With the completion of the disclosure of the 2023 financial reports of various banks, a new phenomenon has aroused great concern in the field of large financial asset management: the top three wealth management products in terms of management scale are all wealth management subsidiaries of joint-stock banks, and the wealth management subsidiaries of large state-owned banks have been overtaken.
In the bank wealth management of up to 26.8 trillion yuan, why is the wealth management scale of the wealth management subsidiaries of large state-owned banks surpassed by joint-stock banks? At the same time, it has been more than 5 years since the transformation of bank wealth management products to net worth, what are the industry pain points that wealth management subsidiaries are still facing? How? What is the way out?
There are three major differences between the two types of banks: positioning, channel openness and marketization
There are some differences between large state-owned banks and joint-stock banks in the positioning of wealth management subsidiaries, the degree of channel openness and the degree of marketization of each wealth management company.
First of all, the parent bank has a different strategic positioning of its wealth management subsidiaries. Large banks generally pay more attention to deposits, which account for more than 70% of retail AUM. Joint-stock banks, on the other hand, pay more attention to wealth management, and the proportion of deposits is generally less than 40%. CMB Wealth Management, IB Wealth Management and CNCBI Wealth Management, which are among the top three in terms of management scale, have all regarded wealth management business as the top priority in their development. Some joint-stock banks have exerted stronger synergies, highly synergizing wealth management subsidiaries with the bank's corporate and retail lines. The wealth management subsidiary license has obvious advantages, it can be both public and private, and the investment scope covers all kinds of assets. On the asset side, wealth management subsidiaries can provide off-balance sheet financing to customers in cooperation with the public line, forming a better synergy with branches, and also promoting the sales of wealth management products to a certain extent.
Second, the degree of channel openness is different. In addition to the consignment sales of the parent bank, the products of wealth management subsidiaries can be sold on behalf of other banks. The products of the wealth management subsidiaries of large state-owned banks are mainly supplied to the parent bank system, and the motivation to expand the channels of other banks is insufficient, and the response speed to the demand for consignment sales through external channels is slow.
From the perspective of market perception, the products of wealth management subsidiaries of joint-stock banks have entered the channels of large state-owned banks, but the wealth management subsidiaries of large state-owned banks have entered the channels of joint-stock banks. Among them, IB Wealth Management has achieved the most significant results in the expansion of channels in other banks. With the strong support of the parent bank, IB Wealth Management's products have been launched and sold in batches on the channels of small and medium-sized banks through the bank-bank platform. By the end of 2023, the total scale of IB wealth management will be 2.2 trillion yuan, of which the scale of consignment sales by other banks will be as high as 866.1 billion, accounting for 39%.
Moreover, the degree of marketization of the two types of banks is different. The wealth management subsidiaries of joint-stock banks have a higher talent density and more aggressive business development. In terms of talents, the proportion of socialized recruitment in the talent team of joint-stock banks is relatively high, the salary system is more market-oriented, and the overall talent density is higher. In terms of business development, the wealth management subsidiaries of joint-stock banks are more able to respond quickly to customer needs and have strong product innovation capabilities. The investment style of the wealth management subsidiaries of joint-stock banks is more aggressive, and the use of valuation techniques is more flexible. This helps to improve the profitability and stability of the product. However, although these practices have promoted the stability of net worth and the increase of scale, there are also hidden risks behind them.
Three major pain points: maintaining a stable image, strong credit culture, and low degree of marketization
Although the scale growth rate of joint-stock banks and the wealth management subsidiaries of large state-owned banks is differentiated, they still face three common pain points.
Pain point 1: Wealth management subsidiaries were born out of the bank's asset management department and historically used capital pools for operation. The people's expectations for bank wealth management are deep-rooted and difficult to reverse for a while. However, in order to stabilize and grow in scale, wealth management subsidiaries must maintain a "stable" image and are forced to use the shell of asset management as a "deposit replacement" product. For example, products that are similar to deposits, such as yield quotations and fixed product maturities, are used.
Some wealth management subsidiaries even take a step back in terms of risk and compliance, and use various "innovative" means such as adjusting the income of extracorporeal trust plans, valuing the "closing price" of private placement bonds, borrowing channels from other institutions to increase deposit returns, and drawing drawer valuation tables to smooth the net value of the product and maintain the stable image of the product. Due to the large volatility of equity products of wealth management subsidiaries of banks, it is more difficult to increase the volume.
However, the word "robust" has a strong subjective overtone, and everyone understands it differently. Most people believe that "steadiness = zero drawdown". When there is a slight drawdown in wealth management products, the scale of customer redemption is large. In the bond market correction at the end of 2022, the drawdown of most bank wealth management short-term bond products was less than 1%, which was less than the drawdown level of similar public funds, but the products of most wealth management subsidiaries were redeemed in a centralized manner, and even the redemption ratio of investors in some products was as high as 20%.
Pain point 2: The relationship between the wealth management company and the parent bank is constantly cut, and the rationalization is still chaotic. The parent bank is the shareholder and the largest sales channel for wealth management subsidiaries, but most of them are still subordinate and subordinate in actual operation.
Most wealth management subsidiaries are equivalent to a branch in the bank, and the parent bank has more intervention in the personnel appointment, dismissal, daily operation and remuneration system of the wealth management subsidiary. As a result, it is difficult for wealth management subsidiaries to be truly marketized.
Moreover, the credit culture of the parent bank has a deep impact on wealth management companies. Under the credit culture, investment is often a "leadership responsibility system", which requires layers of approval, complex processes, and slow response times. Under the investment culture, the "investment manager responsibility system" is emphasized. With the support of the researchers, the investment manager makes decisions flexibly, autonomously and quickly. Company leaders rarely interfere with the investment manager's specific investment decisions.
Pain point 3: Overall, the degree of marketization is low. It is mainly reflected in the low talent density, single channel, non-marketization of the salary system and slow investment and research capacity building.
At present, only banks can sell the products of wealth management subsidiaries, and brokerages and third-party platforms are not allowed to get involved. As a traditional distribution channel for wealth management products, most banks intentionally or unintentionally strengthen the "steady" expectation of wealth management in order to meet the needs of investors. In terms of remuneration system, wealth management subsidiaries are often benchmarked against the banking system rather than with asset management institutions, which affects the absorption of outstanding talents. Even if the salary level is in place, wealth management subsidiaries attract excellent investment and research talents, but in the end, they often fail to retain them, and the conflict between bank culture and asset management culture is still behind it.
Where is the way out? Equity investment is indispensable, and we should be a real buy-side investment advisor
Where is the way out for wealth management subsidiaries? This needs to answer a question first: where is the ecological niche of wealth management companies in the entire large asset management industry or large wealth management industry? What role should it play?
Five years ago, the regulator's original intention of setting up a wealth management subsidiary may have included three aspects: first, to break the wealth management rigidity and eliminate the potential risks of shadow banking; The second is to attract residents' savings to the capital market, increase the proportion of direct financing, and support the transformation of the real economy; The third is to help investors improve property income through asset allocation.
At present, China's financial system is still dominated by indirect financing, and the degree of development of direct financing is far lower than that of developed countries in the world. In 2023, cash and deposits will account for about 55% of China's residents' financial assets (comparable to Japan), and bank wealth management will account for about 10%, while deposits in countries such as the United States, Germany and the United Kingdom will account for only about 12%, 39% and 25%, which is far lower than China's level. In 2023, China's M2/GDP will be as high as 2.32, much higher than other economies. This shows that money is highly concentrated in the banking system, and its contribution to economic development is inefficient.
In the financial system, which is dominated by indirect finance, a large amount of funds are deposited in bank deposits, which is difficult to support the transformation of economic structure and industrial upgrading. Finance serves the real economy, and in order for China's economy to achieve high-quality development, it needs to increase the proportion of direct financing. However, at present, most banks also position themselves as "deposit substitution". This word is destined to make the bank's wealth management products look like deposits, and the investment side also looks like deposits. In fact, bank wealth management is not a deposit, nor should it be similar to a deposit.
The wealth management subsidiary of the bank has an important mission, which is to give full play to the advantages of banking channels, take care of the wealth of the people, and improve the property income of the people. However, at present, bank wealth management mainly invests in fixed income assets, and the proportion of investment in equity assets is very low. Wealth management investors can only get a return of 2%-4%, which is far lower than the GDP growth rate of 5.2% in 2023.
Overall, A-share listed companies represent an outstanding group of enterprises in China. In the long run, its performance growth rate should be higher than GDP growth. Through equity investment, people should be able to obtain investment returns that are not lower than the GDP growth rate. However, it is a pity that the proportion of bank wealth management investment equity is too low, and it is difficult for ordinary people to enjoy the benefits of China's economic growth through bank wealth management.
Looking back, I found that the current situation of bank wealth management may be a certain gap from the original intention of the year. To return to their original aspirations, wealth management subsidiaries need to firmly transform into asset management, do real asset management, and increase the proportion of equity investment, so that the people can enjoy the dividends of development.
For wealth management subsidiaries, there is a controversial but unavoidable question: do they need to build their own equity investment and research capabilities? There are different voices at the moment.
Some wealth management subsidiaries believe that equity investment research is not important. The past three years have been a big year for fixed income investment and a small year for equity investment, and bank wealth management happens to be dominated by fixed income investment, avoiding the downturn in the stock market. This has led to the illusion that many wealth management companies have formed an unimportant equity. However, if the goal of a wealth management subsidiary is to be an all-round asset management institution, excellent equity investment and research capabilities are indispensable.
For wealth management companies, it is indeed not easy to build equity investment and research capabilities, which requires long-term, continuous and huge resource investment, as well as overcoming the problem of cultural conflict. For most wealth management subsidiaries, a more realistic choice is to give full play to the advantages of being close to customers, carry out multi-asset and multi-strategy allocation around customer needs, control product fluctuations within a certain range, and provide investors with products with high Sharpe ratio (higher return under established risk and lower risk under established return) to investors. In terms of fixed income investment, wealth management subsidiaries can give full play to their advantages in credit risk control and improve the level of refinement of investment management based on the strength of strong platforms such as systems, risk control and operations. In terms of equity investment, it can be achieved by entrusting external investments and FOF (fund of funds) instead of going out in person.
In addition, some wealth management subsidiaries that are deeply synergistic with the parent bank's channels can try to find another way and work with the parent bank to explore the transformation into real buy-side investment advisors and help the development of large wealth management. Compared with fund companies, wealth management subsidiaries are more deeply bound to their parent banks and are closer to customers. Compared with the banking channel department, wealth management subsidiaries are more knowledgeable about investment. Therefore, wealth management subsidiaries have the opportunity to rely on the massive customer resources of the parent bank and transform into real buy-side investment advisors.
But this road also faces many difficulties and challenges. For example, how to transform the asset management culture of wealth management subsidiaries into wealth management culture, and how to cooperate with the wealth department of the parent bank. To become a successful buy-side investment advisor, the four conditions of original intention, cognition, resources and determination are indispensable. Another point worth mentioning is that if the wealth management subsidiary is determined to do asset management, the parent bank is also a key factor in the success of the transformation. In terms of wealth management business, the parent bank should regard the wealth management subsidiary as a product provider that provides asset allocation services to customers, rather than as an internal department of the bank that provides similar deposit products.
At present, the wealth management subsidiaries industry is huge in scale and has many customers, but each wealth management subsidiary looks similar, unlike fund companies with their own characteristics. Although wealth management companies have become "bigger", they do not necessarily have the confidence to say that they have become "stronger".
Between being bigger and stronger, there is a gap in culture and ability.
There is a saying in the Analects: "Take what is above, and get what is in it." Take what is in it, and take what is below". Wealth management subsidiaries of banks should strive to become first-class asset management institutions and strive to move forward.
Those who travel a hundred miles are half ninety, and the little fox is full of tails. It is expected that wealth management subsidiaries will open up a distinctive and differentiated development path, move from bigger to stronger, and make irreplaceable contributions to the high-quality development of China's asset management industry.
(The author is the chairman of Centennial Insurance Asset Management Co., Ltd., the former deputy chief risk officer of Ping An Group of China, and the former vice president of Tencent Financial Technology; Zhang Jing, an assistant researcher at the New Finance Research Center of Southern Weekly, also contributed to this article. ）
Yang Jun, a special researcher at the New Finance Research Center of Southern Weekly
Editor-in-charge: Fengyu