Driving Wealth Management Transformation with Customer Demand
Li Jianfeng
In 2024, China's wealth management market continued to expand in scale, but faced the awkward situation of "incremental decline" (增量不增收). After the reform of public fund fees, financial institutions' revenue from selling funds generally declined, especially for publicly offered funds, trusts, and private equity products. On the other hand, "fixed-income+" bank wealth management products showed an upward trend, with a growth rate of 44.84%. This phenomenon reflects the structural adjustment pressure on the wealth management industry as well as its deep-seated contradictions.
The core reason for the decline in revenue from publicly offered funds is the dual pressure of fee reform and product structure changes. The 2023 public fund fee reform reduced the management fee cap from 1.5% to 1.2%, while sales service fees were cut by 30%. This alone led to a 20% shrinkage in industry-wide income. Moreover, market risk aversion decreased, causing passive-type ETFs with low fees to account for 43% of the market share in 2024, resulting in a dramatic decline in profit rates.
The revenue decline for trusts and private equity products reflects deeper market changes. Real estate trust assets shrank from their peak value of 2.7 trillion yuan in 2020 to less than 1 trillion yuan by 2024, while securities investment-type trusts suffered from the consecutive two-year decline in asset management scale (-7.2% on average for 2023-2024). In contrast, "fixed-income+" bank wealth management products showed an upward trend of 44.84%, benefiting not only from the continuous bull market in bond market but also reflecting a collective shift in investor risk aversion from R3 to R2.
Looking back, the high growth rate of wealth management revenue peaked in 2018. That year, leading brokerages saw an average increase of 42% in sales revenue, while bank private banking business grew more than 35%. However, since the transition period of regulatory reforms began in 2019, the industry has entered a downward trend. In 2020, there was a temporary rebound due to the "fund-earnings" effect, but after 2021, when the "cash injection" regime took full effect and capital market volatility increased, revenue growth continued to decline.
In 2022, the industry experienced a critical turning point, with publicly offered funds' sales experiencing the characteristic of "quantity increase and price decline". Non-security assets grew by 12%, but revenue declined by 8%, foreshadowing the current predicament. The fundamental reason for this transformation is that the traditional commercial model driven by sales commissions has become unsustainable in the context of financial supply-side reforms.
Different institutions have exhibited varying levels of risk resistance in the midst of industry winter. Brokerages' revenue decline averaged 15.89%, far exceeding the 8.3% decline for banks, due to three structural factors: firstly, product structure differences between banks and brokerages; secondly, client structure differences; and thirdly, income structure differences.
The US wealth management market experienced a similar transformation from 2015 to 2019. Pioneering groups such as Fidelity Investments through their zero-commission strategy forced the industry to reform, ultimately forming three successful paths: BlackRock's ETF ecosystem model (year-on-year growth rate of 18%), JPMorgan's one-stop-shop account model (customer asset retention rate of 92%), and Morgan Stanley's high-net-worth custom model (average AUM per household of $240,000). These three pathways' core lies in shifting income sources from transaction commissions to asset management fees (accounting for 65%) and financial planning services.
Mitsubishi UFJ's transformation is also worth referencing. During the revenue decline period from 2013 to 2016, it implemented a "financial convenience store" strategy (branch securities account conversion rate of 40%) and annuity insurance combination sales (cross-selling success rate of 58%), achieving a non-commission income share increase from 31% to 67% over five years.
The successful experiences of the US and Japan demonstrate that wealth management institutions' transformation from product sales to asset allocation is not an option, but a necessity for survival.
Facing industry development challenges, domestic wealth management institutions need to build a three-dimensional system of "product-service-ecosystem" to break through the development bottlenecks.
One is to establish dynamic product shelf management mechanisms in the product dimension, enriching product categories. In addition to traditional public funds, trusts, and private equity products, it's necessary to focus on REITs, retirement-focused FOFs, and cross-border wealth management products. For example, REITs are expected to break through 1 trillion yuan by 2025, with stable cash flow and high returns, meeting investors' diverse needs. Meanwhile, financial institutions should strengthen cooperation with fintech companies, developing innovative products such as AI-powered investment portfolios and customized wealth management products, enhancing product competitiveness.
Two is to accelerate the iteration of advisory models in the service dimension. By introducing artificial intelligence, big data, and other technological tools, it's possible to improve advisory services' efficiency and quality. On one hand, provide standardized AI-powered advisory services for long-tail customers, covering 70% of customer demand scenarios; on the other hand, offer personalized human advisory services for key clients, focusing on 30% high-net-worth clients, achieving differentiated services.
Three is to build an open platform strategy in the ecosystem dimension, constructing a "wealth management-lifestyle services" value loop. Through open API interfaces, collaborate with partners to share data and coordinate business operations, providing one-stop comprehensive service solutions for customers. Meanwhile, financial institutions should strengthen brand building and marketing promotion, enhancing brand recognition and reputation, attracting more clients and partners.
Currently, China's wealth management industry is at a critical juncture in transitioning from "sales-driven" to "customer demand-driven". Those institutions that can complete the role transformation from "channel-based" to "solution provider" will occupy a dominant position in the industry shakeout. This transition not only concerns upgrading commercial models but also serves as a necessary response to financial service entity economics and helping common prosperity.