Fund costs burden in Italy is ‘unacceptable’, says financial adviser

The overall cost of buying a fund is ‘unacceptable’, said Saverio Scelzo, managing director of Copernico SIM, a fee-only financial adviser.

Speaking at the Salone del Risparmio, the annual asset management industry conference held in Milan, he said change will have to come to the industry but only after some systemic problems have been addressed.

A large part of the cost goes on distribution. He said distribution accounts for 80% of the costs of buying a fund. He added that although the client pays for that distribution, it is not money that goes to improve the product for the client.

A number of speakers at the conference expressed the view that financial advisers were the way forward for the Italian asset management industry. But the financial advisers themselves face some big problems. Currently, some Italian financial advisers only survive because they charge commission at two or even three levels, Scelzo said. Such a fee structure is widespread throughout the industry, being the only way they can cover their costs.

The industry has become dependent on commission, which makes difficult any agreement on the detail of reforms and their implementation. Any attempt by the authorities to move the financial adviser industry towards a fee-only structure will meet serious resistance from firms fearful for their survival in a world without commission payments.

Scelzo himself has in the past drawn criticism from his peers in the industry for going down the road of a fee-only charging structure. When he launched his business, he said, “many of my critics said I would not survive six or nine months. But the fact is that after the credit crisis some of them have gone, while I am still here.”He ascribed the reason for this to the fact that he works to maintain his reputation day by day, unlike the banks’ tied agents.

“The difference between me and them is that I am working for my client and they are working for their bank,” he said, resulting in two very different levels of service.

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