The value of advice to the investor and the importance of the hu- hu-man factor in providing it even in a technologically advanced

en-vironment

Financial decision-making is increasingly complex, due to the growing frequency of financial crises, the reduction of risk premiums and returns on free risk assets, the diminishing presence of the public in welfare and the growing breadth of financial products available.

For the investor, access to advisory services is therefore crucial, and should be as much a part of social habits as going to the doctor for prescriptions, or to the lawyer and accountant for resolving administrative disputes or tax planning.

The value of advice is not only in financial optimisation: time, knowledge and tools. If investors’ choices diverged from the optimal ones only because they lacked the information, technical knowledge, and time needed to work out in-vestment alternatives, it would be enough for the advisor (or a machine in his place) to select the investment proposals appropriate to the investor’s profile.

Firstly, there is no such thing as a ‘definitely’ optimal ex-post portfolio. Decision-supporting modelling is an attempt to interpret future returns subject to uncer-tainty and revisable over time as markets change. The identification of invest-ments on the basis of models must be explained in the language of the investor, brought to his experience with realism, to avoid disillusionment or overconfi-dence.

Helping the investor to identify the best portfolio also does not guarantee that the investor will actually appreciate its value and follow it, due to behavioural reluctance. The consultant’s contribution goes beyond the technical aspect of the market, as a support to overcome obstacles and reluctance that have deep cog-nitive origins (behavioural finance). Knowledge of the client allows the consult-ant to predict how he will react to adverse or euphoric events, and to calibrate the optimal advice on the basis of these behavioural inertia.

Finally, the habit of finance as a tool for achieving objectives and not as a simple maximisation of risk-adjusted returns. Planning should be done by life goals. The good financial planner must possess the psychological and communicative skills to help the client become aware of his values, his dreams and desires in life, his emotions linked to money. Financial advice becomes part of the more complex wealth advisory that addresses the client’s financial needs by needs and wants, and plans for their periodic review:

• Pension and insurance planning

• Wealth protection

• Inheritance and generation planning

• Investment planning

• Monitoring and Review

How does technological innovation impact on the methods and scope of con-sultancy? One thinks, for example, of the dissemination of information that used to remain confidential, either because it was very technical or because it related to the relational sphere. Today, there are many sites that allow free access to data on the main investment markets and to know and compare, through institutional websites, the product sheets offered by different financial and insurance opera-tors. With the advent of the Internet and social media, investors can also easily access opinions, scenario reports, and compare themselves with other users, in turn leaving feedback on their experience. The institutional websites of regula-tors themselves are a convenient and continuous source of information. Finally, virtual advisory software, or robo-advisors, which profile clients, define ideal as-set allocations and monitor investments through automated algorithms, are avail-able at low cost.

One might naively think that, with so many different sources of information and decision-making tools available, the investor could free himself from the adviser.

In reality, the information overdose creates disorientation in such a delicate area as asset management and planning, and the adviser is increasingly becoming a point of reference. It is no longer he alone who provides the technical infor-mation on individual products, but it is the professional who explains them and adapts them to the client and uses robo-advisors to automate certain phases of the advisory process, improving it. With these tools, much more data can be analysed for a better profiling of the client, or investments can be monitored and actions suggested to rebalance portfolios, within the constraints of adequacy

according to shared strategies. Technology, therefore, can provide new tools and improve the work of professionals, but the person, the reputation of the con-sultant, will remain central in a relationship that is based primarily on trust and credibility.

2.8.4. Advice as a tool to enhance human resources. Incentives and sys-tem facilitators to support conversion. External valorisation tools such as certification

So far we have spoken of the ‘systemic’ value of consultancy, in terms of alloca-tive efficiency and system stability.

But there is another ‘systemic’ and socially sustainable value that should be con-sidered by public decision-makers and intermediate institutional bodies such as trade unions: the potential value of consultancy within authorised entities as a tool for enhancing the value of the workforce, also and above all at a locally distributed level, in order to reverse an unstoppable trend towards staff reduc-tion, financial desertification and mortification of local skills.

The European banking system has undergone a profound organisational trans-formation, due to multiple externalities such as regulatory pressures, technolog-ical opportunities, increased competitive pressure, changes in the reference fi-nancial markets, which have favoured the reduction of banks and branches, ge-ographical concentration, the reduction of territorial delegations, the adoption of centralised models, and the dramatic reduction of the workforce. A rationali-sation process typical of mature industries, which is having a major impact on the territory.

The dramatic reduction in staff and branches, the lack of generational change, and organisational instability at local level generates an inevitable loss of financial expertise, decision-making and cultural references, and creates disorientation for customers. The implicit illusion is that the human element, direct contact and local expertise can be replaced more efficiently through effective organisation, massive use of technology and centralised process control. A process that leads to excellent financial results in the short term at a micro level for companies that grow and survive, but at a macro level leads to many negative externalities (early retirements, subsidised slides with public capital, interventions to support the financial system, lack of generational turnover). Prices and risks that the market rightly does not value in the cost of capital, as these externalities are not penalised at the micro level. Even at the micro level, however, the business risks associated with a potential loss of customer loyalty, recognition, control and understanding of the territory are underestimated. The financial business is particularly linked to recognition and trust, and this has in the past created a particular reluctance to change, even in the face of significant price advantages. But what would

happen in a fragile and frayed context on the ground, if there were a decisive descent into the field of the large technological multinationals, strong in the po-tential for visibility, credibility and breadth of the means available (data and fi-nancial resources)? Think of what has happened in the distribution sector, where the pandemic has acted as an unconscious accelerator. In just a few years, com-panies such as Amazon have established themselves as an integrated global dis-tribution model, continually eroding market share from local national distribu-tion. Is this a very remote scenario? Operators such as Amazon have market visibility and credibility at least comparable to that of banks (²⁴).

The competitive risk becomes even more stringent with the choice of the digital relationship in contact with the customer. The service offered would become even more undifferentiated, repeatable and vulnerable in the face of technologi-cally advanced competition.

On the one hand, therefore, banks must put credit back at the heart of their mission, and not act solely on the leverage of commissions. On the other hand, in the field of services, banks must leverage on the human capital at their dis-posal, enhancing it, making it visible and credible in the consultancy offer, aware of a greater protection. The adoption by the banks of independent consultancy

‘methods’ is the prerequisite for greater protection for the workers in the sector, and for their external credibility.

The EU legislator cannot remain inactive in this process. It must facilitate access to advice, with incentives and regulatory streamlining initiatives. A few examples:

Incentives to supply

• In the conclusion and taxation of contract fees.

• In the cost of dedicated staff, through tax relief on related costs, reduction of capital requirements (to reduce operational risks arising from customer dis-putes) incentives for reallocation plans and training as in other sensitive sec-tors (e.g. technology start-ups).

Demand-side incentives and financial education

• Some product incentives, such as the PIR in Italy, could be linked to the presence of an advisory relationship, which would ‘guarantee’ the understand-ing of the products themselves

• Some areas of investment incentives for savers could be structurally linked to the presence of advisory services

(²⁴) C^ONSOB, Report on financial investments of Italian households. Behavioural attitudes and approaches, 2020.

Bureaucratic streamlining, process simplification and certification

• The load of documents submitted for each transaction should be reduced to allow focus and accountability on the salient aspects.

• Duplication and systemic inconsistencies in supervision should be avoided.

Think of the serious inefficiency of a plurality of MiFID questionnaires for client profiling.

• The client should be informed, but not treated in a paternalistic and dirigiste manner. Therefore, the obligation of consistency of the risk profile for the assets in each financial institution should not be imposed, but the broader obligation of checking consistency according to the Comply or Explain prin-ciple: if the proposed allocation is not consistent with the general risk profile, it should be explained why and how it covers a specific need of the client. In this way, the client is put in a position to use each bank for the portion of investment and advisory needs that he or she considers interesting for the bank, without losing sight of his or her overall needs and the safeguards for his or her savings.

• Certified financial advice should be encouraged. Already today, in the finan-cial advisory sector, it is possible to acquire a quality certification of planning and advisory services (²⁵). However, incentivised forms of greater visibility for the legislator and the user could be identified.

2.9. The training pathway: improving union collective bargaining action