Author: Ren Tao
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1. Cost-effectiveness of wealth management business
(1) Traditional perception of the market: 20% of customers can contribute about 80% of the volume
Economics has a very famous summary of the laws of data in statistics, known as the Pareto Principle, commonly known as the 28 or 82 law, that is, 20% of factors affect 80% of outcomes. In other words, in attribution analysis, only the most important 20% of them are often considered, and the remaining 80% will not have much bias on the results of attribution analysis.
(2) Wealth management business of mainland banks: 2% of customers can achieve about 80% of the volume (e.g. China Merchants Bank)
In terms of data, the Pareto rule is well reflected in the wealth management business, and it may be more prominent, that is, 2% of the number of customers in the wealth management business can contribute about 80% of the volume, and there is no need for 20% at all. Here are the best examples of wealth management business and retail business.
1. According to the average daily total asset size of the month, customers are divided into retail customers, golden sunflower customers and private bank customers. Among them, Golden Sunflower customers refer to retail customers with average daily total assets of more than 500,000 yuan (inclusive), and private bank customers refer to retail customers with average daily total assets of more than 10 million yuan (inclusive).
2. By the end of 2023, China Merchants Bank has 4.6406 million golden sunflower customers and 197 million retail customers respectively, and the corresponding AUM is 10.82 trillion yuan and 13.32 trillion yuan respectively, that is, the number of golden sunflower customers accounts for only 2.36% of all retail customers, but its corresponding AUM accounts for about 81.22% of the AUM of all retail customers. In other words, the remaining 97-98% of CMB's retail customers contribute only 19-20% of AUM.
3. This rule is not only applicable to 2023, in fact, through the data of more than ten years since 2012, the rule of "2% of the number of customers contributing to 80% of the volume" is almost long-term. For example, since 2016, the proportion of CMB Golden Sunflower customers in the total number of retail customers has hovered in the range of 1.84-2.36%, while the corresponding AUM has always hovered between 80-83% of the total retail customer AUM, so it can be roughly considered that for CMB, 2% of the number of customers can contribute more than 80% of its AUM volume, which is very cost-effective.
(3) Higher-level customers have a higher degree of contribution: 0.05% of private bank customers can contribute about 25% of the volume
1. As already analyzed, as far as the wealth management business is concerned, about 2% of the customers of some banks can contribute up to 80% of their AUM. In fact, the contribution of higher-level customers is usually higher, such as private bank customers in wealth management customers, who can basically contribute about 22% of the AUM volume with about 0.05% of the number of customers.
2. As far as the banks collected by the author are concerned, this characteristic is basically presented. For example, Ping An Bank, Bank of Ningbo and Industrial Bank all accounted for about 0.7% of their total retail customers, but their private bank AUM accounted for 47.52%, 26.52% and 22.10% of all retail AUM respectively. Minsheng Bank, China CITIC Bank, China Everbright Bank, Bank of Communications and Bank of China accounted for about 0.03-0.05% of the private banking customers, but the corresponding private banking AUM accounted for 27.63%, 24.32%, 23.41%, 23.32% and 18.82% respectively.
3. Further, the number of private banking customers of ICBC, CCB and ABC accounted for 0.04%, 0.03% and 0.03% of all retail customers respectively, but the corresponding private banking AUM accounted for 14.82%, 13.62% and 13.06% respectively. It can be seen that compared with large state-owned banks, the contribution rate of private bank customers of joint-stock banks is significantly higher.
4. The author tries to compare the most market-focused China Merchants Bank and Ping An Bank, in recent years, these two banks have made more efforts in the private banking business, and the effect is not much, at present, China Merchants Bank and Ping An Bank have contributed about 31% and 45% of their corresponding customer volume respectively with 0.07% of the number of customers, which is obviously higher than that of other banks, indicating that the quality of their private banking business is higher.
2. Explanation of two issues
(1) There are certain differences in the contribution degree of different stages of development
Although from the current point of view, the contribution of customers is generally higher in banks that have reached a certain stage of wealth management business development or are relatively mature, it should be recognized that the contribution of wealth management customers in banks in the early stage of development is usually lower. In the early stage of its development, about 2% of wealth management customers contributed only about 70% to the volume.
This means that as the wealth management business matures, the quality of wealth management clients also improves, and their contribution to the overall scale will naturally increase, which may be the charm of the wealth management business.
(2) Although the difference in the threshold of private banking will affect the accuracy of the comparison, the overall conclusion remains unchanged
As different banks set different thresholds for private bank customers (e.g., mainland banks currently set thresholds of $6 million, $8 million and $10 million respectively for private bank customers), this will affect the comparability of the contribution of private bank customers among different banks to a certain extent. However, the conclusions are generally the same, for example, ICBC, CCB, Agricultural Bank of China, Bank of Communications, Industrial Bank, China CITIC Bank, Huaxia Bank, Ping An Bank, and Zheshang Bank are comparable with the same threshold, and China Merchants Bank and China Everbright Bank are also comparable, and Shanghai Pudong Development Bank, Minsheng Bank, Bank of Shanghai, etc. are also comparable.
Therefore, the difference in threshold setting only affects the accuracy of the comparison, but does not affect the overall conclusion.
III. Conclusion
Through the analysis of the previous data, it can be roughly considered that the wealth management business is very cost-effective, and the conclusions such as "2% of customers contribute about 80% of the volume and 0.05% of private bank customers contribute about 25% of the volume" should have a certain attractiveness, so there should be no hesitation in vigorously developing the wealth management business, and a clear direction can provide support for the formulation and implementation of the strategy, and there should be sufficient awareness and consensus on this.
This is probably the most important reason why mainstream banks such as China Merchants Bank, Ping An Bank, Bank of Ningbo, WeBank and MYbank have frequently focused on wealth management business in recent years, and some banks even regard it as the second growth curve. Source: Sycamore Tree Think Tank