CompaniesOct 16 2013

Advice the Italian way

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Legally, like the British IFA, the promotore finanziario is trained to advise on third-party products and obliged to serve the client’s best interests. However, because they ultimately work on behalf of the bank, many have argued that recommendations are skewed to protect the interests of the promotore’s employer.

Gareth Horsfall, a British financial adviser based in Rome, offers UK-style financial advice primarily to expats in the Italian capital. According to Mr Horsfall, the Italian financial advice profession is “underdeveloped and institutional”.

He said: “Advice is primarily institutional… [and] independent advisers do not really exist, unless at a high level such as family office or private bank. For the average man in the street, financial advice is provided through the traditional banking route, which is driven, in my opinion, by customers as well as the banks, in that trust among independents does not run high in Italy due to many financial scandals in the past.”

Promotori finanziari, according to Mr Horsfall, are bank representatives that offer a wide range of advice. In essence, they are trained financial advisers employed to offer whole-of-market solutions and their duties go well beyond the internal bank adviser, who generally just sells and advises on the bank’s own products.

Mr Horsfall added that Italian financial advice is limited by the lack of available investment products on offer, which means most tend to invest in traditional saving vehicles. He said: “Access to a range of funds, exchange-traded fund shares, funds, and so on, is wide, but certainly not as wide as the UK. The ability to invest £100 a month into a fund, for example, is not that easy based on high entry costs [and] the independent platform market, unlike the UK, is non-existent in Italy.”

In recent years, numerous former bank advisers, encouraged by the British and American advice models, have switched their attention to independent, fee-only services. Daniele Fiero, who recently left the banking sector after 15 years to start his own firm, is among those pressing for changes in how financial advice is delivered, having grown increasingly critical of how the major institutions operate.

Besides the great trust that Italian people have for banks, another big hurdle for independent advisers like Mr Fiero is convincing clients to pay an upfront fee. He said: “Financial advice is in the hands of Italian banks, who are restricting the financial advice fee-only model because they fear clients can become educated and realise the huge commission that is added to managed saving products.

“Having met clients in these years, I have noticed that the majority of them don’t know that they pay management commission or for the performance of their investments. When they ask about the real financial situation in the banks they are presented with all of the expenses after tax, which are obscured by the bank.”

Despite these worrying observations, however, the Foggia-based adviser is sceptical of rapid changes being made to address these problems. He added: “Unfortunately Italy is not yet an important financial educator and its clients still trust advice given by bank employees and do not want to pay an external adviser devoid of conflict of interests.

“At present I still have difficulties finding new clients. The clients that turn to me are above all those that have had issues and problems with the banks with regards to the loss of capital on investments and clients that have lawsuits against banks offering expertise on assets.”

Though scandals do still take place on Italian shores, the introduction of the Unified Financial Text in 1991 was pivotal to improving the services offered by banks. In particular, this law defined the responsibilities of the promotore finanziario and its duties to provide advice on third-party products and services.

Still, regardless of laws and regulations, some remain unconvinced that the promotore finanziario covers the entire market. Even Salvatore Cavalieri, vice-director of Credito Siciliano in Modica, argued that such advisers will always promote certain more profitable products.

According to Mr Cavalieri, unless a client requests a specific type of fund, the promotore finanziario will always seek to push products that are tied to the bank and its own interests. He said: “The promotore finanziario sells any type of product and earns commission from all these products. However, in reality every one sells its own products.

“Its own products could be based on an agreement with a company, like say, if you have an agreement to sell JP Morgan funds. It’s not as if they give you full possibilities to buy anything around the world, but rather they say ‘Oh, you can buy this, this or this because those funds have an agreement with that company,’ and it is convenient for them to sell that product.”

Many in the Italian financial advisory profession speak about the economic bargaining power of banks and their ties to certain investment groups. However, Mr Cavalieri added that despite any potential conflict of interest, the key goal for bank advisers is to respect each client’s wishes to avoid losing them to a rival competitor.

Another bank employee, Placido Abbate, who works as an investment adviser at the Sicilian Banca Agricola Popolare di Ragusa, emphasised the sweeping regulatory changes made since the introduction of the MiFID laws in 2007. According to Mr Abbate, banks are now obligated to provide new clients with a questionnaire to assess their attitude to risk, which he said must be reviewed every three years.

The relationship between Italians and their local bank is crucial and even more common in smaller towns such as Modica. In a town of 50,000 inhabitants there are about 15 banks, which is why it is so important not to betray loyal customers and risk breaking a bond that might have existed for several generations.

Competition

Mr Abbate said: “There is competition, although every bank has its own clients who don’t leave the bank because there is a personal relationship with the personnel and a level of affection. The attitude is ‘I won’t change bank because the bank hasn’t disappointed me’.”

Although Mr Abbate conceded that more “mercenary clients” exist in bigger metropolises, the general culture in Italy remains fixated on the trusting figure of the local bank adviser, regardless of the depth of service on offer.

Recent movements and admiration from some quarters towards the British model of financial advice do appear to be gaining momentum, but, for now, it looks likely to remain largely distrusted and reserved for the wealthy elite. Whereas British banks have come under fire for numerous misselling scandals, in Italy the bigger players are trusted and still remain the cornerstone of local economies.

Daniel Liberto is a features writer of Financial Adviser

Key Points

The average Italian still trusts the advice of its major institutions.

Italian financial advice is limited by the lack of available investment products on offer.

Many in the Italian financial advisory profession speak about the economic bargaining power of banks and their ties to certain investment groups.