Australia to lead the world says new Vanguard head

Vanguard | 05 May 2010


Proposed reforms to the Australian financial services industry will position Australia as one of the leading financial service markets in the world in terms of low cost and transparency, according to Vanguard Investments Australia''s new managing director, Mr. John James.

Mr. James, who has formally taken up the position of managing director of Vanguard in Australia (on May 1), has recently returned after two years working in the US at Vanguard''s headquarters in Malvern, Pennsylvania, USA.

Mr. James welcomed last week''s announcement by the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, that commission payments and volume-based rebates would be banned in Australia from July 2012.

Vanguard is structured as a mutual organisation in the United States and operates on an at-cost basis for the 23 million accounts that it manages on behalf of institutional, investor and adviser clients with funds under management of US$1.4 trillion.

'While the concept of banning commission payments may seem dramatic for some in the financial services industry, Vanguard is testament to how successful a funds management business can be when it bases its business around low cost, client-first principles,' Mr James said.

Vanguard, who pioneered the first public offer index fund in 1976 has, for more than 30 years, built its business without paying adviser commissions. That should not be interpreted as Vanguard not believing in the value of financial planning, on the contrary, the company believes investors need to understand the value of the advice they receive and pay their adviser accordingly.

Indeed, Mr. James recognised that the reforms announced by Minister Bowen will be positive for the development of the advisory industry in Australia.

'The banning of commissions and the formalising of a fiduciary duty for advisers will clearly put Australia at the forefront of the world in terms of transparency and putting clients'' interests first,' Mr. James said.

'What we have seen in the US is that as advisers shift to fee for service, they focus more on asset allocation, portfolio construction decisions and broader client advice which has resulted in a substantial increase in usage of low cost index funds and ETFs to implement client portfolios cost-effectively.'

'Australian investors and their advisers have embraced the many benefits of index investing, whether through our traditional unit trusts or via the range of low cost ETFs which have secured some $120 million in investor funds since their launch in Australia in May 2009,' he said.

Mr. James said it was an exciting time to be taking the helm at Vanguard in Australia. Vanguard has been very successful in both the institutional and retail markets in Australia - as reflected by the continued support and use of indexing during the recent global financial crisis.

The government review into the governance, efficiency, structure and operation of Australia''s superannuation system that is being chaired by Mr. Jeremy Cooper has reaffirmed why Vanguard sees the Australian superannuation market as an attractive and competitive marketplace.

'It is encouraging that the preliminary reports released by the Cooper Review have focussed on the need to keep costs to fund members as low as possible - a fundamental position that Vanguard believes in strongly,' Mr. James said.

Note to editors: Mr. Jeremy Duffield, who has been acting as interim managing director, will resume his role as Managing Director of Vanguard International Planning and Development.