HNWI AND Mutual Funds: END OF THE HONEYMOON?

INVESTIRE | April 2024

From the analyses that FINER periodically conducts, it appears increasingly clear that the honeymoon seems to be over between mutual investment funds and HNWI customers.

There are two main reasons, among many: the cost/return ratio and the transition – now more than consolidated – from product consultancy to portfolio consultancy, in which funds risk becoming extras from being protagonists.

The past year has certainly not been an easy year for mutual funds, both because they are returning from a 2022 to forget and because they have been put to the test by BTPs.

However, few seem to realize that in 2023 and the first months of 2024 many funds are performing significantly better than in the past with returns that make the much-lauded BTPs pale in comparison.

The results of a recent research carried out by FINER which involved a sample of wealth advisors and their HNWI clients allow us to better understand the topic.

86% of wealth advisors, i.e. super private bankers, agree that paid consultancy guarantees an overall greater profitability than product consultancy to intercept Private and HNWI customers.

There are three main reasons for this response: for 75% of bankers, paid consultancy best expresses the added value of the consultant, 69% believe that HNWI customers are very attentive to the costs of funds and 59% believe that themselves also wish to include government securities, ETFs and illiquid funds in their portfolio.

When questioned on the topic, 72% of Italian private individuals and HNWIs declared themselves willing to pay a fee for the financial advice offered by their banker in exchange for an optimization of the commissions on the individual products subscribed to. If this is the context, it seems clearer how the interest in the single fund has given way to the desire to be able to count on personalized asset management where the funds would seem to have lost the protagonism that they had – with difficulty – gained in the last ten years also among the wealthiest segments of the population, HNWIs and private individuals.

To further compete for the prominence of the funds, in addition to ETFs and illiquid investments, Separately Managed Accounts (SMA) could soon land in Italy too, a real management mandate for the individual client which allows investors to appoint a manager who customizes a portfolio of direct securities on their behalf.

In the United States this type of mandate is enjoying great success among HNWI customers and we know how much the USA is a forerunner of trends that then become established in the old continent as well.

In a reverse journey through time, it seems as if we have returned to 2013 when for the first time on a massive scale, private customers, accustomed for years to guaranteed returns and low risk levels, looked towards managed savings and in particular to funds, triggering a race that seemed endless.

So, is it all over for mutual funds? Absolutely not, certainly many things will change, we will see a selection of the best asset management companies and an increase in their concentration.

All this is typical of a sector that has become mature in which to excel the quality and uniqueness of the product will be absolutely essential while at the same time the position income will melt like snow in the sun.

Nicola Ronchetti