery of affordable, quality financial advice.”

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Alexis Gray

Vanguard Australia has hosted its annual adviser roadshow virtually, featuring Global CEO Tim Buckley, Asia-Pacific Chief Economist Qian Wang and Senior Economist Alexis Gray.

This year’s theme ‘Forward’ heralds Vanguard’s commitment to supporting advisers manage client relationships and build their businesses in a world that is increasingly digitally enabled.

Speaking to nearly one thousand financial advisers, Mr Buckley acknowledged the new challenges facing advisers in the wake of COVID-19 and discussed ways they can more effectively manage business demands.

“Embrace advice technology,” said Mr Buckley. “It’s not a matter of beating robo[advisers], but rather streamlining your operations and driving more consistent, robust answers. Technology allows advisers to automate many rules-based activities such as portfolio management and rebalancing. It can simplify some of the more challenging financial planning tasks”.

Mr Buckley also reiterated why advisers are a highly valued part of Vanguard’s business and emphasised the importance of continuing to forge strong partnerships with advisers in Australia.

“Our mission is to take a stand for all investors, treat them fairly and give them the best chance for investment success. Our formula just has a few steps to it: deliver strong fund performance, pair that with trusted advice, and wrap both in a world class client experience. This formula delivers whether working directly with clients or through like-minded advisers.

Mr Buckley also provided insight into how Vanguard helped clients navigate the COVID-19 crisis.

“With markets reeling and economies shut down to contain the virus, investors were understandably worried. But our message to investors was clear and time tested and that is: stay the course. Don’t let short term volatility disrupt your long term portfolio because you’re diversified for a reason,” said Mr Buckley.

Developing a technology ecosystem for advisers

In line with Vanguard’s commitment to developing a technological ecosystem that helps enable advisers to meet client needs, Vanguard Australia Head of Intermediary, Rebecca Pope, announced the upcoming launch of Vanguard Retirement Income Builder.

The new digital tool will be an innovative way for advisers to work with their clients in determining investment, retirement income and wealth drawdown strategies.

“Vanguard Retirement Income Builder will help address the chief concern of many in or approaching retirement of how long their money will last” said Ms Pope. “This is a powerful tool which has been thoughtfully designed with a client friendly interface, to provide advisers a practical application of our total returns approach to retirement income”.

The Retirement Income Builder tool is set to launch in the coming weeks. More details will be provided when available.

Australia likely to outperform most developed market economies amid global recovery

Ms Wang and Ms Gray also highlighted to attending advisers the major themes of Vanguard’s 2021 Economic and Market Outlook: Approaching the Dawn, noting Australia’s economy is expected to normalise more quickly than other countries in 2021.

“Compared to other developed markets, Australia has been relatively successful in containing the virus so economic activity has not suffered as much. As a result, we expect GDP in Australia to return to pre-pandemic levels by mid-year, which is faster than most developed markets” said Ms Gray.

Furthermore, despite unprecedented government spending to support economies through the pandemic, government debt levels are sustainable and fiscal stimulus is likely to remain in place.

In response to concerns that there will be inflation consequences when government support is eventually unwound, Ms Wang said “high fiscal spending and easing monetary policy are no guarantee of higher inflation, especially in developed countries. In 2021, we are expecting more of a cyclical reflation with demand recovery to push up inflation, but we see this as a temporary overshooting rather than a sustained increase given structural forces such as technology advancement and globalisation”.

Ms Gray provided an overview of Vanguard’s long term return expectations noting that “despite the pandemic, our 10-year outlook for both Australian and international equities is better than a year ago, with median returns of between 5 -7 per cent expected. This is largely due to a drop in interest rates and long term bond yields, which are supportive of higher equity valuations. Bonds still have an important role to play in portfolios as a diversifier, rather than being evaluated as a growth asset”.

As detailed in Approaching the Dawn, Vanguard’s outlook for the global economy hinges critically on health outcomes and the production of an effective vaccine.

See the recording of Vanguard’s 2021 Virtual Adviser Roadshow.

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Rebecca Pope

While over 70 per cent of self-managed superannuation fund (SMSF) trustees are satisfied with their financial planner, a large and growing proportion of SMSFs still have unmet advice needs, according to the 2020 Vanguard/Investment Trends SMSF Planner report launched yesterday.

This year’s report surveyed over 3000 SMSF trustees and almost 200 financial planners on their investment priorities and industry outlook, and provides an insight into the opportunities and challenges facing the SMSF advice market.

SMSFs’ views on financial advice

While the number of SMSFs using some form of financial adviser has remained largely steady over the last 12 months, the use of financial planners has fallen from 215,000 to 190,000 in 2020.

Faced with heightened uncertainty due to the COVID-19 outbreak, the number of SMSFs with unmet advice needs have increased more than 6 per cent from 315,000 in 2019 to 335,000 in 2020.

As with previous years, SMSFs most often have unmet advice needs in areas such as investment strategy, retirement planning and tax planning – with cost of advice and confidence in advice some key barriers.

While 39 per cent prefer relying on professional advice, the report found that 61 per cent of SMSFs were open to using free non-personalised advice from sources such as government bodies and investment newsletters to help meet their needs.

In this challenging environment and uncertain investing climate, financial planners are struggling to grow their SMSF client base and revenue, with 46 per cent of respondents citing compliance-related issues as their biggest challenge.  Other challenges faced by planners include client education (33 per cent) and regulatory uncertainty (30 per cent).

“As demand for low-cost, quality advice grows, financial planners are often assessed on their value-for-money proposition. But aside from portfolio and financial outcomes, planners have an opportunity to define their value not just in monetary terms, but also in emotional outcomes,” said Rebecca Pope, Vanguard Australia’s Head of Intermediary.

“The value of developing trust and personal connection between a client and financial planner should not be overlooked. Particularly in times of market volatility, investors are looking for not only portfolio construction from an advisory relationship, but also confidence that their adviser can guide them through such uncertain times.”

Client engagement and product preferences

Retiree clients play a crucial role in SMSF planners’ client base, typically comprising over half of their total SMSF client base (53 per cent). Planners estimate that 16 per cent of this cohort are drawing down at an unsustainable level.

For SMSF clients in the accumulation phase, planners believe that 79 per cent are on track to achieve their retirement goals.

The most popular drawdown methods are the bucket approach (53 per cent) and income from investments (39 per cent). For retiree clients under the age of 65, planners are more likely to draw down from a range of assets without factoring in market movements (18 per cent, versus 10 per cent for retiree clients aged 65 and over).

Planners see longevity risk and generating sufficient income as their primary challenges when servicing their retiree clients, and are looking for better investment products to address these barriers.

Direct listed investments continue to form the bulk of new planner inflows from SMSF clients, comprising 50 per cent of their investments on average. Allocation towards cash and fixed income remain steady, accounting for a fifth of new inflows.

Planners’ use of listed diversified solutions continues to gain momentum, with ETFs (16 per cent, up from 12 per cent in 2019) and managed accounts (9 per cent, steady) receiving a substantial proportion of new SMSF inflows.

“ETFs and managed accounts provide planners great solutions to diversify their clients’ portfolios,” said Ms Pope. “They are low-cost, easy to implement and provide SMSFs access to different markets and asset classes, as well as liquidity benefits”.

Looking forward, planners expect flows to managed accounts to grow substantially over the next three years (from 9 per cent in 2020 to 12 per cent in 2023). Forty per cent of planners already use, and will continue to use, managed accounts for client investments.

Planner priorities are evolving

The current low interest rate environment has prompted planners to advise their SMSF clients to invest in a wider range of products, while paying down debt more quickly.

As a comparison, SMSF specialists are more likely to advise clients to invest in ETFs, direct shares and to pay off debt, while SMSF generalists (those with fewer than 20 SMSF clients) are more likely to recommend managed funds and fixed income products.

When selecting investments for clients, 69 per cent of SMSF planners cite diversification as their top priority. Some 60 per cent of SMSF planners also see liquidity as a key focus, jumping markedly as a key priority in light of heightened market volatility (from 34 per cent in 2019).

While this year’s report found many challenges facing SMSF financial planners, there is still opportunity for planners to improve uptake and focus on enhancing their advice propositions to support SMSFs both from an investment and emotional perspective.

About the Survey

The Vanguard/Investment Trends report is based on a quantitative online survey of 3,156 SMSF trustees and 193 financial planners, conducted by Investment Trends between February and May 2020.

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Robin Bowerman

The annual rate of Self-Managed Super Fund (SMSF) establishment has slowed, with just over 20,000 SMSFs being set up in the first quarter of 2019, down from the 40,000 established in late 2010, according to the latest Vanguard/Investment Trends SMSF Reports – the nation’s most comprehensive research into SMSF trustees and their advisers.

Launched yesterday, the reports collate responses from almost 5,000 SMSF trustees and close to 300 financial planners who advise SMSFs, providing a clear snapshot of the priorities and issues facing SMSF trustees today.

The SMSF sector represented around $747 billion in retirement savings as at March 2019, growing at a slower pace than the preceding 12 months following the impacts of recent industry events, compared to $1.8 trillion invested with APRA-regulated super funds.

“There has been a lot of uncertainty for SMSF trustees recently, particularly in the lead up to the federal election with the Australian Labor Party’s proposed policy to remove refundable franking credits from Australian shares,” said Robin Bowerman, Head of Market Strategy at Vanguard Australia. “However, the proposed policy change did highlight the risk of regulatory change to SMSF trustees and the high levels of home country bias in many portfolios.”

The report also delved into attitudes to other proposed changes to SMSF regulation including the increase to the maximum number of members from four to six, which more than half of advisers saw largely as a positive move, where trustees were unsure of the impact.

The proposed ban on borrowing for investment property was rejected by planners with a majority saying it would have a negative impact on the industry with nearly a third of trustees agreeing with this sentiment.

The total number of SMSFs grew to 598,000 at the start of the year, up just two per cent from the same time last year. The average SMSF balance is $1.2 million, with report findings over recent years showing a trend of lower fund balances and younger trustee ages at the time of establishment.

Despite declining establishment rates, there is still significant appetite among Australians to set up an SMSF, with one in five super fund members planning on setting one up in the future, citing greater control and better returns as the main motivators.

SMSFs are defensive and aiming to diversify

In an uncertain investment climate, more SMSF trustees are taking a defensive stance in their asset allocation.

“Investors’ outlook for market returns is very low at 1.4 per cent, far below the expectations of many economists, including those at Vanguard,” Mr Bowerman said, “this is most likely impacting trustees’ choices about asset allocation quite heavily”.

Despite this, SMSF trustees remain most inclined to invest further in blue chip shares, with 54 per cent citing this as a likely investment choice over the next 12 months.

SMSFs’ allocation to cash increased slightly over the past year to 25 per cent, largely at the expense of unlisted managed funds which dropped by two per cent.

While many SMSFs have adopted a defensive mindset, their appetite for diversifying investment products has increased.

This is highlighted by SMSFs’ use of exchange traded funds (ETFs) with the number currently investing, or planning to invest in ETFs in the year ahead, surging from 140,000 to 194,000 in the last 12 months.

The findings also showed that SMSFs are seeking greater exposure to overseas assets, especially through ETFs, however 52 per cent of respondents cite lack of knowledge about overseas markets and currency risk as the top barriers to obtaining more exposure.  

Looking forward, while building a sustainable income stream remains a key investment goal for many SMSFs, a growing proportion (15 per cent) say protecting their assets against market falls will be their key focus for the year ahead.

Room for advice

The number of SMSFs with unmet advice needs is at a record high, jumping from 275,000 in 2018 to 315,000 in 2019, with their top advice needs relating to estate planning, tax and income strategies, post-retirement planning, portfolio strategy and investment selection.

More SMSFs are experiencing challenges in managing their fund, with many struggling to reduce the time and cost of managing their SMSF. Investment selection, choosing what to invest in, is cited this year by trustees as the hardest aspect of managing an SMSF.

The number of SMSFs who use a financial planner has remained steady throughout most of the past decade but overall satisfaction with financial planners has declined to a seven-year low, with falling satisfaction with level of fees and perceived value for money being the key satisfaction gaps to address.

A lack of confidence in the expertise of advisers is now the number one barrier for SMSFs seeking advice on their unmet needs sitting at 32 per cent, with adviser fees the second biggest barrier at 30 per cent. Despite this, over a third of financial planners expect their SMSF business to increase over the next three years (36 per cent) compared to 15 per cent who expect it to decline.

Vanguard Australia Head of Intermediary, Rebecca Pope, commented on the value this research can provide financial advisers in uncovering the key advice needs of the sector.

“This year’s report showed the ongoing challenge for advisers to find and retain new SMSF clients. This research has for year’s highlighted areas of unmet advice for SMSF trustees, with the top needs almost always focused on areas such as estate and tax planning, providing valuable insight for those seeking to build up their SMSF business,” she said.

“The report also provided some insights for advisers into SMSF trustees’ attitude to alternative forms advice, with more than half saying they would consider over the phone or advice via web chat if it would reduce the cost of the advice service.”

 Key points:

• While SMSF establishment rate slows, future growth prospects remain strong with one in five super fund members planning to set up an SMSF in the near future
• SMSFs are being established at a younger age
• The adoption of ETFs by SMSFs continues to rise with intention to invest in ETFs surging almost 40 per cent in the last year
• The unmet advice needs of SMSF trustees’ are vast and growing
• Cost and trust are two major issues for SMSFs trustees seeking advice

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Vanguard Australia Head of Distribution, Matthew Lumsden, said that the revised structure for the company’s distribution leadership team comprises divisional heads for Institutional, Intermediary, Client Service & Administration, and Sales Excellence & Planning.

“These changes are driven by our commitment to provide the best quality client experience across all segments of the Australian market,” Mr Lumsden said.

Existing Vanguard leaders have been appointed to three of the four roles, with a recruitment process underway to fill the Head of Sales Excellence & Planning position.

Matt Willis has been appointed Head of Institutional and leads the team responsible for the management of Institutional client relationships in Australia. Matt previously held the role of National Sales Manager, Adviser Sales at Vanguard Australia.

Rebecca Pope has been appointed Head of Intermediary and leads the team responsible for the distribution of Vanguard’s managed funds and exchange traded funds through intermediary channels. Rebecca’s career at Vanguard Australia includes leadership roles in Sales Excellence & Planning, as well as Intermediary & Retail Marketing.

Colleen Campbell has been appointed Head of Client Service & Administration and leads the client services teams serving the retail and institutional channels. Prior to this appointment Colleen was Vanguard Australia’s Senior Product Manager, Client Engagement.

“Each individual brings substantial and diverse expertise to the team. We believe this further strengthens our organisation and ultimately delivers better outcomes for our clients,” said Mr Lumsden.

These appointments come as Vanguard Australia surpasses $115 billion in assets under management and introduces its global active funds management expertise to Australia via a range of low-cost active equity products.

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