Be Private | March 2022
Small and medium-sized businesses have a key role in the Italian economic fabric. They represent about 92% of active businesses and hire 80% of the workforce. Over the next 20 years, in our Country, business management is going to face an important change generated by the transition of about €800 billion in movable, real estate and business assets from baby boomers (born between 1946 and 1964) to millennials. So says Nicola Ronchetti, founder and CEO of Finer Finance explorer, a financial research institute.
The issue of the generational transition is a very delicate one, especially for a country like Italy that registers a strong delay. What is your opinion?
«We have conducted a series of surveys and analyses on the issue and what is most striking is that the issue of generational transition, also linked to a process of financial optimization, shows plenty of room for improvement in our Country. Consider that, at present, only 17% of people (calculated on the Italian adult population) has been dealing with this issue. This percentage needs to be compared with a European average of 34%, an American average of 42%, and a British average of 50%. This comparison shows a clear delay, which in turn proves that the issue of generational transition in Italy is not adequately being dealt with. Two main factors explain this delay: only one investor out of four is active on the financial market (number calculated on people with over €50 thousand on their checking accounts) and does not hold an insurance coverage. More specifically, it is worth mentioning that only one Italian out of four insures their home, while only 15% of Italians hold an accident insurance policy. To sum up, we are dealing with excess liquidity and inadequate insurance coverage».
However, figures on liquid assets on checking accounts keep registering an increase….
«It’s true, and what is all the more striking is that 77% of people with an average annual balance worth over €200 thousand have not heard from their bank manager for about 12 months. Two considerations: there is a lacking financial education and a silent insurance and financial offer».
A general situation that, in terms of generational shift, is not characterized by dynamism.
«I agree. If then one focuses on private clients, which represent the wealthiest segment of the Italian population with assets worth over one million euros, 45% of them have not solved or dealt with the issue of generational transition. If we consider that the Italian economy stands on small and medium-sized businesses (50-200 operators) and that the Recovery Plan is going to invest in such economic fiber, it is quite easy to conclude that not dealing with the issue of generational transition means running the risk of discontinuity in business management, inadequate allocation and use of resources, with heavy repercussions on the labor market. In terms of national interest, the entrepreneur’s carelessness about their future seems of little importance, provided that their choice affects only to their heirs. However, the dissipation of a fortune, when one of its components corresponds to a productive activity, destroys wealth and affects the economic and social context. Moreover, there is the issue of ageing leaders. The average age of Italian entrepreneurs is gradually increasing and, over the last 10 years, according to Unioncamere and Istat, the number of entrepreneurs over 70 has increased by 2%, while the number of entrepreneurs under 40 has decreased by 5%. We are therefore dealing with a very worrying picture: a gradually ageing entrepreneurial class reluctant to plan the future of their business and to pass on their competence. The short-term risk is, on the one hand, the impoverishment of the productive fiber with the progressive disappearance of activities on the market; on the other hand, the presence of people whose assets are not managed efficiently».
You have drawn quite a worrying picture…
«Yes, but much depends on the attitude. There are two alternatives, the first and more pessimistic one is that the picture of the current situation is very worrying, while the second and more optimistic one consists in envisioning this as a great possibility of improvement. I am inclined to see the glass half full and the enormous potential offered by the current situation, especially for people called to contribute directly and break out of stalemate: financial operators. In fact, Italy has been registering a growing presence of foreign financial businesses, the creation of new business aggregations and a growing interest in bancassurance. Today, the three pillars of the relationship with clients (i.e., protection, asset management and credit) are controlled by the same entity, the bank. Therefore, there is a strategically meaningful action space for the banking institutions willing to face the challenge launched by a difficult market that offers, with due precautions, huge opportunities to be sized».
How can you turn a problem into an opportunity?
«Let’s turn our attention to 77% of wealthy people, who are not being contacted regularly by their bank managers. How can this operational void be explained? Suggesting a lacking inclination to work would be a banalization. In fact, a careful analysis of the situation reveals that, within banks, a process of digitalization of procedures is increasingly necessary. This would allow for a more careful and efficient relationship with clients and to overcome several hurdles, even those generated by operations thus far conducted manually. Digitalization is like cavalry; it comes and saves work organization and allows to manage thousands of clients of a credit institution with whom it is hard to maintain a regular relationship focused on their needs».
In other words, the physical branch becomes a digital branch…
«Yes, currently banks are moving in this direction and the necessary technology is available. Moreover, this allows for the rationalization of activities, giving adequate time and space to activities that require a dedicated approach».
What are the repercussions of the picture you painted on the world of private banking?
«It represents a great opportunity. I will give you an example, in order to be as pragmatic as possible. 37% among the wealthiest clients do not hold an insurance policy. Now, there is a product called ‘Key man people’, offered by every insurance company, that concerns leading professionals within companies in case of predecease or incapacity to work. Such policy protects the company and/or people involved in any backlash that may be caused by the sudden incapacity of a key figure to play their role. This is an investment that mitigates a risk that could potentially undermine the management of the company, rather than leaving liquid assets on checking accounts in case of need. It would therefore deserve a more widespread consideration. I believe that the themes of insurance and asset management are today inextricably connected».
In Italy, we suffer from a lacking financial education. Do you think this might represent a cultural and educational problem? Or, do you think there may be structural or system hurdles?
«Italy counts several initiatives designed to promote financial education: one of them is the initiative promoted by the Edufin committee. This is important and they are working in the right direction, but we can hardly suppose that they may generate results in the short term. There is also a cultural aspect, linked to Italian history: from the Roman empire onwards, Italians have developed adverse feelings towards anything systemic or perceived as imposed from above. This also explains the widespread presence of microenterprises on our territory. However, the real issue resides with the offer of the financial sector, insurance companies and banks. This explains 60% of the Italian situation I have described thus far. In fact, there is an issue linked to a lack of proactivity and trust. The lack of proactivity is the result of business models which, in turn, have demonstrated to be either unprofitable or unable to sustain the reason for their existence. The offer has often answered to immediate necessities, thus reacting passively without offering any added value. Moreover, there is the issue of trust. Why do Italians keep their money on their checking accounts and do not invest or subscribe an insurance policy? First of all, because they are not sure that asset management can offer profit and merely consider the cost aspect, of which they are certain. However, our Country offers tangible examples (for instance, in the world of financial consultancy) showing that a trust-based relationship can lead to investment solutions that meet the needs of clients in terms of profit generated by the invested capital. Only time and meaningful examples can create and nourish trust».
Is it necessary to create trust and be proactive?
«Facts suggest so. The figure of the financial advisor has grown over the years, driven by the necessity to create daily business opportunities. Their commitment has resulted in a growth of assets management. Some banks and insurance companies have achieved better results than others, thanks to a strong brand and the adoption of a proactive approach towards their clients, thus creating a trust-based relationship. This cannot be created but through a relationship built in time and consistently nourished».
How would you explain then the ongoing increase in liquid assets on checking accounts?
«We can observe this in Italy, as in the rest of Europe. It is a common issue, summarized once again in the level of trust in the banking and insurance systems. I must say that our Country is on par with other European countries. Italy boasts industry excellence and has nothing to envy to other countries».
Can all the elements you have mentioned so far explain why the issue of generational transition is hardly being dealt with?
«One data can serve as a reference point: 40% of Italians do not want to think about generational transition, maybe with a tad of superstition. However, what is all the more striking is that 51% of them claim they would not know who to contact, while 41% of them defer the job to their children; 27% of them admit that they do not know what they should do, 32% are not familiar with the issue, and 17% have not had the time to deal with the issue (the data have been collected through multiple choice). So, any excuse imaginable rather than dealing with the issue. An analysis of the answers collected through a survey conducted by Aipb, in which the client is asked who they would contact to deal with the issue of generational transition brings to light that, in addition to the figures of the accountant, the lawyer and the notary, 36% of them mention the private banker. So, the main discerning factor resides, once again, with the offer, that is with the possibility to find skilled, competent, and transparent interlocutors. Italy, a rich country in terms of people’s assets, is missing something to become advanced also from a financial point of view. To achieve their goal, the market needs to take on an active role».
So, is the role of the private banker becoming increasingly important?
«It is, insofar as they carry out their consulting activity with a holistic approach. But this is not enough. The market shows that the best results are achieved in the presence of strong leadership and skills. Leading private banks have respected leaders, and this has proven to be a determining factor. The best results are registered where there are skills because they generate trust. Bankers are always ready to acknowledge and adequately meet the needs of their clients, because they are able to listen. Moreover, as always in life, questioning oneself equals growth. And this is all the more necessary within a context like that of the financial offer and asset services, a field in constant need of renewal».
Pinuccia Parini, Fondi&Sicav Institutional Account Manager