Italy for many is always going to be the place showcased in ‘La Dolce Vita’ or ‘Roman Holiday’ – and people will often decide to move or retire there to have the same sort of experiences Audrey Hepburn enjoys in the latter.
A growing number of wealthy individuals have made the Mediterranean country their permanent residence, especially considering the several advantageous tax relief measures Italy has passed at the beginning of 2019.
But chances are, their financial needs won’t be looked after by an independent financial adviser (IFA) after all.
“The concept of an IFA is still in its infancy in Italy,” Tom Goold, financial adviser at Rome-based Valiant Wealth, told International Adviser.
The IFA sector is developing, although very slowly.
Lack of awareness
Independent financial planner and manager of Spectrum IFA’s Italian branch Gareth Horsfall told IA that while the sector now exists, it is “both underutilised and not really known about”.
“They only introduced the possibility of being an IFA about two years ago into the market and, to date, there are only about 200 registered IFAs in Italy,” he added.
“They are also fee-only.”
So why should Italy be such a hard market to crack?
“They often don’t understand our role as an intermediary as we don’t simply sell products from one provider,” Goold said.
“The value we add is through financial planning; that is something that doesn’t really exist here locally.”
Mario Martinelli, partner at law firm CMS in Rome, suggested the Italian IFA sector is not as developed as elsewhere.
“But I do understand it could open up other possibilities within the market,” he added.
Cracking habits and customs
The burden of the local culture is probably one the main reasons financial advisers are struggling to breakthrough in Italy.
“Culturally, the market is saturated by banks and assurers,” Horsfall said.
“It is developing and, from a regulatory perspective, the necessary regulations are being put in place to liberate it, which should theoretically open the market up to more IFA business.
“However, culturally, people have long memories of being ripped off by one-man bands in Italy and so they turn to big institutions because they are believed to be safer.”
The approach Italians have to their finances adds to their reluctance in trusting a ‘one-man band’, Goold said.
“Italians have more of a family approach to wealth rather than an individual one,” he explained.
“It’s natural for local people to go to the bank or an asset manager as they aren’t familiar with any other alternative. It’s a culture and a habit that’s formed from a young age.”
International push
Things can change when expats are involved, however, because they are the ones who are used to having independent financial advice and so are more likely to look for someone who can provide it.
That comes with its own difficulties, though.
“In Spain, in the south of France and in Portugal you have got those hubs of expats,” Goold said.
“[But] the international market in Italy is very spread out.”
Goold acknowledged the presence of the United Nations in Rome does help with people enquiring about financial advisory services but added the market “is still pretty small”.
And the very few Italians who actually want independent financial advice are typically those who have spent some time abroad and are more “internationally-minded”, Goold argued.
“There are a lot of Italians who have returned home from a period working in the UK and look for help with their pensions,” he said.
“We help manage these with UK-regulated advice to transfer and manage in Sipps or Qrops. With defined benefit pension transfer values being quite lucrative we see a lot of interest in this area too – particularly from the banking sector in Milan”
Playing catch up
It seems likely to be some time before the IFA market really becomes a part of the Italian financial services landscape.
“I think you will see the IFA sector increase – but very slowly,” Spectrum’s Horsfall admitted.
“It will take a long-term mindset change to develop the sector.”
And Valiant Wealth’s Goold agreed, adding: “Things are going to move in that direction because, really, they have to; there will be demand for it.
“[But] Italy, in general, tends to be slow to adapt.”
Fast-track?
Change, however, could come sooner than expected, CMS’s Martinelli admitted, with the European Union as the catalyst.
All member states are required to implement a piece of legislation called Directive on Administrative Cooperation Six (also known as DAC6), by the end of 2019.
This imposes mandatory reporting on any cross-border arrangement or transaction affecting at least one member state; and obligations fall on the intermediaries.
Martinelli suggested people would need to see a financial adviser because tax planning would become paramount once DAC6 comes into force.
“Although the obligations fall on the intermediary, if they are bound to confidentiality and, as a result, become exempt from reporting duties, the burden then falls onto the clients themselves,” he explained.
Martinelli revealed to IA that CMS is currently developing a tool that will evaluate whether or not the transaction is subject to reporting obligations.
This, however, means that, in order to avoid unintended fees or penalties, more and more people would have to turn to someone for independent advice and tax planning – potentially opening up a market, both for IFAs already present in Italy and those looking to do business in the country.
