Wealth Management Revenue Declines, Banks Speed Up Changes in Distribution

Recently, several banks have been held accountable by regulators for violations in their fund sales business. Since the third quarter alone, administrative regulatory announcements have been issued by the China Securities Regulatory Commission (CSRC) bureaus in Zhejiang, Chongqing, Qinghai, Ningxia, and other places, imposing warning letters, orders for rectification, and other penalties on the local branches of six banks for their non-compliant fund sales activities.

Industry insiders analyze that the continuous pressure on banks' agency sales business since the beginning of the year is one of the reasons for the frequent occurrence of non-compliant business in financial institutions recently. Affected by policies, market conditions, and intensified competition among peers, banks' agency sales business faces multiple challenges. The model of reducing fees to attract customers is difficult to sustain in the long term. In the second half of the year, many banks will optimize their product structure and upgrade their service models to promote the transformation of wealth management business.

Agency sales revenue has declined year-on-year.

Wind data shows that among the 42 A-share listed banks in the first half of the year, the net income from fees and commissions of 31 banks decreased year-on-year. Among them, seven banks saw a year-on-year decline of more than 20%.

Overall, the agency and entrusted fee business of wealth management is the main segment that drags down the middle income of banks. Shao Ke, head of the banking and integrated operation team of the Bank of China Research Institute, said that with the reduction of deposit interest rates, the demand for wealth management among residents has risen significantly, and the scale of public funds, bank wealth management, insurance, etc., has continued to rise. However, affected by the "fee reduction tide" of bank product agency sales and the "unification of reporting and execution" in insurance, the bank's "quantity for price" strategy is not obvious, and the income from wealth management business in the first half of the year has declined significantly.

Xu Wenchao, director of Fitch Ratings' Asia-Pacific financial institution rating, further pointed out that affected by the continuation of the insurance fee reduction effect and the decline in fund fees and the scale of equity funds, the income from agency insurance, funds, trust plans, etc., continued to decline year-on-year in the first half of the year. It is expected that multiple pressures such as capital market fluctuations, regulatory policy adjustments, and intense market competition among peers will continue to put pressure on the wealth management business of commercial banks throughout 2024.

In addition to policy factors such as "fee reduction and benefit" and "unification of reporting and execution," the competitive pressure from peers is also an important reason for the decline in bank agency sales revenue in the first half of the year.

According to the latest data from the China Securities Investment Fund Industry Association, the public fund sales scale of banks that entered the top 100 of the public fund sales scale of fund sales institutions in the first half of the year increased slightly compared to the end of the fourth quarter last year, and even many top banks' scale shrank to varying degrees; at the same time, in terms of the scale of equity funds, stock index funds, and non-monetary market funds, Ant Fund surpassed China Merchants Bank to top the list.

In Shao Ke's view, affected by factors such as capital market fluctuations and changes in investors' risk preferences, the decline in sales of equity funds and wealth management with higher agency fees has had a certain structural impact on bank agency income.

In addition, Du Juan, a senior researcher at the Suzhou Business Bank Research Institute, also pointed out that banks have adjusted the product agency structure and tilted towards products with lower fees such as cash management, resulting in a decline in the overall agency fee rate.Business Model Transformation Accelerates

Since the second half of the year, the bank's agency sales business has continued to adjust.

In an environment where interest rates and investor risk preferences remain "dual lows," reducing fees remains the main lever for attracting investors in the process of bank wealth management and fund product agency sales.

Since entering the third quarter, many banks and wealth management companies have launched a new round of product fee reductions, offering phased discounts on management fees, sales service fees, custody fees, and other rates for a variety of cash management, fixed-income wealth management, and other products. The sales commission rates for many products have even been reduced to zero.

Puyi Standard analysis believes that the main reason for the "fee reduction wave" in bank wealth management companies this time is the general decline in the performance of wealth management products recently. "Banks have repeatedly reduced deposit interest rates, resulting in greater pressure on the returns of cash management and fixed-income products. Coupled with the continuous decline in expectations for interest rate cuts by the Federal Reserve, poor performance in the domestic capital market, and the increasingly severe 'asset scarcity' in wealth management investments, the performance of wealth management products has generally declined."

Industry insiders believe that the fees for some wealth management products have indeed been reduced to a relatively low level, and there is limited room for continued reduction in the future; in the long term, competition relying on "reducing fees to benefit" investors is unsustainable.

In this environment, it is imperative to adjust the layout of bank wealth management business. Ai Yawen, a senior analyst at the 360 Digital Technology Research Institute, said that for banks, it is mainly the change in revenue structure, business model, and product design adjustments that force banks to re-examine their wealth management business layout. By diversifying development and innovating service models, they can meet market challenges and bring new vitality and possibilities to the entire wealth management industry.

In fact, banks have recently frequently used fee promotions to "make up for volume with price," which is also an important part of the transformation and layout of wealth management business. Shao Ke believes that strengthening the development strategy of balancing quantity and price, along with increasingly fierce market competition and the effective reduction of service costs by financial technology, banks will enhance the value of wealth management business by comprehensively improving customer service capabilities, recommending high-quality investment products that better meet customer needs, obtaining correspondingly higher fees with high added-value services, and enhancing the brand value of wealth management.

A person in charge of China Merchants Bank revealed at the semi-annual report release conference that the discount on transaction fees has a deeper significance in promoting the transformation and upgrading of the bank's fund agency sales business from traditional traffic management to scale management. "This will not only force us to improve our own capabilities but also be a profound innovation in the customer service model. We will transform from a sales type to an expert accompaniment type, truly starting from customer needs, completely changing the past emphasis on new launches and neglecting holding profits, as well as focusing on sales volume and neglecting retention. This will allow us to devote more energy and professional capabilities to long-term accompaniment and services such as strategy formulation and customer position review."

Xu Wenchao also emphasized that in the face of multiple pressures, commercial banks pay more attention to adjusting the structure of wealth products, deepening asset allocation services, and strengthening the iteration and upgrading of the wealth management system to meet the wealth management needs of different customers at different levels. "Banks with a strong retail business foundation have a certain first-mover advantage. Some banks have seen a certain increase in agency wealth management income in the first half of the year, and subsequently pay more attention to product innovation and characteristic business operations. Most small and medium-sized banks originally had a relatively weak customer base and agency channels, making the competition in agency business more intense." Xu Wenchao pointed out.Additionally, Du Juan also stated that at the current stage, bank wealth management still faces issues such as product homogenization, singular service models, and a product sales orientation. The banking industry is actively seeking transformation, strengthening the construction of investment advisory professional capabilities, and enhancing product capabilities. At the same time, it is also strengthening the construction of digital technology capabilities, using technological means to assist in customer demand mining, product selection, intelligent matching, and precise marketing, thereby improving the wealth management service experience and operational efficiency.