The drive on fees by Italy’s closed-end industry pension funds, which has reduced investment managers’ business margins to the bare minimum in Italy in recent years, has left little in the pot for investment consultancy.
Piero Marchettini, managing director at Adelaide Consulting in Milan, says that as a result advisory work is predominantly on the pension structure side as plans adapt to changes in Italian legislation and taxation rules. "In Italy there are still few new funds which actually have the money for investment.
"Secondly these funds are seeking to minimise costs, which of course is very bad for the asset managers but worse for the consultant, because funds are not ready to pay fees. And consultants certainly aren’t ready to work for free!" he adds.
Marchettini notes that the maximum number of industry funds would only amount to around 30, even if all the largest companies were willing to go the funded route.
And he points out that the closed funds normally use a board of directors to decide investment allocation strategies.
Most of the large multinational consultants, particularly Mercer and Towers Perrin, have a presence in the market, albeit predominantly on the benefits and actuarial side. Some have sought alliances, with Callan Bacon & Woodrow forming Callan Timo & Associati.
Thierry Laloux, head of employee benefits at William Mercer in Milan, says the main focus of the firm for pension funds is plan implementation and restructuring. "The market is not mature enough yet for investment consulting because decisions in the closed-end funds are made not only on technical factors, but political also. For the time being we are not introducing the financial consulting that we normally would do."
On the open-ended pension fund side, Marchettini says that the banks offering funds have for the most part recorded exceptional mutual fund performance in the last few years and see little difference between running the two products.
"It is difficult to have significant business for consultants in a market with few funds, which even then are either controlled by unions or are open funds managed by banks."
"The freedom of choice still doesn’t exist for employees to choose between the two – so there isn’t even the opportunity to advise here. If you don’t have choices you certainly don’t need anyone to advise you."
However, the proposed securitisation of Italy’s TFR (trattamento di fine rapporto) employment indemnity from the balance sheet could be a possible impetus for change, as Marchettini notes.
"The issue of investment will become serious because at that stage the amount of money will be considerable and the expectation will be to provide better performance than the TFR." Hugh Wheelan