Funds People | January 2022

2021 has been a record year for the world of financial consultancy – €760 billion in assets out of a total of €2.560 billion in assets under management. Overall, this is a field in which financial advisors have always come out on top.

Today, Italians assisted by a financial advisor are just shy of 5 million, and 11 million have subscribed to a mutual fund scheme.

Only 25% of Italians manage their savings. 75% prefer keeping them on their checking accounts, where they fall prey of inflation and of the costs of non-interest-bearing deposits.

Moreover, Italy is the EU most underinsured country, with only 10% of Italians adequately protected from risks.

By 2022, a grand total of 2.000 billion euros will be sitting in checking accounts, eroded by 3% inflation.

HNWIs, with assets worth over €5 million, are no exception: 28% prefer liquid assets and 34% are not adequately insured.

Two pieces of good news. Firstly, 40% of assets under management belong to “private” clients, whose incidence in portfolios has increased from 5% to 34% over the past ten years.

Secondly, the figures provided by ASSORETI confirm that, overall, financial networks’ 2021 acquisitions are driven by insurance products (+ 11,3 billion since the beginning of the year, where 7 billion come from unit-linked insurance plans and 4,3 billion from multi-branch policies)

These figures underline how the success enjoyed in 2021 still has possible areas of improvement.

In this respect, the acquisition of the Deutsche Bank Italia Bank’s financial network by Zurich clearly appears as the first of a series of steps that will materialize over the next few months.

Underinsurance and the surplus of liquid assets hinder the financial solidity of Italian families, of real economy and of a healthy industry with ample room for improvement.

2022 challenges: advanced consultancy and guided architecture.

In order to face these challenges, the industry is aiming at a model of guided architecture within a service of advanced consultancy.

The relationship between third-party AMCs and financial networks – which started over fifteen years ago and has been celebrated by the arrival of dozens of foreign asset managers in Italy – is currently changing drastically.

In 2007, 75% of financial advisors used to choose their investment company as well as which funds to recommend to their clients independently.

2018 saw the implementation of the Mifid 2 and, consequently, a drastic change of direction. Today, only 25% of financial advisors still order à la carte, so to speak. Instead, 75% of them relies on “tasting menus” designed by the bank/financial network and their team of fund selectors and internal AMCs.

Currently, the number of management mandates is increasing, together with the requests to AMCs to clone their best funds, thus giving up the visibility of their brand and reducing their management fees.

The advantages for the suppliers are quite patent: 1) savings on management fees; 2) direct control over risk; 3) higher client retention in the event that a financial advisor decides to change bank/financial network. In fact, disassembling a wrapper is more complex than moving single funds.

The main advantage for financial advisors is having the possibility to rely on pre-designed investment solutions, thus saving time to cultivate their relationship with clients.

The choices for AMCs are: 1) adapting to the rules and simultaneously aiming at increasing their assets in order to compensate for the inferior margins; 2) disintermediating, that is aiming at the end client directly.

Currently, almost every AMC is adapting to the new rules. However, recent signs of irritation may be interpreted as a prelude to new ventures, or even to the juxtaposition of direct supply methods.

Here is where advanced consultancy finds fertile ground. Advanced consultancy is based on the compensation of management fees by returning the fees paid by the AMC to the client, in exchange for the payment of a consultancy fee.

Advanced consultancy has three strengths: 1) defining objectives; 2) choosing a time frame; 3) planning the client’s entire assets.

Advanced consultancy on financial investments is gaining popularity among networks of financial advisors and has increased by 17% in the past year (in some cases, advanced consultancy covers over 25% of assets under management).

Financial advisors seem to appreciate it (45% of them claims to be fully satisfied) because it allows for long-term planning, which replaces the usual hit and run of the client. This is driven by a win-win logic for both client and advisor: the former does not pay management fees, while the latter receives a recurring fee for his/her consultancy.

Models of advanced consultancy typically involve savings plans (known as PACs), which feed the portfolio regularly, month after month, imposing control over any possible volatility effect.

PACs are very much appreciated by financial advisors (52% of them claim to be fully satisfied). In fact, they allow for the automatic and programmed deposit of sums on the part of the client. Moreover, several AMCs take charge of the monthly costs of PACs to the benefit of clients.

Only time will tell if this is a successful model. In any case, the dice has been cast.

Nicola Ronchetti