FINANCIAL CONSULTANCY AND OPEN ARCHITECTURE: THE END OF A LOVE STORY?

ADVISOR | November 2021

The love story between financial advisors and open architecture began over fifteen years ago, celebrated in Italy with the arrival of dozens of foreign AMCs.

Financial advisors could choose among a growing number of American, English, and French asset managers, in addition to the best-known Italian asset management companies.

In 2007, 75% of financial advisors could choose independently which investment house, which fund or funds among those made available by their bank or financial network to recommend to their clients.

Banks and financial networks were in frantic search of new leaders of asset management (better when foreign) to showcase, thus giving a global and cool air to their asset management activity.

Financial markets do not have boundaries. So, the doors were open to any asset manager with a good reputation and track record.

Less than fifteen years later, the tables have turned. Only 25% of financial advisors can order “à la carte”, while 75% of them relies on “tasting menus” prefabricated by the chef of their bank or financial network, that is by the fund selection team which today makes the buy list and the fate of the AMC.

Moreover, banks and financial networks (even the most open to third-party AMCs) have been creating proper internal AMCs dedicated to the management of their assets delegated to third-party companies.

Their management is delegated to AMCs through a request for actual clones of their most popular funds – these are to be included in containers registered to the AMC of the bank or financial network; they are characterized by captivating names in line with the market trends.

Naturally, AMCs are required to give up not only the visibility of their brand, but also some base points of their management fees.

There are three main advantages for banks and financial networks: 1) an economic benefit coming from the control on the management fees of AMCs; 2) a direct control over the level of risk; 3) a higher retention of clients when an advisor decides to change company.

For the financial advisor, the main advantage is being able to count on ready-made investment solutions, thus saving time to invest in his/her relationship with current and prospect clients.

Today, safe for a few exceptions, the market seems to be done with open architecture.

As Gian Battista Vico would say, history repeats itself; so, shall we expect a new change of course?

Nicola Ronchetti

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