Is the "0 rate" product already on the road? Reducing fees for bank wealth management is the trend! Wealth Management | Company | Products
Since June, 10 bank wealth management companies, including CMB Wealth Management, Everbright Wealth Management, Xingyin Wealth Management, and Bank of China Wealth Management, have announced a reduction in the rates of some wealth management products, involving multiple wealth management products. Some wealth management companies have also claimed to launch "zero rate" products. What is the reason for the significant reduction in fees for bank wealth management products? What impact will this wave of fee reductions have on the banking wealth management market?
Wealth management companies intensively reduce fees
The fees for wealth management products mainly include the fees for the transaction and management stages. Specifically, the transaction process mainly includes subscription fees, subscription fees, redemption fees, and other expenses. The management process mainly includes sales service fees, investment management fees, excess performance compensation fees, custody fees, and so on.
"Compared to others, management fees are higher and involve more diverse entities, including fixed and floating management fees charged by managers, as well as service fees paid to third-party institutions such as custodians. Overall, currently, various institutions have different ways and efforts to lower their rates. Some institutions focus on lowering management fees such as sales service fees and investment management fees for wealth management products, while others focus on lowering transaction fees," said Li Peijia, senior researcher at the China Bank Research Institute.
Wang Yifeng, Chief Analyst of the Financial Industry at Everbright Securities, stated that this round of adjustments involves fixed management fees, sales service fees, excess performance compensation, etc. Some products also include a reduction in more than one rate. The rate reduction covers product types such as equity and cash management, and the rate discounts are mostly phased arrangements.
Currently, the competition in the wealth management product market is becoming increasingly fierce. For example, from July 7th to October 7th, Bank of China Wealth Management offered discounts on the B share rate of "Bank of China Wealth Management Stable Wealth 004" product, reducing the sales service rate from an annualized 0.30% to an annualized 0.10%; Everbright Wealth Management exempts certain products from periodic redemption fees. According to statistics, multiple wealth management companies have adjusted their management fees for multiple products to 0.
In addition to various banking wealth management subsidiaries, various institutions such as public funds, securities, and insurance are also participating, and overseas wealth management subsidiaries are also accelerating their layout in China. Industry experts say that reducing the fee rate of wealth management products is beneficial for enhancing the relative attractiveness of wealth management company products, helping them expand their wealth management scale and market share.
Why have wealth management companies been intensively reducing fees recently? Li Peijia stated that in June this year, against the backdrop of a new round of interest rate cuts, the 3-year bank fixed deposit interest rate gradually entered the "2nd era", and the asset allocation behavior of residents in a low interest rate environment is at a new turning point. Lowering the fee rate of wealth management products is conducive to enhancing the attractiveness of wealth management products and attracting more customers to purchase. Since the beginning of this year, with the gradual recovery of the bond market, the phenomenon of bank wealth management products breaking through the net has greatly improved compared to the previous year, providing a good time window for attracting residents to purchase wealth management products again. According to Wind data, as of the end of June 2023, the net breaking rate of bank wealth management products has dropped to around 3%, reaching the level before last year's "redemption wave".
Xue Hongyan, Vice President of Xingtu Financial Research Institute, stated that intensive fee reductions by wealth management companies are a short-term promotional operation and also a response to regulatory policies on fee reductions and benefits for investors in asset management products. "Not only are bank wealth management companies lowering fees, but public fund companies are also intensively lowering fees. With the trend of net asset value and actual returns of wealth management products decreasing, it is the trend for wealth management fees to be lowered," said Xue Hongyan.
Stable development of the asset management industry
Since the official implementation of the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions, breaking the barrier of rigid exchange has become a watershed in the wealth management market, which has also driven banks to accelerate the transformation of asset management business to net value. At present, bank wealth management has become an important component of China's financial system. After entering a new era of net asset value, the characteristics of the wealth management market have become more prominent.
Under the background of the new regulations on asset management, the asset management industry has shown a steady development trend, with the industry scale increasing from scratch and achieving leapfrog growth. According to Wind data, by the end of 2017, the scale of the asset management industry had reached 109.4 trillion yuan, nearly 10 times that of 2011. Bank wealth management has become the main force of the asset management industry, accounting for about 40% of the industry's long-term proportion. Since the release of the new asset management regulations in 2018, the growth rate of the asset management industry has slowed down. As of the end of 2022, the total scale of the asset management industry is about 115.6 trillion yuan, with an average annual growth rate of about 4.6%.
The asset management industry mainly includes nine subcategories, including bank wealth management, trusts, and public funds. At present, wealth management products and public funds have steadily increased, while the scale of trust assets, fund special accounts, and securities companies in wealth management has steadily declined. Experts have pointed out that as a new force and issuing entity in the banking wealth management market, wealth management companies have become important management institutions in the wealth management market, with a market share of over 80%. The leading effect in the wealth management market is obvious, and market competition is becoming increasingly fierce.
Wang Yifeng stated that there is a "seesaw" effect between deposits and wealth management. On the one hand, under the pressure of redemption in the early stage, some funds that are temporarily returned to the balance sheet for hedging by wealth management are expected to be moderately returned to wealth management; On the other hand, the current savings rate of Chinese residents is relatively high, and there is a possibility of deposit overflow as a substitute for investment products. As banks pay more attention to consolidating the foundation of wealth management business from the perspective of wealth management, emphasize adapting to the capital market environment and customer real risk preferences, and do a good job in asset allocation, the supply of wealth management products will be more abundant.
At present, the wealth management market has formed a diversified competitive pattern. Li Peijia stated that from the perspective of business characteristics, commercial banks and their group subsidiaries have traditional channel advantages, a large customer base, and rich financial resources. Medium - and low-risk wealth management products are the main wealth management businesses promoted by banks.
Meeting diverse investment needs
Although the scale of wealth management has rebounded since the beginning of this year, wealth management companies still face significant scale pressure. As one of the ways to attract investors and seize market share, reducing product fees is beneficial for reducing investment costs and reshaping investor confidence.
Zhao Wei, a researcher at Puyi Standards, said that in the short to medium term, price wars may attract investors, but for the high-quality development of bank wealth management institutions, fighting a price war is not a long-term solution. On the one hand, blindly engaging in price wars may lead to the company's profit margin being compressed below normal levels, thereby affecting the company's long-term development; On the other hand, price is not the only factor that customers consider when choosing financial products.
In fact, in many cases, product quality, service level, and company reputation are important factors that customers consider. Compared to other financial institutions, bank wealth management has unique advantages in terms of funds, channels, customers, and information, and has a more complete account system and a more mature risk control system. Bank wealth management should fully utilize the above professional, resource, and information advantages, actively shape distinctive and differentiated competitive advantages, and continuously enhance the core competitiveness of wealth management products.
Financial technology empowers wealth management, and wealth management companies should prioritize increasing profitability as their core goal, focusing on services and AI applications. Yuan Yulai, founder and CEO of Wealth Management Cube, suggested that wealth management companies should strengthen the application of financial technology, utilize digital and artificial intelligence technologies, and provide convenient and fast online services. For example, AI can intelligently operate clients, dynamically identify their true risk tolerance and emotional changes when facing risk fluctuations, and provide personalized wealth management services for thousands of people and faces, improving the accessibility, feasibility, and controllability of investor financial services, helping more investors obtain long-term returns safely, transparently, and steadily.
In the medium to long term, under the tone of "housing is for living, not for speculation", the gradual migration of household assets from real estate to financial assets will be the trend. The stable investment style and constantly enriched product system of bank wealth management are expected to better meet the needs of residents for asset allocation and conversion.
Zhao Wei suggests that wealth management companies should seize the development opportunities of various products, improve and enrich product shelves, actively layout theme product markets such as fixed income+, FOF, and ESG for elderly care and wealth management. While meeting the increasingly diverse needs of investors, wealth management products should be effectively embedded in the allocation of long-term funds. At the same time, strengthen investment and risk management to help investors achieve their goals of preserving and increasing value.
Investment research capability is of utmost importance for wealth management companies to build comprehensive competitive strength, and it is also the direction of efforts in the wealth management industry. "Compared to asset management institutions such as public funds, wealth management companies have a wider range of asset types to allocate, covering a variety of asset categories such as non-standard debt and equity of unlisted companies. They need to continuously improve their multi asset and multi strategy asset allocation capabilities, and leverage more effective investment research integration mechanisms to enhance the comprehensive value contribution of research," said Wang Yifeng.
