Can Mr Online Banking break open superannuation?

PORTFOLIO POINT: ING is hoping to crack Australia’s superannuation market wide open, in the same way it revolutionised online banking.

Can Vaughn Richtor do it all over again? A banker who has worked all over the world for the Dutch-owned ING, he shook up the local deposit-taking industry over a decade ago with the surprise success of the online operation ING Direct.

In 1995 Richtor launched ING’s branchless bank, and for many in the industry became "Mr Online Banking", an executive who personified a break with traditional bank products. Today ING has more than 1.4 million customers and $27 billion under management and claims to be fifth in the mortgage market.

In 2005 Richtor left Australia, working in India and Singapore with ING. He returned to Australia in August, just in time to spearhead a team effort at the bank to break the stranglehold of retail funds and industry funds on the nation’s trillion dollar superannuation industry.

So what has Richtor got up his sleeve? Nothing more than an ambition to do to superannuation what online accounts did to bank deposits a decade ago.

Put simply, Richtor has launched a middle-ground product – aimed at that vast army of savers that sit between the ‘default option’ in superfunds and DIY super.'

Richtor’s chosen weapon tagged as "Living Super relies once again on simplicity – a ‘two-way super fund’ which is simply cash and shares (using index funds) combined. Such a formula immediately suggests too much in equities and a glaring lack of diversification.

As Alan Kohler pointed out (Abysmal returns are a super shame) recently Australia’s big super funds have on average 53% in shares and that’s much more than the global average of 37%. Still, Richtor has a track record of success with simple online products, and in his interview with Eureka Report he puts his case.

James Kirby: So, what I really want to talk to you today about is lauching a balanced superannuation fund into this market.

Vaughn Richtor: Well, we have the platform in place, and we basically ran a big sweep, and we continually do that, and we came to the conclusion that actually there was a category called superannuation which was growing in importance for Australian consumers, incredibly important, but there was a great deal of dissatisfaction.

JK: Well, we know the superannuation industry charges too many people too much … and yet it lost an accumulated $18 billion of Australian client’s money last year … but what convinced you?

VR: Our surveys showed us a lot of people felt uncertain and concerned about their retirement future, their retirement benefit and clearly during the GFC people had not seen their superannuation grow substantially.

Obviously the fees in the industry were a concern, but much more important was the point about control. People said this is an incredibly important product for us, but there was lack of understanding about it and the feeling that they weren’t in control of the product. So, we decided to look and see if we could design a product which actually first of all gave the customer control back, gave them a choice, and made it simple, so, for example, without the complexity of a self-managed super fund, and where we could compete effectively from a price point of view. And that’s why we decided to enter the market.

JK: Has anyone actually done this before here in Australia

VR: To my knowledge, not exactly like we’ve done it. We believe we are the first.

(In essence the ING Fund offers 50% cash and 50% shares – the shares are further broken down into 25% ASX listed and 25% offshore. There is no bonds, income securities, property, infrastructure, hedge funds or alternative assets).

JK: I can see the attraction of a simple ‘two-way product’. But you excluded a lot of traditional asset classes … it probably would not be hard to get an asset consultant to say there are big problems here because there’s a clear lack of diversification?

VR: Yes … but the point is you can always say we want more complexity, we want more diversification, but at the end of the day what we are trying to do is a trade-off between simplicity and understanding versus complexity. I mean it’s always in terms of all the choices and the different menus that we have.

JK: Yes.

VR: You know, at the end of the day … we are not targeting the sophisticated investor.

JK: Would it be fair to say you’re targeting the lower end of the DIY fund market and above the ‘default super’ layer of investors?

VR: Well, we’ve already had the question, can this product be applied to default super? We’re not ready for that yet. But we’ve also had people saying, I’ve got an SMSF and how do I actually use this product? So, our original target, and we always start with this, is basically to say we’re not targeting the expert investor or the sophisticated investor, we’re targeting the person that wants simplicity and wants control and doesn’t want to go into a complex product where they have to manage something which they probably don’t understand.

JK: Now, what about the criticism that balanced funds have been very disappointing in recent times and didn’t prove their worth at all in terms of balance?

VR: At the end of the day if you really want simplicity and you want a guaranteed return, put it in fixed deposits.

JK: If I have a DIY fund, why don’t I just copy you? Why don’t I just put my cash in your cash and put my shares in index funds and roll off?

VR: You can.

JK: So why would I ask ING to do it?

VR: Because as an individual if I wanted cash, you can put the money in cash. You’ve got to have a super fund and basically we won’t charge you any fees at all, and do it for you. Now, for most people where super is complicated but important, that’s a good option. If over time they feel that they want to take a bit more risk, use a balanced fund or choose from the menu in terms of their smart fund as well. But the key point is it’s your choice.

JK: So, what are your ambitions for this?

VR: Well, one of the things I always say is never second-guess your customer. But clearly we would expect this to achieve a reasonable degree of critical mass and have the same kind of take-up over time as some of our savings funds.

JK: Thanks Vaughn, welcome back to Australia.