The return of asset management
"Wealth management is making a comeback", claims Maurizio Grigolo, partner of PwC, in an interview recently published in Il Sole 24 Ore, in which he explains that "the main operators are refocusing their attention on asset management and the related remuneration model which, being already aligned with MiFID2, can be more easily implemented". In fact, asset management, argues the PwC manager, "already complies with the rules imposed by MiFID and with the actual entry into force of the legislation there should be no significant changes to the product".
In other words, the resurgence of asset management would be justified by the lower costs they will have to bear to adapt to the new MiFID2 Directive, which will enter into force in January next year.
But are we really sure that dusting off this tool is a sensible move? AdviseOnly recently talked about it in an article by Jack Sparrow.
What's new in MiFID2
In my opinion, Grigolo's arguments contain some elements of truth, but also some important underestimations of the impact of the new Directive which could fuel illusions and cause unpleasant surprises.
Even if the asset management service is already remunerated today in a clear way for the client, with the prohibition for product houses to retrocede commissions, it is worth emphasizing that, with MiFID2, some of the rules that apply to the advisory sector independent finance have also been extended to portfolio management.
Firstly, the assessment of adequacy: already mandatory in MiFID1 for services with greater "added value", such as consultancy and portfolio management, with MiFID2 it will be strengthened through greater obligations to notify the client. Literally quoting the Directive: “Where an investment firm offers portfolio management or has informed the client that it will carry out a periodic suitability assessment, the periodic report will contain an updated statement explaining why the investment matches the preferences, objectives and to the other characteristics of the customer.” The manager, like the independent consultant, must therefore periodically inform the customer of the assessment of the adequacy of the financial instruments held in the portfolio, explaining the reasons.
Not only. For each transaction involving the sale and purchase of financial instruments (so-called switches), the manager and the advisor will have to carry out a cost/benefit analysis of the switch itself in order to be able to "reasonably" demonstrate that the benefits outweigh the costs.
Another area in which the obligations of asset management managers have been aligned with those of independent consultants concerns the issue of incentives. For both, monetary incentives are prohibited, while minor non-monetary incentives are allowed, which must in any case be communicated to the customer.
Finally, the issue of information on costs. If today the customer is only informed of the commissions applied to the management service, with MiFID2 it will be mandatory to carry out an ex-ante and ex-post reporting of all costs (in percentage and in absolute value) which affect the financial instruments and the related transactions.
What about independent advice?
In the light of these considerations, it is clear that if operators focus on asset management to avoid the costs of adapting to the new legislation, they risk underestimating its impacts. Not only that: they also give up on grasping some innovative aspects of independent consultancy.
The article in Il Sole 24 Ore expresses an incontrovertible judgment on this point: "Simple customers are not able to appreciate the benefits deriving from independent consultancy". Given that it is not clear what is meant by simple customers, it should be noted that the independent advisory service differs from asset management in many respects.
Firstly, by its nature, it is a more personalized service capable of involving the customer more in investment decisions. In addition, the independent advice includes a structured methodology for selecting investments within a vast range of financial instruments, representative of the entire market.
Transactions in conflict of interest, i.e. those involving, for example, financial instruments issued or managed by related entities deserve a separate chapter. These operations remain admissible even in the context of independent advice, but with some constraints: they must constitute an exception to the rule and in any case be proportionate to the investable universe.
One thing is certain: MiFID2 – which aims to increase the quality of service and strengthen investor protection – will represent a challenge for the financial industry. Some will take up the challenge, others will seek refuge in more traditional services, in the hope of being able to continue as usual. The world and investors, like technology, evolve inexorably and rapidly, with or without MiFID. It would be better not to be left behind.
In short, the challenge is open: AdviseOnly has long supported the importance of transparency and information in the world of financial services, for the benefit of greater investor awareness.
