Roundtable Dialogue: In the era of great wealth management, how to cut the trillions of wealth management cakes? Alpha Summit

Highlights:

1. The biggest change in the asset management industry is that in recent years, it has completely broken the rigid exchange and realized the net-worth management.

2. The investment advisory industry is in a good starting stage from 2019 to 2023, with a lot of very robust experiments, and is currently moving towards the second stage.

3. It is not out of reach for public funds to reach 30 trillion and 50 trillion yuan in the future.

4. The asset management industry may need to properly understand your investors on the basis of 7 points of investment and 3 points of care. In the wealth management industry, 7 points of care means that with a full understanding of customer needs, 3 points of investment and asset management industry are better connected.

5. In the past two years, the stock market has been in a downward trend, but now many stocks have entered a better investment period.

6. As a fund manager, your performance in the product is your essence.

7. Don't blindly sell new products, but manage existing products and do a good job in customer service.

8. Listed companies are important asset owners of fund companies, and it is very important to gradually realize this, and some changes need to be made from concept to practice.

9. In the process of transformation of asset management institutions and wealth management institutions from sellers to buyers, the entire organizational system, values and even assessment system must be changed.

10. The composition of the customer's investment income = α + β + γ, that is, the alpha income and beta income of the assets managed by the wealth management institutions in the asset management industry or the gamma income of the customer's trading behavior.

On December 17, Wu Ruoman, Secretary of the Party Committee and Chairman of IB Fund, and Yang Yuanchun, Vice President and Dean of the Research Institute of Yingmi Fund, were guests at the "Alpha Summit" hosted by Wall Street News, and had a dialogue with Wang Renxuan, Assistant Professor of Finance at CEIBS, to discuss the past and future of China's asset management and wealth management market.

Here's a look at the highlights of Wall Street:

1. The development characteristics of China's asset management industry in recent years

Wang Renxuan, Assistant Professor of Finance, China Europe International Business School:

Hello and welcome to our Asset Management Forum at today's Alpha Summit. Our asset management industry is now booming. According to China's official statistics, as of mid-2023, our bank wealth management is about 25 trillion yuan, public funds have reached 28 trillion yuan, and private equity funds have reached 21 trillion yuan. What kind of opportunities are contained in such a big market of 70 trillion yuan? This is a topic that we want to answer or interpret in this forum.

We are very fortunate to have Ms. Wu Ruoman, Chairman of IB Fund. Mr. Wu, we know that you have very rich experience in the industry. Previously, you used to be a senior executive of a brokerage company, the CEO of a bank custody department, then the chairman of a futures company, and now you are the chairman of a fund company. With so much experience in the industry, can you tell us about some of the main features of China's modern asset management industry?

Wu Ruoman, Secretary of the Party Committee and Chairman of IB Fund:

Thank you, moderator. Hello everyone, it's a great pleasure to be here at the Wall Street Insight Summit, and I'd love to share with you some of my thoughts on the market. Most of us here, including those in front of the screen, are young people, and we may not have fully experienced the development of China's capital market, which is not easy.

In my opinion, the biggest change in the asset management industry is that in recent years, it has completely broken the rigid exchange and realized the management of net worth, the most prominent of which is bank wealth management and trust plans. The promulgation of the new regulations on asset management has broken the previous model of capital pool operation and guaranteed principal and returns, and the large asset management industry operates under the unified standard of net worth.

The second change is that technology has promoted the progress of the industry ecology. The introduction of technology has made a major change in the entire industry from investment management, product creation, and back-office operation to our sales and customer experience. Taking the purchase of funds as an example, the friends here probably have not experienced the early public funds, when the fund issuance was only available at the counter of a few state-owned banks, and there was a long queue. Now it is very convenient, just pick up the mobile phone and open the APP to select the fund, want to know all kinds of evaluations, the three institutions will do more in-depth big data mining for customers, and make accurate recommendations.

The third change is the growth of market participants, especially institutional investors. From fund companies, securities companies, bank asset management and wealth management subsidiaries, insurance, trusts, futures, and a number of excellent private equity funds, they have all participated in the vigorous development of the asset management industry, and created a rich variety of products with their different endowment characteristics.

The last change is that the investment scope and targets of asset management products are more diversified. The origin of China's capital market was to invest in stocks, and later gradually expanded to the bond market, futures and other derivatives. With the liberalization of cross-border business, and the establishment of Hong Kong Stock Connect and Bond Connect, our asset management institutions have gradually gone overseas to participate in value mining on a global scale.

2. The development history and main innovations of investment advisors

Renxuan Wang, Assistant Professor of Finance, China Europe International Business School

Thank you, Mr. Wu, for bringing us a very comprehensive summary. Speaking of science and technology, I would like to invite Ms. Yang Yuanchun, President of the Research Institute of Yingmi Foundation Institute. Yingmi is an innovative financial technology company, and its main business is investment advisory. We know that investment advisors are now facing huge development opportunities and certain controversies, and have just reached the scale of 100 billion. I would like to ask you to analyze what are the most important factors for the development of this investment advisor from your point of view, and what are the innovative breakthroughs from the perspective of Yingmi?

Yang Yuanchun, vice president of Yingmi Fund and dean of the Research Institute

Thank you Wall Street for your experience, and thank you for the moderator, it is an honor to join us with Mr. Wu for the roundtable discussion.

In the introduction of Mr. Wu just now, in just three to five minutes, I actually clearly saw the picture of the development of the asset management industry for about 30 years. Back to the host's question, investment consulting is currently a fairly vertical industry, and when we are faced with problems that cannot be solved by asset management alone, such as a single fund or wealth management product that cannot meet the needs of ordinary people for financial management, investment and capital planning, the investment consulting industry naturally emerges.

The moderator mentioned that the scale of investment consulting exceeds 100 billion, and I would like to ask a question to the friends present: Do you remember the asset scale of the public fund in the fifth year of its establishment?

I entered the industry in 2005. I remember that in 2002, the scale of public offerings only exceeded 100 billion, roughly around 130 billion, and the latest released data shows that as of the end of the third quarter of 2023, the total scale of public funds has reached 27.48 trillion yuan. Tremendous growth has been achieved.

Coming back to the investment advisory industry, I think the investment advisory industry is in a good start, from 2019 to 2023, it should be said that it is a very solid experimental stage. In June this year, the China Securities Regulatory Commission (CSRC) issued a draft for consultation on investment advisory business, which I believe lays the foundation for the second stage of "pilot to regular" in the future. The investment advisory business started his new journey from 100 billion.

Today, we also hope to look forward to what is needed in the 300 trillion market of public offerings, bank wealth management, and even the entire wealth management?

I would like to make three points:

First of all, the business format needs to be sufficiently diverse, which is based on the asset management industry. It is necessary to ensure that the asset management industry has a sufficient supply of products and diversification of asset management products. At present, the institutions involved in our investment consulting are all non-banking industries, and industries such as banking, trust and insurance, as Wu Dong just mentioned, have not yet been fully classified into the scale of 150 billion.

The second point is that we may need to shift from a seller's mindset to a buyer's mindset. Wealth tech may be more complex than asset management technology because it needs to solve the problem of investors' personalized needs and must rely on technology. In the past, we may have created a product and then sold it, rather than from the perspective of customer needs, wealth management should carefully understand the needs of customers, design corresponding planning plans for them, and finally match the corresponding products.

The last point is our own understanding of investors' perceptions and perceptions, which can be obscure. For example, I am a post-80s generation and have reached middle age, and one of the most important things every year is to have a physical examination of my body. However, in my parents' generation, there was no such concept. Similarly, for wealth management or investment advisors, it is more about helping clients to conduct a similar physical examination operation on their own capital accounts. When we and our clients have a comprehensive understanding of the health of the entire treasury account, wealth management and assets, I think the investment advisory industry will thrive.

3. Summary and outlook for the development of China's fund industry

Wang Renxuan, Assistant Professor of Finance, China Europe International Business School:

Our third question is to return to our Mr. Wu, what is the outlook for the past and future of China's fund development industry?

First of all, the development of the mutual fund industry in the past two decades has benefited from the continuous improvement of top-level design. When I started working in the securities industry in 1991, most of the investors were individuals, there were few institutional investors, the asset management market was not very transparent, and the governance structure was very imperfect. In 1998, when the regulator designed the governance structure of public funds, it forward-looking proposed a structure in which the manager and the custodian are jointly entrusted with each other. I've been working in custody for many years, and I have a very intuitive feeling. The principal entrusts the funds to a fund management company, which is responsible for the investment strategy and investment instructions, while the funds are held in escrow by the bank. This is equivalent to having a safe to keep the funds, and the funds can only be used with the correct password, thus ensuring the security of the entire fund operation.

On the basis of this top-level design, the sustainable development of the public fund is guaranteed, and its scale exceeds that of wealth management, which is not surprising at all. The non-standard and non-transparent operation of some asset management institutions has brought great harm to investors during the stock market crash in 2015 and previous violent market fluctuations, beyond the impact of the market itself. The new regulations fundamentally regulate the top-level design of the large asset management industry. In the future, our fund management institutions will conscientiously practice and implement the top-level design of continuous optimization under the system of strong supervision, which is the most fundamental and firm cornerstone for the growth of public funds.

Second, the ease of investment and low participation threshold in the public offering industry will attract more investors. Now public funds are more convenient than other products in trading, and I believe that many people here have this experience. In the past, when I bought some insurance, I had to sign a lot of contracts in person, and when I bought other products, some of them had a relatively high barrier to entry. In the public fund industry, people can try to buy ten-dollar fund products through the Internet. I think this kind of convenience and inclusiveness is a very important reason for the continuous growth of public funds in recent years.

Finally, thanks to the Internet, technological advancements have made it easier to set up fund products. From the perspective of the gradual diversification of products, in addition to active equity, bonds, etc., we also have many other products such as quantification. Since the beginning of this year, the scale of quantitative products has increased significantly, especially in the context of the overall market performance, which highlights the importance of technology and investment. Technology has also enhanced the investment experience for customers. After the Internet became a third-party sales, the convenience of customers' purchase has been greatly improved. For example, if a customer wants to summarize and check their investment situation for a year at the end of the year, it is very simple, open the platform and directly display the data, and there is also customer behavior analysis data. It can be displayed on an Internet platform. As a citizen, I have a deep understanding of myself, and I am currently leading the company to actively cooperate with Internet channels.

These are gradually formed and optimized in the process of practice and promotion of the industry over the past years. Therefore, I think that it is not out of reach for public funds to reach 30 trillion or 50 trillion in the future. Thank you.

4. How to realize the upgrade of the wealth management industry from sell-side investment advisory to buy-side investment advisory

Wang Renxuan, Assistant Professor of Finance, China Europe International Business School:

From Mr. Wu's answer, we can see that the three key points are on regulation, technology and the improvement of investor experience. Regarding regulation, there is currently an important direction of netting and fund fee reduction. In this context, I would like to ask Dean Yang, how to develop wealth management and asset management in tandem in the future, and realize the upgrade from seller to buyer investment advisor?

Yang Yuanchun, Vice President of Yingmi Fund and Dean of the Research Institute:

Thank you, moderator. At today's roundtable, Wu Dong is a senior representative of the asset management industry, and I am a representative of the wealth management industry.

This year, fee reductions are not only occurring in the fund field, in fact, fee reductions are the main theme of the entire financial industry this year. This is certainly a good thing for the investor experience and the medium and long-term development of the industry, as institutions make concessions to investors and enhance investors' sense of experience. But there is no doubt that the financial industry needs to face the decline in revenue and gross profit.

How to face the short-term decline in income, and how to focus on the customer and polish the customer service better, is the problem we need to think about. I think the asset management industry and the upstream and downstream of wealth management may need better coupling and better understanding, so as to jointly contribute to the positive return of investors' accounts.

Specifically, it can be divided into three links to dismantle this problem.

I think the first point is that we have to design our products from the perspective of customer needs and the actual perspective of the volatility of financial product risk.

In the industry, we often say: "You can't ignore customer needs, sit in the office and design products", therefore, we need to deeply understand and understand the needs of customers, start from the customer's perspective to add supply and design, and effectively manage related asset management products.

But being on the side of the client brings up another problem: the client is not always right, so we also need to express our professional opinion correctly.

In the past, many products even had a yield of 8% or 10%, and in the past two years, we have often had C-end investors come to me and say, "Do you have any products with 6% agreed returns and no drawdowns?" "But the customer thinks that my demand is already very low, and I have reduced my revenue requirement from 8% to 12% to 6%, why are you still not?

Finally, there have been some stories of explosions in those ultra-high-yield products, and I believe this has answered the questions raised by customers.

Therefore, as professional wealth management practitioners, we need to be on the side of our clients as much as possible, but when clients may not understand and understand these things, we may still need to express our views correctly.

The third point of view is that you should not only focus on full service, but also need to have a three-point investment thinking, have a deep understanding of the asset management industry, and select and understand your products. For the wealth management industry, Yingmi put forward the concept of "seven points of care, three points of investment", in fact, in 2017, when Yingmi established the research institute, there were also some doubts within the company. At that time, we were not profitable, but without scientific screening and basic asset allocation capabilities, it was impossible to understand all the asset allocation and capital planning needs of investors. Therefore, from these three points, the asset management industry may need to "invest in seven points and take care of three points", and understand your investors while making good investments. In the wealth management industry, it means that under the condition of fully understanding the needs of customers, "Seven Points of Care" must also have the investment of "Three Points Investment" to better connect with the asset management industry, so as to open up the last mile from asset management products to investors and truly help customers do a good job in investment planning.

5. How to better serve investors and let investors rationally face the reality of declining net worth

Renxuan Wang, Assistant Professor of Finance, China Europe International Business School

Thank you, Dean Yang, for your answer. Next, I would like to ask Wu Dong a question, that is, in the face of the black swan events that sometimes occur in the industry, as well as investors' concerns about the decline in the net value of the fund, how do we as fund managers respond?

Wu Ruoman, Secretary of the Party Committee and Chairman of IB Fund

It's a really challenging question, what is the biggest bottleneck right now? is that investors don't make money. From the perspective of an ordinary investor, why would I want to spend money on a manager who didn't make money for me? The reason for our existence is that we are institutional investors, and we have a good professional team, technical support and research strength to discover value and create value. In this process, how to build confidence and be able to realize that the fund makes money, and the investors also make money, this is what we have to do our best to do.

The first step is to convey confidence to investors. The Central Financial Work Conference pointed out that finance is the blood of the national economy and an important part of the country's core competition, and it is necessary to speed up the development of financial power. I am very happy to hear this, which points out the direction for the future of our public offering managers, and makes me feel that public funds are also the blood of the country's economic development, and they also have a high position, which makes us more confident to cultivate this team. Since the beginning of this year, we have actively responded to the call to reduce fees to benefit investors, and invested in self-purchase when investor sentiment was low at market lows, injecting positive signals into the market and fulfilling our commitment to investors.

Second, I think as an asset management institution, we should have long-term determination. A few years ago, when the fund was issued in large quantities, whether to chase up the issuance of products for the sake of scale effect was a great test of the determination of asset management institutions. In the past two years, the stock market has been in a downward trend, and the fund issuance is in the "cold winter period", but from the perspective of valuation, it has entered a relatively good investment period. This also tests the courage and strategic vision of asset management institutions. There is still a lot of room for development of public funds in the proportion of residents' wealth. At present, most of the residents' wealth is in real estate, and the proportion of financial assets is relatively low, of which the proportion of asset management products is even less, which shows that we still have a lot of room for growth in the future, and some of the residents' wealth will be allocated to financial assets in the future. So what we need to do is how to be more prepared, better to accept these assets and try our best to give investors a good experience and returns.

The third point is to create high-quality products. As a fund manager, product performance is what you are. To make a good product, we should not only consider our own interests, but also think about what my customers are suitable for. Don't just launch new products, but take care of existing products and do a good job of customer service. We need to work hard every day to empower our channels and support our account managers and product managers. In the course of the development of fund companies, it may be that in the past, they would lay out products according to their own product chains, rarely considering the real needs of customers, and more of the issuance was based on the incremental model. Therefore, what we need to change now is to put the customer at the center and think about what the customer needs, which is what fund companies, fund managers, researchers, product departments, etc. should think about. What products the market is suitable for, what products are suitable for my customers, this is what I think is the first step to make a product. In addition, we also need to change the way we recommend products, we need to consider asset allocation, what products are suitable for different customers, and we can't push the same product to him no matter what the customer is.

6. Let wealth management institutions truly accompany investors

Renxuan Wang, Assistant Professor of Finance, China Europe International Business School

Thank you, Dong Wu, for your insight. Next, could Dean Yang briefly introduce how wealth management can educate investors in the future and improve their awareness?

Yang Yuanchun, vice president of Yingmi Fund and dean of the Research Institute

There's a word I'd like to discuss with the moderator. In fact, finance is a service industry, investors are my consumers, my customers, "customers are God". Therefore, compared with "investor education", I would like to talk more about companionship and popular science, because the word education is not a one-sided word.

We also mentioned the reduction of financial fees just now, and financial institutions have the pressure of income, growth, and survival. Against this backdrop, I would like to make one point in the short, medium, and long term.

In the short term, at least each of us should not do the wrong pre-sales behavior. I think there are some things that are not done well before the sale, and it is the companionship of the pre-sale that is not done well.

If we tell investors about the fund manager's 15% return in the past year, when the investor is not aware of it, it will assume that the future is a year and the 15% return should be the bottom. If you use a benchmark of 4% to 4.5% for publicity, investors or our financial consumers are likely to think that 4.5% is the expectation you should basically achieve, and if you don't meet it, you will complain and feel uncomfortable, so don't do such wrong pre-sales behavior in the first place. Instead, it should help customers establish a perception of asset allocation and volatility.

Second, we have a formula for the investor's account income, the composition of the customer's investment income = α + β + γ, the alpha income of the asset management institution or the asset management industry management, and the gamma income of the customer's trading behavior.

The benefits of beta are a natural source of economic growth. Alpha earns income, requiring every asset management institution and wealth institution not to do negative alpha if we are not sure. The third is actually the biggest profit and loss, which has been counted by many statistics, right? Many investors will choose to buy at 6000 points and sell at 1600 points, so if our wealth management institutions can do more positive behavior guidance at this point, will it be able to help investors get the income they should have obtained?

The third point is actually more difficult and takes longer, that is, in the process of transformation from seller to buyer, the entire organizational system, values and even the assessment system must be changed.

To give a small example, last year, I also participated in the design of a fixed income + strategy with an equity center of 5% for a wealth management institution, and its benchmark rate of return was designed to be 4.6%. I asked the Chief Investment Officer why they didn't consider not benchmarking it to relative returns, and the Chief Investment Officer told me it was because the branch told them that such a product was not sellable. So I asked, "Why not relax the yield benchmark to between 2% and 6%?" and then the investment director told me sorry, and the branch said it still wouldn't sell. If we do sell this product without paying attention to the client's investment horizon, goals, and market fluctuations, we are very likely to face a lot of complaints and other related issues in the face of huge market volatility a year later. This case just proves that the different starting points of "seller's sales" and "buyer's advisory" can lead to different behaviors and results.

Recently, when I communicated with some leading public offering executives, I heard a gratifying news that when institutions conduct assessments, they include customer account returns, not only product returns, into the assessment system, for example, when evaluating fund sales leaders and chief marketing officers, the average return of customers is required to be not lower than the income of the product in the same period. I believe that starting from the transformation of internal assessment and institutional governance model, we will contribute to the positive income of each of our C-end customers, which will continue to enhance the sense of gain of investors.

Renxuan Wang, Assistant Professor of Finance, China Europe International Business School

In the future development of asset management and even wealth management, in fact, the most important thing is for everyone to work together and then work together to make our asset management market develop better and better.

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