The Italian fund industry is a complex but growing area of financial services within the national economy. Assogestioni, the Italian investment management industry association calculated that in 2019 the industry grew by E63bn over the course of the year, with E3.6bn of inflows in the months of November alone. Overall, the association estimates that there is some E2.28tn of assets invested in investment funds in Italy.
Because of this, Italy is becoming an increasingly attractive market for both Italian and non-Italian investors alike and is a growing area of interest for all aspects of the fund ecosystem, from fund managers, to distributors, to intermediaries and the end investor.
We spoke to Paolo De Vito, Sales Manager of FE fundinfo in Milan, to find out more about the current situation and challenges of the Italian fund market.
Paolo, what are the main challenges currently facing the Italian Fund Management industry?
Because of the widespread growth in investment products, the Italian fund regulator, Commissione Nazionale per la Società e la Borsa (CONSOB), is demanding greater transparency. This is creating a greater need for accurate fund data and reporting solutions for clients from both buy side and sell side of the market.
Primarily, there is a lot of competition among fund providers and consequently, most distributors want to work with fewer, which will sharpen the market in the coming years. Alongside this, asset managers face a number of other challenges, which include being able to develop and enhance their service standard tools to help advisers and private bankers to offer value added services to end-clients and flexibility of product design.
There are opportunities as well. Wrappers such as unit-linked policies and regular savings plans are gaining popularity among investors and this helps the fund industry to attract new types of assets. Additionally, Environmental, Social and Governance investing (‘ESG’) has also attracted a new generation of ‘green retail investors’ who are concerned not only with the performance of their investments, but also the ethical impacts.
How have these challenges changed?
Technology is rapidly evolving and now playing a growing and important role within the asset management industry in terms of impacting the way in which it operates. The development in technology has largely allowed companies to reduce their costs and improve their operational efficiencies, while new trends such as ‘RegTech’, ‘Digital Advisors’, artificial intelligence (AI) and Blockchain are gaining increased attention from asset managers and investors.
Competition for mass affluent clients has increased with banks and discount brokerage firms targeting this segment. The development in technology capabilities has enabled the distribution arms of insurance companies and asset managers to provide new solutions to the same clients in the same space of Wealth Management.
Asset managers and insurances tend to provide new solutions with a goal-based approach for their investors and measure their performance based on achieving these client goals within agreed timeframes rather than offering investment instruments than beat market benchmarks.
Meanwhile, new tax exempt individual long-term investment plans are also presenting themselves to investors. Introduced in 2017, the PIR (offered by the asset management industry) is an individual long-term investment plan that grants to Italian retail investors the tax-exemption on capital gains and financial incomes, while the PIP (an individual pension plan offered by the insurance industry) are gaining momentum and enjoy support from the Italian government.
How is regulation affecting the Italian fund industry?
One of the major changes in recent years is the introduction of the second iteration of the Markets In Financial Instruments Directive (MiFID II). MiFID II sets a clear distinction between independent and non-independent advisers in Italy creating a still small but growing market space for official and regulated ‘independent advisory’ functions, driven by IFA companies.
Regulations such as MiFID II (for both bank-run and independent financial advisers), as well as the Insurance Distribution Directive (IDD) are pressuring financial advisers to redefine their roles and take a more holistic approach to financial planning and investment management and consequently, they are likely to request a greater range of solutions and fund choice to be provided. There may also be a growing demand for outsourcing opportunities, or partnerships with specialist organisations that provide regulatory consultancy services, while increasing numbers of mergers and acquisitions could see fewer independent financial advisers operating within the industry.
Where do you think the challenges for Fund Managers in Italy lie?
The new relationship between manufacturers and distributors under multiple regulatory frameworks (such as MiFID II and the PRIIPs regulations,) requires more frequent contact between the two parties and larger exchanges of information and reporting capabilities for product governance.
Like other areas of the investment industry, passive investments are becoming increasingly popular among Italian investors. Active asset and fund managers are not only having to face losing market share to passive investments but are also having to reduce costs for their clients in order to remain competitive. Alongside this, traditional funds are facing growing competition from new types of investment instruments and securities, such as Gestione Patrimoniale Mobiliare (GPM) a type of investment portfolio and other alternatives such as private equity.
A further consideration is that increasingly, distributors are only willing to work with certain paying agents, and vice versa, which can make the registration of a fund in Italy a frustrating task for foreign managers, without a certain degree of ‘on-the-ground’ knowledge.
How are Fund Distributors in Italy affected by regulation?
In recent years a number of regulations, again including MiFID II and the IDD have come into effect which require distributors to provide greater transparency for retail investors, which has brought with it increasing compliance and reporting costs, cutting into distributor margins. Increasing costs around due diligence, reporting, monitoring, portfolio construction and digitalisation are also playing a part, as CONSOB wants greater added value provided to the end investor.
What impact do you see Covid-19 has had on the financial service industry in Italy?
Traditionally, the Italian financial services industry has had a largely paper-based system. However, the Covid-19 crisis has made many of these traditional ways of working at best unhelpful and at worst completely obsolete. Among regulators there is an acknowledgment that some of the more traditional ways in which the funds industry operates are no longer fit for purpose. One example of this was the ‘Relaunch Decree’ ratified in May 2020, which although temporary demonstrated the direction of travel in the funds industry. With the support of the regulators, distributors and fund houses are working hard to achieve a full digitalisation in their processes and this will only accelerate over the coming years.
Given all the challenges, how can FE fundinfo support the fund industry in Italy?
FE fundinfo is a leading global fund data and technology company. We work with fund groups and fund distributors throughout Italy to help improve efficiencies, reduce risk and costs surrounding operations and regulatory requirements. On one side of the spectrum we collect data inputs and through our Document and Data Dissemination services, while on the other, we disseminate that data to distributors and various market players, providing them access to market data via Data and Document feeds.
Through our leading FE Analytics platform we also supply the latest fund information, along with digital and reporting tools to improve the relationship between asset managers and fund distributors. Our Global Funds Registration (GFR) team also works with non-Italian domiciled funds to set up their funds within Italy and overcome the administrative burden associated with setting up foreign funds in the country.