One-on-one with Bill McNabb

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February 17, 2017

Managing US$4 trillion ($5.2 trillion) of investors’ money might make many people look stressed, but there was no sign of that yesterday when Frederick William McNabb III – AKA Bill McNabb – sat down for a chat with SMSF chairman Andrew Gale.

McNabb professed himself a fan of the Australian self-managed super sector, saying its growth had been “amazing to watch.” And he liked the theme of the 2017 SMSF Association conference – trust – saying that was how Vanguard was built; it was its own distributor, ignoring the traditional broker-dealer distribution network.

“We were initially a post office box, in effect, to which investors sent money. We had to back up what we said we would do. We were completely built on trust, which is why I’m happy to see the word here. It underpins everything,” said McNabb.

Vanguard saw the Australian SMSF sector as being ahead of the curve, said McNabb. “Pre-GFC, the US retail channel went through the broker channel, the transaction fees were a conflict. The shift toward a fee-based structure is happening fast, and it’s good for the client; it’s transparent.”

Early on, Vanguard realised that if asset allocation were the primary driver of returns, rather than stock selection, it should offer funds that gave market and asset-class exposure, and gave the ability to allocate easily an investor’s or client’s assets.

“That’s so much better understood now, and it gives advisers the chance to understand their clients’ goals better, and save them from themselves. We say that it gives advisers the chance to add ‘adviser alpha’,“ he said.

This faith in advisers means two things. It means that McNabb is unfazed by the growth of automated advice, which he said would “disrupt you, unless you take advantage of it.” His advice to advisers feeling threatened by the rise of robo-advice was to study its capabilities, and then “combine the best of it with your own value proposition.”

The second thing was that the investment environment was changing such that good advice was at a premium. “We’re moving into a period where, we think global equities will under-perform, and fixed interest will under-perform, and there will be more volatility than we’ve seen,” he said. In such a setting, investors wanted an extra level of care from their adviser.

Where the Australian SMSF sector had it right, he said, was the increasing focus on the post-retirement phase. And there, “the solution is advice, not product,” said McNabb.

On a macro level, McNabb, told the audience that turbulent times meant that investors will be depend even more on the advice they get from advice providers.

McNabb said: “The rise in populism and the impact of 10 to 20 years of globalisation and technical revolution are changing the landscape and we really have to keep that in mind.

“I think that these forces are driving geopolitical uncertainty and we should expect more uncertainty. The downside for the investor here is that they are not going to get compensated for it. That is a tough message to take to them.”