Service is key to growth in Italy
The distribution channels for investment funds in Italy are opening up to foreign fund houses, but the key factor that translates into sales is service.
The Italian funds market could almost be described as schizophrenic. On the one hand, there are the big financial groups such as insurance group Banca Generali, and banking groups Intesa Sanpaolo and Unicredito, which jealously guard access to their national distribution networks. On the other hand, there are the upcoming financial adviser networks that offer a ready-made solution for international funds houses wanting to establish a presence in the crowded but growing Italian funds market.
Gaining access to the big national distribution networks with multi-manager platforms is the ultimate goal for all international funds houses. Banca Generali, the oldest and largest of the insurance groups in Italy, offers BG Selection, a Luxembourg-domiciled Sicav with 22 fund managers, of which only six are Italian. The attraction of the international funds house brand, from the point of view of the distributor in Italy, is that the Italian investor perceives them to be a more reliable source of performance than the home-grown variety.
After the global financial crisis decimated the Italian investor’s investments, the international funds benefited from a flight to quality, as they were able to offer quality and performance.
But as the Italian funds industry fought the fires of the global financial crisis, new EU regulations forced Italy to open its doors to foreign competition. With the arrival of Mifid, the Italian funds market was exposed to competition from funds houses that had prospered in more dynamic environments. The Italian funds industry was mostly ‘captive’ of the bancassurance groups, which preferred to channel assets into safe, benchmark-tracking securities.
One of the biggest assets of the Italian funds industry is that historically the Italian investor has one of the highest savings rates in Europe. Combined with the poorly performing Italian funds industry, the potential of this market has become clear to a large number of international funds houses. But how to access a market dominated by exclusive distribution networks?
The strategy the funds houses adopt to access this market depends usually on their size and resources, as distribution costs multiply in relation to the marketing commitment. Threadneedle, the UK fund manager, prefers a low-key approach appropriate to a funds house that is a relative newcomer to the market, entering Italy in 2008. With only a handful of staff, the Milan-based Threadneedle team led by Alessandro Aspesi focuses on an indirect promotion strategy. Key to this strategy is its reputation for quality and performance, which is something that financial advisers find much easier to sell to a discerning client than brand awareness.
Aspesi says: “Threadneedle has not invested in a high-profile advertising campaign or marketing effort. We prefer to let the performance of our funds speak for itself. An expensive advertising campaign would affect the returns of our investors.” Much more preferable is for Threadneedle’s reputation to pass by word of mouth, effectively by financial advisers recommending their product.
A big help in this respect is that Threadneedle has secured one of the much coveted mandates on Banca Generali’s BG Selection platform: as good an endorsement to the Italian investor as any amount of marketing spend. The Threadneedle Global Themes fund was launched on BG Selection on 26 April, putting Threadneedle alongside much bigger and better resourced funds houses such as BlackRock, Schroders and JP Morgan.
But winning such contracts is only the first step in a strategy that entails serious marketing commitment. Fund managers are then required to make presentations to the distributors’ cohorts of in-house financial advisers and wealth managers.
Aspesi says: “We either do simple, direct distribution, or we go the financial adviser route, which sometimes requires us to provide marketing and technical back-up to explain our products to the financial adviser’s clients.” Such a service requires staff, and only the largest funds houses with an established presence in the country will have the staff numbers to provide this back-up.
For the more recent arrivals, the challenge is to stretch limited resources as far as possible for the necessary marketing commitment. It is a question of balancing the ambition with limited and costly staff resources. Starting this month, Aspesi is going on a two-month roadshow taking him the length of the country (more than 1,000km from tip to toe), which will see him presenting to a range of financial advisers, private banks and wealth managers. He estimates that by the end of the roadshow, he will have presented to as many as 10,000 financial advisers.