Bank wealth management has entered the track of standardized development

Source: Economic Daily

In 2004, marked by the issuance of the "Sunshine Wealth Management Plan" of China Everbright Bank, the mainland officially launched the pilot exploration of bank wealth management business. Since then, various commercial banks have followed suit and continued to expand the investment form of wealth management products, from a single fixed income category to an equity category. Looking back on the past 20 years, the mainland wealth management market has grown from scratch and from small to large, and has undergone a profound transformation from barbaric growth to standardized development.

From scratch

With the rapid development of the mainland economy, residents' wealth continues to grow, and promoting the preservation and appreciation of assets has become an important demand of investors. In this context, the bank wealth management business came into being.

Li Peijia, head of the China finance team at the Bank of China Research Institute, said that from 2004 to 2006, the yield of one-year bank wealth management products was generally 3% or below, which was not significantly superior to the interest rate of three-year time deposits. The starting point of investment in most products is 50,000 yuan, and the recognition and acceptance of wealth management products by residents is not high, and the market scale expansion is relatively slow. At that time, joint-stock banks and large commercial banks were mainly involved in the wealth management business.

Since 2008, wealth management products have become an important carrier of business cooperation between financial institutions. From the perspective of liabilities, commercial banks expand their sources of funds by absorbing wealth management funds. From the asset side, wealth management funds are allocated to "non-standard" assets to obtain high income and pay to customers. Li Peijia introduced that unlike the initial stage of wealth management asset funds, which were mainly invested in structured deposits, bonds and other fixed-yield products, the wealth management product funds were mainly invested in real estate and other industries, due to the strong demand for funds in these industries and strong profitability, the yield of wealth management products rose sharply. At the same time, the barbaric growth of third-party financial institutions, the chaos in the industry market has increased significantly.

While enriching the supply of financial products and meeting the needs of investors for capital allocation, many problems in the bank wealth management market have gradually emerged. Li Peijia said that first, the business operation is not standardized enough. The information disclosure of some banks' wealth management products is insufficient, the management of investor suitability is not in place, and the "buyer's responsibility" on the basis of "the seller's responsibility" has not yet been realized. Second, the different access standards for asset management business in different industries have boosted arbitrage behaviors such as capital idling and leverage, resulting in easy and difficult capital prices, and more prominent problems of difficult and expensive financing for the real economy. Third, under the operation mode of capital pooling, the risk of maturity mismatch and liquidity mismatch of banks increases, the scale of "shadow banking" expands, and the hidden dangers of financial risks increase.

In order to solve the above problems, the Guiding Opinions on Regulating the Asset Management Business of Financial Institutions (hereinafter referred to as the "New Regulations") was promulgated in 2018. In addition to strict restrictions on the entry threshold of asset management products and the concentration of investment targets, the new regulations also require the breaking of rigid payment and the use of fair market value for measurement in the pricing method. Zhao Wei, a researcher at Puyi Standard, said that the new asset management regulations are based on "comprehensive coverage and unified regulation", aiming to achieve fair market access and supervision, fundamentally eliminate the space for regulatory arbitrage, and promote the standardized operation of the entire asset management industry.

Normative development

With the continuous advancement of the net-worth transformation, the wealth management business has gradually shifted from the extensive growth of the pursuit of scale to the standardized development focusing on quality and efficiency, and has also played a more active role in supporting the real economy.

2022 is the first year after the end of the transition period of the new asset management regulations. Wang Yifeng, Chief Analyst of the Financial Industry of Everbright Securities, said that under the framework of the new asset management regulations, the bank's wealth management business has made great progress, and has also shown many new characteristics, such as the proportion of net-worth products exceeding 95%, the correlation between net-worth performance and the market situation, and the more diversified choices of investors and institutions.

From 2019 to 2022, the scale of bank wealth management once approached the 30 trillion yuan mark. However, due to the intensification of volatility in the capital market, there will be two large-scale "net breaks" of wealth management products in 2022 and trigger a wave of redemptions. "Breaking the net" has also become a new trouble in the growth of bank wealth management, which has aroused widespread attention in the market.

Wang Yifeng said that in 2022, bank wealth management will mainly experience two waves of "broken net" pressure: the first wave is after March of that year, the capital market has fluctuated sharply, driving the increase in the phenomenon of "breaking net" in bank wealth management, and "breaking net" wealth management is dominated by "fixed income +" products. Bank wealth management responds to the pressure of net breaking and boosts investor confidence from multiple dimensions such as product strategy adjustment, investor education, preferential rates, and self-purchased products. The second wave was after November of that year, when the interest rate in the capital market fluctuated rapidly, resulting in a significant drawdown in the net value of wealth management, and open-end products represented by products with the shortest holding period faced greater redemption pressure.

Zhao Wei said that the impact of the redemption wave has continued until the beginning of 2023, which has affected the scale and market position of bank wealth management, posed a test to the risk control ability of financial institutions, and also exposed the problem that the popularization and promotion of risk education and investment concept education for investors in the wealth management industry is still not in place. Experts said that bank wealth management needs to re-understand the real risk tolerance and needs of customer groups, and at the same time formulate more refined product sales and pricing strategies for specific customer groups, and promote the improvement of bank asset management system.

Seize new opportunities

With the gradual improvement of industry supervision, all kinds of asset management products have returned to the business origin of "being entrusted by others and managing wealth on behalf of others", giving full play to their competitive advantages in their own professional fields, and the standardized operation of asset management products and the quality and efficiency of serving the real economy have been significantly improved.

In recent years, the regulatory authorities have successively issued a series of regulatory policies, such as new regulations on wealth management, new regulations on standard bonds, and three classifications of trusts, focusing on key areas such as standardized business development, comprehensive risk management, institutional internal control, product sales custody, and investor protection, and the regulatory system of the asset management industry has been continuously improved. The "Several Opinions on Strengthening Supervision and Preventing Risks and Promoting the High-quality Development of the Capital Market" proposes to establish a market ecology that cultivates long-term investment. With the continuous deepening of the reform and development of the mainland capital market, superimposed on business opportunities such as the expansion of institutional customers and the construction of the pension account system, in the medium and long term, wealth management companies will further expand asset management and increase the proportion of equity investment, and continue to bring incremental funds to the capital market.

Since the second half of 2023, with the gradual recovery of the capital market and the restoration of investor confidence, the bank's wealth management business has ushered in a new round of rapid expansion. According to the Annual Report on China's Banking Wealth Management Market (2023), as of the end of 2023, the scale of the bank wealth management market was 26.8 trillion yuan, with a total of 31,100 new wealth management products issued throughout the year, raising 57.08 trillion yuan, increasing the number of investors in wealth management products to 114 million, and creating 698.1 billion yuan of income for investors.

Zhao Wei said that entering a new era of asset management development, financial institutions need to build absolute return investment capabilities as an important starting point to maintain the healthy and sustainable development of the industry. On the one hand, financial institutions should be based on the actual needs of investors, with the goal of "absolute return", build a professional investment research system and investment research team around product characteristics and their own resource endowment, and continuously improve their absolute return investment capabilities, so as to lead investors through the cycle effectively; On the other hand, financial institutions need to strengthen communication and interaction with investors, improve investor education and service levels, help investors establish correct investment concepts, improve risk identification and tolerance, so as to reduce investor panic caused by short-term fluctuations of products.

To build a better investor ecosystem, we should give full play to the strength of various industries to jointly improve the level of investor education, strengthen investor protection, and optimize customer service. Wealth management platforms play an important role in enhancing investor services. Yuan Yulai, founder and CEO of Wealth Management Cube, said that wealth management platforms should provide wealth management services with the goal of improving the profitability probability of customers. Personalized asset allocation plans should be provided according to the risk-return characteristics of different investors, and at the same time, the customer's investor behavior should be rationally guided through tools and content, and investors should be accompanied to respond rationally to market fluctuations. We should actively use advanced technology to optimize the service processes of the wealth management platform in an all-round way, make wealth management services more intelligent, professional and rational, improve investor experience, adapt to the transformation of net worth, and reshape investment confidence in the financial market.

Li Peijia said that in the future, with the continuous improvement of residents' income levels and the expansion of middle-income groups, especially in the context of real estate market adjustment, residents' wealth management expectations and allocation preferences will also undergo significant changes, and the development space of the wealth management market is huge.

Commercial banks should fully grasp the opportunity to speed up the development of wealth management business. Industry insiders said that compared with other financial institutions, banks have unique advantages in funds, customers, channels, etc., but there are also shortcomings such as relatively insufficient investment and research capabilities. To this end, banks should make use of their strong points and avoid their weaknesses, and strive to form distinctive and differentiated competitive characteristics. The first is to enrich the supply of wealth financial products to meet the needs of customers for comprehensive, personalized and global investment and financial management. Second, the banking industry should improve its active management capabilities, strengthen the construction of investment and research systems, personnel and systems, improve the credit rating system that adapts to the transformation of product net worth, comprehensively improve investment and research capabilities, and enhance the long-term performance of wealth management products. The third is to pay attention to new opportunities for wealth investment such as ESG and pension finance. (Economic Daily reporter Wang Baohui)