It is a great attempt to conceal the truth put in place by the Italian financial system. A smokescreen that tries to hide decisive information from thousands of savers. “They are often watered down in communications sent to customers, placed at the end of dozens of pages or diluted in other information documents,” says Andrea Rocchetti, head of an investment advisory at the independent financial consultancy Moneyfarm. “As far as we know, about a quarter of the intermediaries have not yet provided them to customers,” said Andrea Cattapan, a financial analyst at Consulultique, another financial consulting firm.
The data that banks and intermediaries are reluctant to make clear and transparent, as the rules require, are the costs charged on financial products and services. The disclosure obligation was triggered by Mifid 2, a directive governing the EU’s financial markets with the aim of ensuring transparency and protection for investors. In particular, the new legislation provides for an obligation to present to investors clearly and in aggregate form, the costs and charges applied for the investment service and the management of financial instruments. In Italy, the Intermediary Regulation adopted by Consob in February 2018 specifies that information on costs must be presented in aggregate form at least once a year to allow the client to know the total cost and its overall effect on the return and, if the client so requests, in analytical form, for the entire period of the investment.
A great novelty that has put the intermediaries in difficulty. For two reasons: the first is organizational since it is necessary to manage a significant amount of data. The second is in terms of image: bad luck is that information on the charges paid by savers became mandatory in 2019 and refers to 2018, a very bad year on the financial markets. It is a bit embarrassing to show customers that on a loss-making investment they have also paid commissions, in some cases high. That’s why many companies have been waiting for the summer, taking advantage of the good performance in the first 6 months of 2019 and associating cost reports with these more satisfactory results.
The fact that banks and intermediaries have not yet complied with the transparency requirements laid down by cost regulations is demonstrated by a study that Moneyfarm is conducting, in collaboration with the School of Management of the Politecnico di Milano, on a panel of 20 of the most important financial intermediaries operating in Italy. The survey is divided into two parts: the first, already published, verifies whether the intermediaries have adequately provided customers with information on ex-ante costs, i.e. on the commissions and charges that the saver will pay on the products subscribed. The second part, which will be published in November, will instead analyze the quality of the ex-post information, i.e. that which is reaching savers in recent months and which concerns the investments made in 2018. The results of the first part on ex-ante disclosure are not comforting: only 25 percent of the documentation relating to financial advice and portfolio management reports all the information recommended by the MiFID 2 discipline. Costs are presented in absolute terms in only 45% of cases for financial advice and only 19% for portfolio management. In 40% of the requests for financial advice, the documentation was delivered in digital or paper form, while this figure rises to 69% for portfolio management.
Massimo Scolari, president of Ascofind, the Association for independent financial advice, comments: “The gaps in the reports provided by leading intermediaries and investment firms are even more significant if you consider that the start of the new European directive was postponed by 12 months precisely to allow all intermediaries to prepare adequately for the implementation of the new transparency requirements: the start was originally scheduled for January 2017. 18 months after the entry into force of MiFID 2”, adds Scolari, “information on the costs of investment services and financial products, as revealed by the research, is often provided in an incomplete manner, in an informal manner and without indicating the impact on performance”.
Although the second part of the study is not yet public, Panorama may anticipate that the survey will show a certain homogeneity in the operators’ attempt to water down costs and charges in ex-post communications sent to customers. According to a recent report by Morningstar, a research company specializing in the analysis of financial products, Italy is one of the most expensive countries in the world in terms of commissions and charges for managed savings. The analysis covered 26 markets and mainly considered open funds available to the public. Italy received the lowest score, along with Taiwan. “Italy has slipped from the level below the average of the previous 2017 Low survey because of the entry and relegation fees charged to private investors who are not applied elsewhere,” explains Francesco Paganelli of Morningstar. “Moreover, the funds available in Italy are penalized by the average weighted costs for assets, which are generally high in all sectors”. For example, equity funds: for recurring commissions paid annually by Italian investors, Morningstar has identified a median (i.e. the figure at the center between the maximum and minimum) of 1.83 percent. In Germany, it is 1.72 percent, in the United States only 0.59 percent.
This is not new, it is usual in all international rankings Italy is at the top for the costs borne by savers while not shining for the performance achieved by managers. Why? Surely one of the reasons is that our market is a bank-centered one, with little competition, where 70% of the costs paid by investors are used to remunerate the distribution channel. But the problem is upstream and should be sought in the financial illiteracy of Italians: “50 percent of savers do not know what investment advice is, 80 percent are even convinced that it is free or does not know what it costs,” recalls Reels Moneyfarm. Why then be surprised if the banking world wants to keep a flock so easy to shear in its blissful ignorance?