On October 25, 2019, the China Securities Regulatory Commission issued the "Notice on Piloting the Investment Consulting Business of Publicly Offered Securities Investment Funds" (hereinafter referred to as the "Notice"), marking the official implementation of the pilot project for the investment consulting business of public funds. With the implementation of the buy-side investment advisory model in China, how to develop investment advisory business with high quality and efficiency to meet the wealth management needs of more consumers has become an urgent problem to be solved. Against this background, this report starts from the perspective of global investment advisory business development, analyzes and draws on foreign investment advisory business development experience, and puts forward suggestions for the development of China's investment advisory business.
The development status of foreign investment advisory business
(1) Comparison of foreign investment advisory service models
The foreign investment advisory service model is mainly based on discretionary entrustment, and the proportion of non-discretionary entrustment is increasing to meet the diverse market needs. In addition, richer investment advisory service models such as investment consulting are gaining more and more attention from customers.
1. United States. The investment advisory industry in the United States is booming and plays an important role in residents' wealth management. At the wealth management level, according to statistics from the Federal Reserve, the financial assets of American households in 2021 are US$159.13 trillion. There are 14,806 investment advisory institutions registered with the US Securities and Exchange Commission (SEC), of which approximately 59.8% of investment advisors provide asset management services to individuals; at the asset level, the asset size for individual customers is US$18.906 trillion, accounting for 14.7%. The penetration rate of investment advisory services at the financial asset level for US individual customers has reached 11.88%.
In terms of transaction execution, the assets managed by American investment advisory services are mainly based on the discretionary model. At the same time, non-discretionary investment advisory services have enriched the diversified market needs. In addition to asset management services, non-asset management services such as investment consulting have also achieved considerable development in the United States, and customer demand for investment consulting services has grown strongly. In 2021, 97.2% of investment advisors in the United States provided portfolio management services to clients. At the same time, 61.0% of consultants also provide more diverse investment consulting services to their clients.
2. Europe. In terms of household finance in Europe, the United Kingdom, Germany and France are at the forefront, and the three countries together account for nearly half of the European total. According to data from the European Central Bank, the scale of household financial assets in the United Kingdom, Germany, and France in 2021 will be 8.15 trillion euros, 7.84 trillion euros, and 6.57 trillion euros respectively. The three countries together account for 47.96% of the European total. The penetration rates of investment advisory services at the asset level for individual customers in the three countries have reached 5%, 6%, and 15% respectively.
3. Japan. Japan mainly provides investment advisory services for individuals in the form of wrap accounts, and investment advisory services are developing rapidly. At the wealth management level, according to statistics from the Bank of Japan, the scale of household financial assets in Japan in 2021 is 1,968 trillion yen. The number of Japanese investment advisory service customers and the scale of assets have shown a continuous upward trend. In 2021, the number of Japanese individual customers was 1.336 million, and the scale of customer assets was 12.26 trillion yen. Therefore, the penetration rate of investment advisory services for Japanese individual customers at the asset level reached 0.62%. Japanese investment advisory services are specifically divided into two models: investment management business and investment consulting business. Investment management business is the main investment advisory service, but investment consulting business also plays an important role. At the customer level, the customers of Japanese investment advisory services are shifting from single individual customers to individual customers and corporate customers. In addition to traditional services for individual customers, Japanese investment consultants provide corporate customers with financing and information support in the field of business operations on the one hand, and business succession countermeasures services in the field of succession to corporate customers on the other hand.
(2) Comparison of different charging models of foreign investment advisory services
Foreign investment advisory charging models are diverse, and they emphasize that the interests of investment advisors and clients are consistent. The United States mainly charges based on asset management scale, fixed fees and hourly charges; the charging model in Europe is similar to that in the United States, with more emphasis on charging based on services provided rather than charging commissions; Japan's charging model has also changed from a commission model to a product-centered charging model.
1. United States. There are six main charging models for investment advisory services in the United States: charging based on asset management scale, charging fixed fees, charging by the hour, charging based on performance, commissions and membership fees. Among them, charging based on asset management scale, charging fixed fees or charging by the hour (or both) are the main charging models for investment advisors.
Investment advisory does not charge a single fee, but adopts diversified charging models. In 2021, only 17.4% of investment advisors only charge based on asset management scale, and most investment advisors adopt multiple charging models. The most common thing is that 34.5% of investment advisors charge fixed fees or hourly fees in addition to charging based on asset management scale. The compensation structure of investment advisors aligns their interests with those of their clients. Investment advisors tie their compensation to client investments through asset-based fees and performance fees. In addition to compensation structures, conflicts of interest between investment advisers and clients are also declining.
2. Europe. The charging model adopted by European investment advisors is relatively similar to that in the United States, including charging customers a certain percentage of the asset size, fixed fees, hourly fees, etc. Some countries even require investment advisors to charge based on the services provided instead of charging commissions.
Specifically, the UK requires fees to reflect the services provided by the investment adviser, rather than the specific vendors and products recommended. Under the regulations of the British Financial Conduct Authority, investment advisers in the UK mainly charge service fees. They are not required to collect service fees in a specific form, but they must agree in advance with their clients on how to charge fees and the level of fees, and cannot charge fees through commissions.
3. Japan. With the development of Japan's financial market, Japan's investment advisory charging model has changed from a commission model to a product-centered charging model. Under the product-centered revenue model, Japan has gradually expanded the scope of investment advisory services and derived more service models.
Japan's investment advisory charging models are diverse and give customers more room for choice. In addition to charging based on asset size, they also charge diversified investment advisory fees such as fixed management fees and performance compensation. Taking Nomura Asset Management as an example, Nomura's Independently Managed Account (SMA) charges fixed management fees on a quarterly basis and charges different levels of management fees for different types of assets. Nomura's Wrap account can choose to charge only a fixed management fee on a quarterly basis, or you can choose to charge a "fixed management fee + annual performance compensation" charging form, while charging different levels of management fees for different types of assets.
(3) Reference from foreign investment advisory asset types
Foreign investment advisory assets are rich in types, including stocks, bonds, derivatives, public funds, private funds, innovative financial products, etc. Under each category, there are many subdivided product types to choose from. They also focus on global asset allocation and can achieve diversified and personalized investment portfolio allocation for customers.
1. United States. American investment advisory asset management methods are mainly divided into three categories: independently managed accounts (SMA), parallel managed accounts and comprehensive fee plans. Clients of separately managed accounts include individual investors and institutional investors. In 2021, 73.5% of investment advisors manage SMA assets. In terms of asset allocation, investment consultants will invest in various asset types such as stocks, bonds, derivatives, registered funds, etc. There are also more choices for different asset types. Parallel managed accounts are primarily intended for collective investment vehicles, including investment companies and business development companies. Such accounts pursue substantially the same investment objectives and strategies as the pooled investment vehicles themselves. The comprehensive fee plan is a packaged service through which customers can enjoy various combination services, including brokerage business, securities trading, asset custody, administrative services, etc. Asset growth for comprehensive fee plans has been strong, with growth reaching 17.7% over the three years from 2019 to 2021.
2. Europe. Unlike the U.S. wealth management industry, which is highly dispersed, the Matthew Effect in the European wealth management market is more obvious and the industry is highly concentrated. Wealth management institutions are mainly asset management companies and mixed banking groups. Taking UBS as an example, UBS divides tiers according to customers' net assets and divides categories according to customers' risk preferences for personalized product allocation. In addition to product investments, UBS also leverages its universal banking positioning to provide customers with a wide range of lending and cash management products.
3. Japan. In terms of investment advisory asset allocation, Japanese wrap accounts all invest in trust products, and based on trust products, they invest in global stocks, bonds, real estate and other diversified assets.
(4) References for the development of foreign intelligent investment advisory services
Robo-advisory originated in the United States. The US robo-advisory market currently ranks first in the world, accounting for 70.0% of global robo-advisory assets under management. According to Statista's forecast, the asset management scale of U.S. robo-advisors will be US$1.16 trillion in 2022, and will maintain a compound growth rate of 14.45%. It is expected that the total asset management scale will reach US$1.99 trillion in 2026.
Most robo-advisors use modern investment portfolio theory to build passive index investment portfolios for users. Compared with manually performing this operation at a low cost, robo-advisors help long-tail customers achieve inclusive wealth management. In the robo-advisory market, there are both independent robo-advisors and traditional institutional robo-advisors; there are fully automated robo-advisors that do not require human intervention, and there are human-machine robo-advisors with the participation of human investment advisors. In addition, different robo-advisors have different investment thresholds, fees, investable assets, and whether investment portfolios can be customized.
(5) Comparison of qualification access supervision
Supervision of foreign investment advisory business requires investment advisors to be supervised by regulatory agencies in the region where they are located, and must obtain a license through registration and other means before they can operate.
1. United States. According to the U.S. Investment Advisers Act of 1940, registered investment advisers have a fiduciary duty to their clients, that is, the adviser has the responsibility to provide appropriate investment advice and always act in the best interests of the clients. The United States implements hierarchical supervision of investment advisers by the SEC and state securities agencies.
2. Europe. In order to promote the integrated, healthy and orderly development of the European investment advisory market, the EU has formulated three major regulatory systems: the Transferable Securities Collective Investment Scheme Directive, the Alternative Investment Fund Management Directive, and the European Markets in Financial Instruments Directive to standardize the construction of investment fund products and the development of investment advisory businesses.
3. Japan. Japan's "Financial Instruments Transaction Law" stipulates that investment consultants engaged in asset management services and investment advisory business must apply for registration with the Japanese government and accept specific supervision by the Japan Financial Services Agency.
(6) Comparison of supervision on practice and service content
Supervision emphasizes that investment advisers bear fiduciary responsibilities towards clients, which is the highest standard for investment advisers to make decisions for others. This requires investment advisers to provide services to customers faithfully and prudently, and to act in a manner that maximizes the interests of customers.
1. United States. In terms of practice, the U.S. Investment Advisers Act does not provide a comprehensive regulatory regime for advisers, but rather gives them a broad fiduciary duty to act in the best interests of their clients. In terms of services, the broad fiduciary duty to act in the best interests of clients requires advisors to fulfill obligations to fully disclose material facts, provide appropriate investment advice, have a reasonable basis for recommendations, and guide clients on best execution.
2. Europe. The Collective Investment Schemes in Transferable Securities Directive aims to establish a unified cross-border market for investment funds in Europe, which means that funds approved by EU member states can be sold directly in other member states. The Alternative Investment Fund Management Directive applies to hedge funds, private equity funds, real estate funds and other investment funds not covered by UCITS. The European Markets in Financial Instruments Directive focuses on regulating investment advisory institutions.
3. Japan. Japanese regulations require investment advisers to provide services to clients faithfully and in a prudent management manner. In investment advisory services, Japan attaches great importance to investor protection. The Japan Financial Services Agency issued a customer-centered business code of conduct in 2017.
The development status of investment advisory business in my country
(1) New developments in my country’s investment advisory business
After the issuance of the "Notice", the pilot project of public fund investment advisory business was officially launched, and the buy-side investment advisory model was implemented in China. Compared with the traditional sell-side sales model, the pilot fund investment advisory adopts a buyer-side investment advisory model that makes transaction decisions on behalf of clients. The charging model mainly focuses on collecting investment advisory fees and provides customer-centered full-process accompanying services.
1. Analysis of pilot institutions for investment advisory business in my country. Statistics from the China Securities Regulatory Commission show that from the beginning of the fund investment advisory pilot on October 25, 2019 to July 2022, a total of 60 institutions in my country have obtained the fund investment advisory pilot qualification, including 25 funds and fund subsidiaries, 29 securities companies, 3 third-party sales agencies, and 3 commercial banks. Among the 60 fund investment advisory pilot institutions, 54 have already started operations, involving 4.4 million accounts, 95% of which are small and micro accounts (less than 100,000 yuan), with a management scale of nearly 120 billion yuan.
2. Analysis of my country’s investment advisory development model. Most of the pilot institutions that have launched operations have launched corresponding investment advisory brands and mainly conduct business through online channels. At the channel level, the current pilot institutions are focusing on online business, including providing online fund portfolio solutions and intelligent investment advisory models, which are basically self-service investments without manual intervention in the entire process. The investment advisory service model is a discretionary model. The "Notice" stipulates that pilot institutions engaged in fund investment consulting business can provide services through financial management on behalf of clients. The current pilot institutions in the industry basically provide discretionary managed investment advisory services. At the customer level, we mainly serve individual customers. The investment threshold for the products of each pilot institution is basically in the range of 500 to 1,000 yuan, and the charging model is mainly based on asset management scale (AUM), with most rates ranging from 0.15% to 1.5% per year.
(2) Troubles in the development of investment advisory business in my country
1. Securities companies are troubled by the development of investment consulting business. Customer product investments are concentrated in the stock sector, and the scale effect of fund investment needs to be explored. Most of the customers of securities companies are concentrated in stock trading business. These customers are relatively familiar with exchange-traded funds, but the proportion of funds invested in funds is relatively limited, making it difficult to produce scale effects. How to guide existing customers to switch to the fund field and further promote fund investment consulting business is an urgent problem that securities companies need to solve.
2. The development of investment advisory business of commercial banks is troubled. The investment research capabilities for equity products are weak, and the pilot investment advisory business needs to be expanded. The bank has many years of experience in investment advisory services and has a relatively complete range of product categories. However, the advantages of its own products are mainly concentrated in fixed-income or fixed-income-like financial products. Its strategic research capabilities are relatively weak, and equity product services and investment research capabilities still need to be strengthened. In the investment advisory business pilot, only three banks, namely Industrial and Commercial Bank of China, China Merchants Bank and Ping An Bank, have joined the pilot and none of them have started operations. The investment advisory business development capabilities and the participation of pilot institutions need to be strengthened.
3. Fund companies have trouble developing their investment consulting business. Product sales have long relied on external sales channels, and sales capabilities need to be built. Fund companies' own sales channels used to mainly provide sales services to institutional customers, while product sales to individual customers have long relied on external channels such as commercial banks and securities companies. The current fund investment advisory pilot program focuses on serving individual customers, so it is particularly important for fund companies to build their sales capabilities for individual customers.
Suggestions for the development of investment consulting business in my country
(1) Suggestions on the development of investment advisory business institutions
1. Truly realize "customer-centric" and promote the development of buyer investment advisory. Judging from the development experience of foreign investment consulting, the United States, Europe and even Japan are all adopting the buyer model to provide services to customers. The development of China's investment consulting business still needs to adhere to the "customer-centered" direction, continue to promote the transformation of sell-side investment consulting to buy-side investment consulting, prioritize customer interests, and provide customer service throughout the entire investment process.
2. Give full play to the characteristics and advantages of different institutions and truly implement inclusive finance. Securities companies, commercial banks, fund companies, third-party sales agencies and other institutions need to find their own positioning, match the needs of customers in subdivided fields and their corresponding business models, give consumers more choices in receiving investment advisory services, so that consumers can easily obtain high-quality fund investment advisory services, truly practice inclusive finance, and promote common prosperity.
3. Make full use of financial technology to empower the investment advisory business to reduce costs and increase efficiency. Emerging scientific technologies such as artificial intelligence, cloud computing, and big data have injected new vitality into the investment advisory business, driving the investment advisory business to achieve lower costs and higher efficiency, achieve more accurate customer insights, and provide a more extreme service experience.
(2) Suggestions for regulatory agencies to promote the development of investment advisory business
1. Promote more institutions to participate in the pilot investment advisory business and expand the scope of the pilot investment advisory business. Currently, there are only 60 institutions participating in the investment advisory business pilot. It is recommended that regulatory agencies continue to promote the expansion of the scope of the pilot, normalize the access approval mechanism for investment advisory business pilot institutions, introduce more commercial banks, securities companies and third-party sales agencies, promote the development of banks that have not yet started business, and implement the "sales platform + fund investment advisory" cooperation model.
2. Unify the top-level system design and do a good job in functional supervision to standardize the development of the industry. It is recommended to introduce an "Investment Advisory Law" to place the investment advisory business of various industries and formats under a unified legal framework, implement unified license supervision for the investment advisory business of various financial institutions, and uniformly regulate the development of investment advisory businesses. Further expand the scope of institutional licenses to individual licensed practices, relax restrictions on institutional licenses, and strengthen supervision of practitioners, such as establishing practitioners' disclosure of file information and implementing individual graded licensing and other measures.
3. Gradually expand the asset types and categories of investment advisory products, promote global asset investment, and meet the needs of multiple types of asset allocation. Judging from the experience of foreign investment advisory development, investment advisory assets in the United States, Europe and Japan are very rich in asset types and focus on global asset allocation to increase portfolio returns and further diversify risks. It is recommended that regulatory agencies gradually broaden the asset types and categories of investment advisory products, and include more products other than public funds such as stocks, bonds, bank financing, derivatives, etc. as subjects of the fund investment advisory pilot, and at the same time promote global asset investment to meet residents' multi-category asset allocation needs.
4. Develop diversified service models to achieve consistency in the interests of investment advisors and clients. Regulatory agencies need to learn from foreign investment advisory experience, accelerate the development of investment advisory business, promote investment advisory business institutions to charge various fees such as asset management scale fees and fixed fees, and further reduce the service and management fees of investment advisory through regulatory means, promote the innovation and approval of low-rate products for exclusive investment advisory, and truly solve the problem of consistency of interests between investment advisors and customers.
5. Use regulatory technology, introduce “penetrating” supervision, and promote the application of financial technology in investment advisory institutions. Regulatory agencies still need to strengthen the construction of regulatory technology and improve the efficiency of digital supervision. It is recommended to introduce "penetrating" supervision to truly penetrate the underlying basic assets of products and avoid systemic financial risks. In addition, regulatory agencies must also promote the application of financial technology in investment advisory institutions, further leverage the role of financial technology and digital platforms, and effectively guide investment advisory institutions to provide better consumer services.
(Project leaders: Hu Bin, Li Zhenhua; research team members: Yin Zhentao, Li Xiaojun, Cheng Lian, Bo Chunmin, Zhang Yaogang, Xu Jianjun, Cheng Zhiyun, Ma Dongdong)
