Co-founder of Affari Miei
11 March 2024
The galaxy of managed savings is populated by entities, old and new, who offer customers the service of wealth management. There are ones for all portfolios: they range from low cost ones, which can be subscribed to even with a few thousand euros, up to the more complex managements that are generally offered to more wealthy customers.
Asset management is, if we want, the initial desire of the unaware investor who, aware of the fact that he ignores the knowledge of the financial markets, is looking for someone to take charge of his money, taking away the “burden” of having to operate.
The solution, on a logical level, even goes smoothly: I’m not capable, I rely on those who are capable.
But there is the theme of unawareness which I mentioned earlier: when we think like this, in fact, it is because we don’t know everything that exists in the complex world of managed savings, both banking and otherwise.
Behind the deed of trust to give management administration of one’s assets, in fact, hide a series of problems that over time risk costing those who make this decision dearly.
Let’s try, briefly, to see the main ones.
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Risk #1 – Tax inefficiency
When we sign an asset management mandate we adhere to the managed savings regimewhich is different from that administered o declarative typical of those who invest through their own securities account.
I’ll try to explain it to you in a simpler way. If you buy shares, funds, bonds o ETF independently or only on the advice of the bank and you do it through your securities account, you are in the administered regime (if the bank is in Italy and takes care of tax obligations as a withholding tax) or in the declarative regime (if the bank is not in Italy or if you decide not to have the administrator, then you have to fulfill it).
This method allows you to potentially purchase accumulation financial instruments which, every year, reinvest the proceeds earned: until you sell the instruments you do not pay a single euro in taxes on the financial income because, in practice, you have not yet achieved anything .
You pay, in fact, only on what you have achieved: if after 10 years you sell the share, fund or ETF you subscribed to, you pay 26% on any capital gain.
By adhering to the regime of managed savingshowever, you do not pay taxes based on the principle of I realize but you pay on the matured.
I’ll try to give you an example to make you understand what I’m saying. Let’s say that your asset management, starting from 300 thousand euros invested, is revalued by 10% for the current year: you have accrued 30 thousand euros more in value.
On December 31st your manager must report to the tax authorities and must pay taxes for €7,800, equal to 26% of what you have currently only made and not collected.
This does not allow your returns to compound with compound interest as could happen with different well-organized management.
To give you an idea, I tried to do a simulation using the Bank of Italy’s official compound interest calculator.
I estimated that these €7,800 paid immediately in the case of asset management could be capitalized in compound form for 15 years and with a prudential rate of 4%.
Your final capital would be €14,047.36 with a return for you of €6,247.36.
The estimate is only on that €7,800 that you have to pay in taxes immediately, imagine a similar phenomenon on the taxes you pay every year and a mind-boggling difference emerges.
On a tax level, then, there is another huge problem: if you enter into asset management, you don’t exit painlessly.
If, for example, you decide to do it as unfortunately many do when you are in the red, your losses cannot be offset in the administered or declarative regime: either you stay in asset management, simply, or you stick to it.
Fine.
Risk #2 – Total lack of control
Someone asset management they provide a very mild mandate, in the sense that the customer is given a generic indication of how the money will be allocated, but then there is no possibility of intervening on their investments.
By managing your capital in a “do it yourself” or mixed way (through consultancy, so to speak), you can always decide what to do with all your money. If, for example, you want sell a stock, fund, ETF or bond for any reason you have all the freedom to proceed.
With asset management, however, no. If you want disinvest you can’t choose what to dispose of; at most, a part of your assets will be returned to you, regardless of whether the instruments sold are profitable or at a loss.
Remember that the times are longer than closing a fund, since the technical times for calculating capital gains and all the variables take longer.
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Risk #3 – High costs
Asset management has variable costs depending on who offers it and the type of products subscribed to.
For example, one asset management in funds (GPF) is generally more expensive for the customer and very profitable for the bank which, in addition to collecting the mandate with the related remuneration, “diverts” the capital to its own funds.
On the other hand, there are other asset management companies that mix funds with ETFs or shares with high capital movements.
In these cases there are various levels of commissions ranging from entry to exit, through management and performance.
There are no precise statistics, but, based on our experience, I can say that costs range from 1% of low cost management to 3-4% of the most expensive ones.
The theme of costs is extremely impactful, if you have read the contents of Affari Miei you probably already know it, but it is not so much for the fact that we have to pay someone to manage the money, but for the comparison with the other solutions that the market makes available to us and for the quality of the service received.
Risk #4 – Conflict of interest
The asset manager, when things go well, works for a bank and, consequently, tends to buy the bank’s products with the money he manages.
If he does not work for a bank or if his bank does not own an asset management company (asset management company, i.e. the “manufacturer of mutual investment funds”), he will probably have agreements with other companies that give him commercial fees.
Everything is legitimate, everything is legal, let’s be clear. The important thing is that you know this and ask yourself a question: in the presence of situations like this, will the manager choose what is best for me or for him?
This is one of the reasons why we have always been independent and not tied to this world: what we recommend is in the exclusive interest of the customer who pays us, we have no connection with other subjects towards whom we could direct the choices of those who follows.
Ok, but if it works like this… why are there billions of euros managed this way?
For a series of reasons that I have already partially mentioned. Between these:
apparent simplicity: I realize that if you are approaching the financial markets with the fear of those who believe they can’t make it, faced with a proposal like “give the money to me and I’ll take care of it” this may seem more logical and linear to you. For many this is the case, despite it being unequivocally inconvenient; psychological problem: many people, because they are poorly informed, have major behavioral problems when they approach the stock market. Trusting someone to do things for us is reassuring for some people, but not for everyone. There are investors who want to have a minimum amount of information on the matter, which is also why we have been providing training for years for all those people who want to become protagonists in the management of their own assets; commercial proximity of banks: it is much easier for the bank to approach us because it knows our assets deposited in the account or for us to voluntarily try to find out by contacting independent professionals. Most of our customers arrive after negative experiences in the world of asset management or know us because they smell something burning before subscribing.
As you can see, the reasons that justify the success do not include economic and practical convenience because, as you have understood, it does not exist.
I hope this content helps you in defining your choices.
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