Online opportunities in Italian wealth management

“Unlike the young start-ups in San Francisco’s Silicon Valley, you need to have a proven track record to be able to gather and manage people’s money,” believes Mario Bortoli, founder and CEO of Euclidea, a Milan-based digital wealth manager launched in February this year.

Reinventing yourself as an entrepreneur at a more mature age may mean having to miss out on some “energy and light-heartedness”, but longer work experience and higher credibility make up for it, says the former head of multi-management at Fideuram Investimenti, previously general director and CIO at Eurizon Alternative Investments.

Favourable environment

In Italy, digital wealth managers have a chance to gain traction in an environment where persistently low interest rates have made historically popular domestic government bonds significantly less attractive, says Mr Bortoli. The introduction of new, heavy taxes and the economic crisis have taken the shine off once much in demand real estate investments.

Moreover, the perception that Italian banks – sitting on a vast stockpile of bad loans – are not as safe as in the past, with bank bonds investors having been badly burnt last year, contributes to create a favourable environment for robo-advisers, he believes.

Since launching in February, the firm of 15 staff – co-founded by investment managers Luca Valaguzza, chief product officer, and Giovanni Folgori, CIO – has gathered €9m ($9.9m) in assets, sourced from more than 50 clients.

The digital platform creates and manages personalised portfolios based on investors’ risk profiles, preferences and financial objectives, enabling those with relative small savings – the minimum investment is €10,000 – “to benefit from high quality investment services traditionally offered to private banking clients only,” promises Mr Bortoli.

Unlike most robo-advisers, the firm – supported by business angels and entrepreneurs in the investment and web technology sector and today with €4m in capital – invests clients’ portfolios in both ETFs and actively managed funds. Liquid alternatives are also employed, representing 10 per cent of client portfolios on average. These are believed to offer diversification benefits, and in a rising interest rate environment could generate an “interesting performance”, as the bond market may enter a bear market.

Transparent pricing

Offering “total visibility on costs” is a key priority for Mr Bortoli, having had to manage conflicts of interest in past roles, for instance around controversial managers’ performance fees. These are often wrongly promoted as a way of aligning interests with clients, he explains.

“We are now able to have a direct impact on the quality of client service, and put clients’ interests first. In other types of environment, you always have to tread a fine line, which is not easy.”

The firm’s management fee starts at 0.7 per cent for investments up to €100,000, and gradually reduces to 0.4 per cent for portfolios larger than €1m.

Such fees are significantly lower than the Italian market average, according to Euclidea, which estimates a typical gestione patrimoniale – the multi-manager discretionary portfolio management service offered by Italian private banks and promotori-based banking networks – charges 1.5 per cent, while minimum investment thresholds are much higher, at €200,000.

Moreover, using mutual funds in the cheaper institutional share class helps keep costs down, says Mr Bortoli. Like ETFs, funds in the institutional share class do not give any rebates, thus avoiding any potential bias in selecting underlying investments.

The challenge is to understand investors’ profiles, their financial expertise, and how much interest they have in building their own portfolios, he says.

Today clients with an average level of financial expertise can access 22 different investment combinations, and can decide to reduce or increase their risk exposure, depending on their market views.

Individuals who prove to have a deeper knowledge of financial markets will be able to build their own portfolios and decide their own asset allocation, using bricks - mutual funds or ETFs – selected by the firm. This more sophisticated service is expected to be launched during the summer, and is believed to be of particular interest to independent financial advisers, whose number is growing in Italy, albeit from a very low base, in view of the upcoming MiFID II regulations.

Euclidea’s goal is to eventually expand in other European countries, perhaps following in the footsteps of its more established competitors, such as UK-headquartered Moneyfarm, launched in 2012 by two Italians and distributing in Italy through its subsidiary. The firm secured $30m in capital, including investments from UK-based private equity firm Cabot Square, Italian investor United Ventures, and more recently Allianz Global Investors.

The expansion of Moneyfarm and the launch of other digital platforms, such as Yellow Advice, a fund advisory service by Mediobanca’s CheBanca! are positive developments for the Italian market, states Mr Bortoli, as they help create opportunities for digital wealth management players.

Clouds on the horizon

Testing times for robo-advisers will come when market volatility rises and they will not be able to hand-hold clients through the turbulence, thus losing assets, say critics.

“One of the things we want to do is to be more proactive,” says Mr Bortoli. He believes it is important to manage globally diversified portfolios in a “prudent and professional way”, while communicating with clients through multiple channels, including face to face, as well as the web and a dedicated contact centre. “It is very wrong to pretend nothing is happening, especially when market volatility rises, hoping clients will not notice.”