Behind the ongoing battle of annual fee reduction is the increasingly fierce market competition. Industry insiders believe that the growth rate of the financial management scale has slowed down recently, and the pressure to achieve the year-end targets for financial subsidiaries has increased, hence the temporary fee reduction to attract customers. Looking further, the more fundamental reason may lie in the recent fluctuations in the bond market, where it has become more difficult for financial companies to retain and even increase the returns for investors, necessitating the use of various means to attract and retain customers.

However, concerns are also emerging behind the internal competition of fee reduction. The industry believes that excessive price competition is not conducive to the healthy development of the industry, and "fee reduction and benefit concession" will also, to a certain extent, restrict the growth of net profits for financial subsidiaries.

The rate war spreads to small and medium-sized bank wealth management subsidiaries

In the past, the main force in reducing rates at the end of the year to attract customers was mostly wealth management subsidiaries under state-owned banks and joint-stock banks. In November last year, Agricultural Bank Wealth Management, Everbright Wealth Management, China Merchants Wealth Management, and others took turns to attract customers through various rate discounts.

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This year, the rate competition is spreading from wealth management subsidiaries of state-owned banks and joint-stock banks to those of urban and rural commercial banks.

Shanghai Rural Commercial Bank recently announced that it will adjust the investment management fees for several of its wealth management products starting from November 27. Before the adjustment, the investment management fees for the aforementioned products ranged from 0.1% to 0.2%, and after the adjustment, they will all be reduced to a zero fee rate.

Coincidentally, Ningbo Wealth Management last week issued eight consecutive announcements to reduce fees for its products, starting from the end of November, adjusting sales service fees and fixed management fees. For example, the fixed management fee for a certain Ningxin fixed-income closed-end wealth management product was reduced from 0.3% to 0.4% to 0.1% to 0.3%. Another daily fixed-income daily open wealth management product, the sales service fee for some shares was reduced from 0.30% to 0, and the fixed management fee was reduced from 0.50% to between 0.03% and 0.41%.

Some small and medium-sized bank wealth management subsidiaries are also trying to start the fee rate competition at the issuance end, "no management fee if performance is not achieved." For example, a certain closed-end wealth management product to be established by Beijing Wealth Management on November 28, after the end of the three-month construction period, when the daily calculated annualized return rate since its establishment is lower than the lower limit of the performance comparison benchmark, the product manager will not charge the fixed management fee for that day.

According to incomplete statistics, so far in November, at least seven small and medium-sized banks and wealth management subsidiaries have reduced the fee rates for their wealth management products, with the lowest reaching a "zero fee rate".

The fees for wealth management products are generally divided into fixed management fees, market sales fees, custody fees, and floating management fees. Among them, the recent preferential rates for wealth management subsidiaries are mainly preferential fixed management fees and preferential market sales rates.

Wealth management accelerates internal competition under the diversion of the stock market

The continuous spread of the fee reduction war and the expansion of participating institutions are behind the increasingly fierce competition in wealth management.

A senior analyst at Rong360 Digital Technology Research Institute said that the continuous trend of wealth management subsidiaries reducing fees is mainly due to market environment and competitive factors. The growth rate of wealth management scale has slowed down, and coupled with the demand for year-end assessment targets of banks, banks aim to expand the scale of wealth management by reducing the minimum purchase amount to attract more small investors, especially first-time investors in wealth management products, to increase market share.

Recently, due to the diversion effect of the stock market, the expansion of the wealth management scale has been paused. Data from China Merchants Securities shows that as of November 17, the存续 scale of wealth management was 29.59 trillion yuan, a decrease of 56.4 billion yuan from the previous weekend. Among them, the存续 scale of cash management products was 7.75 trillion yuan, a decrease of 47.3 billion yuan from the previous value; the存续 scale of fixed-income products was 21.14 trillion yuan, a decrease of 4.7 billion yuan from the previous value.

The industry generally believes that the trend of wealth management scale contraction at the end of the year will continue, and the performance pressure on wealth management subsidiaries at the end of the year will increase further. The research team of CITIC Securities analyzed in a research report that, looking at historical data, the wealth management scale will be affected by seasonal factors and will decrease to some extent in December this year.

A person in charge of a wealth management business line in South China told reporters that due to seasonal factors such as deposit performance, the scale of wealth management subsidiaries will generally retract to some extent at the end of the year. The intensive reduction of fees in November is also to prepare in advance.

In his view, from the practice of the past one or two years, although the rate is not a key factor for customers to choose wealth management products, it also plays a certain role. Especially when the market products are highly homogenized and the performance comparison benchmark cannot be pulled apart, it can stand out in the short term to attract customers.

On the other hand, under the fluctuations of the bond market in recent months, it is difficult for wealth management companies to retain and even increase returns for investors, and they can only "retain customers" through means of giving benefits.

"Fee reduction is a reflection of various institutions' response to market competition, and at the same time, the phased reduction of management fees enhances the sense of gain for investors, and institutions can better attract customers." Zhou Maohua, a macro researcher at the financial market department of China Everbright Bank, said that in recent years, as financial market fluctuations have intensified and some wealth management products have experienced significant net value fluctuations, some institutions have attracted customers by reducing management fees.

According to data from Puyi Standards, as of October 2024, the average seven-day annualized yield of cash management products nationwide was 1.78%, a decrease of 1BP (basis point) month-on-month, and a decrease of 110BP from the base period (January 2022) average. The investment return of fixed-income products in the national bank wealth management market over the past three months was 0.43%, a decrease of 7BP from the previous month.

The reporter found that a batch of wealth management subsidiaries have adjusted the performance comparison benchmark of their products due to market fluctuations, and then started an intensive fee reduction mode to appease customers. Taking Minsheng Wealth Management as an example, the wealth management subsidiary previously announced that after November 19, it would adjust the performance comparison benchmark of a certain Rongzhu Balanced FOF mixed one-year open product from 3.0% to 7.0% to 2.8% to 3.6%. At the same time, the wealth management subsidiary also offered discounts on the fixed management fee and A share sales fee for another Rongzhu mixed three-month holding period product, with the fixed management fee reduced from 0.5% to 0.10% to 0.3%, and the sales fee also reduced from 0.5% to 0.10% to 0.3%.

Are there hidden concerns behind the wave of fee reduction?

Compared with the wealth management subsidiaries of state-owned large banks, the capital strength of small and medium-sized bank wealth management subsidiaries is relatively weak. After being caught up in the wave of fee reduction due to fierce market competition, will they face certain operational concerns? There is a certain divergence in the industry's views.

Ai Yawen told the reporter that in the long run, the internal competition of fee reduction among small and medium-sized bank wealth management subsidiaries may lead to financial pressure on wealth management institutions, squeezing their profit margins. Excessive price competition is also not conducive to the healthy development of the industry, which may lead to insufficient investment in risk control management and customer service quality by wealth management institutions.

Looking at the financial reports, some institutions have restricted the growth of net profits due to "fee reduction and benefit concession." For example, in the first half of 2024, the wealth management scale of Shanghai Bank Wealth Management was 302.297 billion yuan, a year-on-year increase of 7.14%. However, the net profit realized during the same period was 83 million yuan, a significant decrease of 56.54% compared to the same period last year. In the financial report, the parent company of Shanghai Bank Wealth Management, Shanghai Bank, mentioned that "fee reduction and benefit concession" is one of the reasons for the decline in net income from fees and commissions.

Some industry experts hold a more positive view. "The reduction of management fees will have a certain impact on the short-term profits of some institutions, but the impact is expected to be limited. Mainly under the background of the market sentiment warming up, institutions can make up for the price with volume." Zhou Maohua told the reporter that the reduction of management fees will also force institutions to increase investment in research and development, enhance product innovation capabilities, meet diverse market demands, and provide customers with long-term, relatively stable, and competitive returns.

Looking forward, there are still different views in the industry on the future development of the fee reduction trend of wealth management institutions.

Zhou Maohua believes that in the long run, to cope with fierce industry competition, the management fee of institutions is also an important tool, but fierce competition will promote asset management companies to improve the management level of their products. In the future, management fees will be more market-oriented, and there may be a divergence in management among various institutions.

Ai Yawen believes that the decline in rates may only be a temporary phenomenon, and it will return to a reasonable level in the future.

"As the wealth management market continues to develop, investors' sensitivity to fees will also continue to increase, and low-fee products will be more favored," Puyi Standards pointed out in a recent report. For now, there is still some room for the reduction of fees. At present, the net profit margin of wealth management companies is at a relatively high level, and there is still room to give benefits to investors.