What trends characterize the world of financial consultancy today in Italy and abroad?
Twenty years ago, Andrea Viganò, then Country Head of BlackRock, told me: Nicola, sooner or later Italy will suffer the same fate as the United States, that is the market of private clients and HNWIs will gradually fall into the hands of financial advisors (in the USA and UK, there are IFAs – Independent Financial Advisors).
I was bewildered. Back then, the idea that financial promoters could manage the assets of the wealthiest client segment, i.e., private clients and HNWIs, was unimaginable. In fact, financial promoters used to be seen with suspect and mistrust, accused by the unfaltering opponents of being door-to-door salesmen.
Well, that prophecy has indeed come true. Today, 41% of the assets managed by financial networks are owned by private clients and HNWIs. Over only seven years, they have increased from one million two hundred to two million nine hundred (see diagram 1).
As a matter of fact, Anglo-Saxon countries work as a very good proxy variable to predict what will happen to European finance later on.
The same goes for the world of financial consultancy, which is currently transitioning from simple asset management to wealth consultancy, that is offering a holistic financial planning where the client is considered in full: individual, family and, where present, business.
Today, the brightest leaders of financial networks and financial advisors have replaced the word investment consulting with wealth planning.
Counter to what one may think, this is not a merely etymological or useless matter, but the very essence of the future of the profession.
From financial advisor to wealth advisor. What is the reason of the transition and what does it entail for financial professionals?
If I may, I would call it wealth planning, a word that includes financial consultancy and more. The three pillars of wealth planning are asset management, protection, and credit.
Lately, some financial networks have become real banks, adding insurance policies, mortgages, personal loans and corporate financing for companies and entrepreneurs to investment solutions.
However, not all financial networks have embraced this approach. Some of them prefer focusing on asset management through investments only. This may indeed include insurance policies, which however are aimed only at protecting the investments themselves, or may be there to satisfy financial and succession needs.
The leaders of the financial networks unwilling to open up to insurance (casualty, life and health) share two worries: 1) the awareness that becoming insurer or corporate advisor overnight is impossible, unless one hires experts; 2) the models of insurance and credit are radically different from the model of investments.
For this reason, those who believe in offering services beyond asset management, thinking that protection and credit can easily coexist with investment solutions in the basket of a good financial advisor, usually offer the support of experts in protection and credit.
It is early to say which model will be successful. However, lately the banking and financial industry can’t stop talking about welfare & protection as a unicum.
From single professional to team leader. Why can’t financial advisors do without other professionals?
Given the reasons we have just mentioned, today it is absolutely impossible for any professional to master skills as diverse as protection and credit, to which we have to inevitably add fiscal matters, generational transition and inheritance. The latter is currently perceived as a taboo in Italy – as compared to other European and Anglo-Saxon countries – for both individuals and entrepreneurs (see diagrams 3 and 4).
Wealth advisors, in their complex task of assisting their clients and family, cannot do without a team of professionals specializing in different subjects.
Let’s think, for example, about Italian entrepreneurs, whose usual interlocutors are the accountant, and then a lawyer and a trusted notary.
A good wealth advisor should work as a pivot, coordinating the skills offered by experts working both inside and outside of the company. The wealth advisor collects the requests of their client and acts as a maestro bringing together many solo artists.
Of course, this is a path to be covered step by step. For example, when it comes to entrepreneurs, it is preferable to adopt a gradual approach, avoiding competition but rather seeking the coopetition with the other professionals assisting entrepreneurs (generally, the accountant or financial director), trying to offer solutions that they can, if necessary, attribute to themselves.
This is a true marathon that not all financial advisors seem to be willing or prepared to run. There is no doubt that the brightest ones have already joined the fray.
The willingness to work in a team is more common among financial advisors as compared to other professional figures (see diagram 5). In fact, the advisor knows that the client is to be assisted through a choral approach: a client shared with other skillful professionals will eventually be more satisfied and loyal.
The future of the job: what will the role of the wealth advisor be?
In order to talk about the future, we need to start from some data.
For once, in 1991 financial advisors used to assists 2,9 million clients, while today they are almost 5 million and the market is far from being full.
In fact, almost 5 million affluent and upper affluent clients are still unaccounted for. 75% of them have an average annual balance worth over two hundred thousand euros and have not heard from their bank managers for over twelve months.
Proactivity and passion for the job have, on the other hand, allowed financial advisors to survive the storms of finance. But they have also survived the reservations of the uncomprehending market, which today respects and praises their service model.
The result is that 75% of clients claim to be fully satisfied with their financial advisor (vs 34% with other figures). Over the years, the relationship between bank/financial network and financial advisor has changed: the importance of the bank/financial network in terms of solidity and reliability has increased (+45% over 20 years) and so has the role of digital technologies (+34% over the past year) (see diagrams 5 and 6).
A financial advisor should always be up to date and prepared: thus, training and skills certifications have become a must (+17%) over the past ten years (see diagram 7).
Their growth potential is still huge: over 25% of private clients are currently assisted by mainstream banks. However, mainstream banks tend to offer low levels of service, which do not meet the expectations held by this client segment, more demanding and wealthier than average.
There are two big challenges ahead. The first is the ability to attract young clients, women and men with high potential, maybe from fields not directly connected to finance: brilliant Philosophy or Humanities students, but also students of Physics, Mathematics or Engineering, experts of artificial intelligence and machine learning. We need the best talents, which don’t necessarily belong to the usual fields (just consider Anglo-Saxon startups).
The second challenge is welcoming digital technologies: of course, people (clients and professionals) are and will always be at the heart of financial and wealth consultancy. However, its channels have radically changed over the past two years and will evolve further over the next five years.
Reading the business plans for the next three years presented a few weeks ago by leading banks operating in Italy would be enough to understand how, when it comes to digital technologies, banks have already transitioned from a defensive to an offensive position.
Recruitment of the best talents, startuppers, managers and digital bankers, fintech agreements worth tens of millions of euros in Apps and web collaboration platforms are the first and more patent signs that “traditional” banks want and, in a sense, must become multi-channel digitally driven banks, if they wish to survive.
Moving on to the future and to the challenges awaiting networks of financial or wealth advisors, the model of the multi-channel bank centered on the financial advisor is expected to widen the market share of the upper affluent and private segment by a further 15%, to reach 55%-60% of the segment, with a growth of the amount of assets under management from the current €784,4 billion (source ASSORETI, February 2022) to €1.000 billion by 2027-30.
The average portfolios of financial advisors have been growing with double-digit percentages, more than proportionally to the number of assisted clients, which is growing more slowly. This can be attributed to the focus on wealthy clients, whose share in the portfolio is increasing.
A significant number of affluent clients (about two million in Italy) is still unaccounted for. They keep their money on their current accounts, mainly due to the lack of proactivity and trust in banks. Others would rather do it alone, helped by the higher level of accessibility to the market and to financial solutions made available by multi-channel digital tools.
The segmentation of clients by entity and origin of their wealth, by generational cohorts, profession, time horizon and risk profiling and the consequent creation of adaptable models of service could certainly represent a step forward. And traditional banks will have a competitive advantage in this field.
Nicola Ronchetti, FINER Founder & CEO
For Wall Street Italia, April 2022