Thanks to the new European MiFID 2 directive, all those who have entrusted their savings to banks and financial consultants will be able to really control the management costs and the actual earnings accrued.
With the entry into the field of these important news all Italian savers would do well to run to their credit institutions to book an appointment with their financial advisor. In fact, starting from 2019, the situation could become incandescent and all the appointments taken with the various professionals could soon run out because the surprises that are hidden behind the corner are certainly not positive.
An alarm bell for Italian investors
A research conducted by Prometeia, an Italian consulting, software development and economic research company for banks, insurance companies and businesses, shows that a quarter of the economic volume managed by Italian operators, above all as regards the sector of bond funds and variously balanced funds type, have a negative net result against a positive gross result . This, which may seem a little relevant news, hides instead the future impacts, due to the MiFID 2 directive, which could crowd out many Italian savers.
This result was determined by the combination of low or very close to zero yields and commissions applied which have not yet fully adapted to the new market situation. As Sebastiano Mazzoni Perelli , Prometeia’s manager for the wealth & asset management area, explains, about 27% of our country’s funds have a cost structure that is not congruous with the return expected from the asset classes on which the investments are paid.
To simplify the matter, part of the investments of Italian savers is still biased towards less efficient products that could be destined to produce losses.
The most promiscuous part undoubtedly concerns bond funds. In fact, in this “sector” we can find everything: Italian or European government bonds, but also emerging countries; there are the “corporate bonds”, which are the bonds issued by the companies, and the “aggregates”, which are a sort of mix between government and corporate; finally there are the “balanced bonds”, in practice of the balanced bonds with a small share within. It is precisely in these fund categories that the risk of having an excessive weight of the fees lurks.
With the introduction of the new MiFID 2 legislation there will be a clear improvement in the transparency transparency of investors, given that sellers and managers of savings products will be required to declare costs and performance segment by segment without “hiding them” all in the same cauldron .
This seems to be the main reason why banks have recently been balancing their clients’ portfolios with real make-up actions aimed at reducing fees.
Who risks more?
The clearest news that emerges from this report is that in this game he loses those who are most afraid. In fact, it is precisely the most prudent savers who, not wanting to be subject to stock market games and salts and market downturns, turn on products deemed safer like government bonds; these investors are the most misaligned in the relationship between returns and costs.
MiFID 2 will have significant consequences also on those commissions applied by banks and financial operators, which will have to be recalibrated to be compatible with the new transparency policy adopted by the European Commission. There are four scenarios that Prometeia proposes following the entry into force of this legislation. It goes from a decidedly too optimistic one, for which there will be no negative repercussions but rather an increase in margins thanks to an increase in the masses, to a decidedly too pessimistic one, with losses of over 19% on the margin that is now applied by the operators financial. The most likely ones are the two intermediate points where financial advisors should lose 4 to 9 basis points on average unit margins.
Significant losses are therefore expected but certainly not worrying except for those financial operators who today already live on the razor’s edge.
The intermediate scenarios for credit institutions are however rosy, given that there may even be increases in profit margins from 3 to 1 basis points.
The reason for all this?
Over the next three years, investors could increase their savings towards savings management institutions, leaving more classic investments such as government bonds and bank bonds. A more sophisticated management of one’s savings.
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To recover profit margins, both banks and advisory networks will encourage advanced advisory services, especially with fee-on-top transactions, but also fee-only transactions (ie simple and pure advice). Precisely these will be the main engine that will allow margins to be recovered from investment institutions, given that savers will be attracted by the possibility of being assisted in their choices, as well as in the financial sector, also in the real estate sector and insurance policies.
One thing seems clear in all four scenarios: in the three-year period 2018-2020 the margins deriving from asset management will grow. It starts from a minimum of 8% in the most “dramatic” case, to more equal percentages of 14 and 17% in intermediate cases, up to an unlikely 22% in the most optimistic case.
Asset management in Italy is mainly managed by the banks and will continue to be the “golden egg” of this sector of the Italian economy even despite the MiFID 2 which aims at a net reduction of profit margins in favor of investors .