Author: Wang Yongsheng, Master of Finance 2012, Tongji University, Orange Financial Management Enterprise

China has a huge wealth management market capacity. According to incomplete statistics, stock scale of bank deposits, bank financing, public (private) funds and trust product has exceeded 136 trillion yuan, which makes both the traditional and internet financial institutions contend for internet wealth management under the background of great Internet+ era. Though the regulation of the wealth management market is becoming stricter, various institutions are constantly exploring and innovating, expecting to find a way out.

Network Loan No. 175 Document issued in early 2019 determined P2P can’t afford the hope of the internet wealth management industry. Few lending platforms with great achievements neither achieve the aim of inclusive finance, nor reduce social financing cost. The so-called intelligent control and science&technology finance become a tool for platforms to grab high yield. If  there is an online loan platform focusing on establishing a long-term mechanism, constructing a real consumption scenario from the borrowing end, raising the purchase threshold from the investment end, helping to reduce the financing cost with scientific and technological capabilities, and earnestly fulfilling the function of information intermediary instead of credit intermediary, it may be possible to find a wider and broader path. However, which platform could have such a vision and determination under current environment?

In the field of Internet fund sales, licensed sales become the industry consensus. Although fund sales licensing has been extremely tightened since 2016, Tencent and Baidu still get the only two tickets, while most of the other platforms without capital and technical strength like Tencent and Baidu cooperate with bank as the second best option, letting banks guide users to bank website to open secondary accounts, and sell funds through bank. In order to avoid the 10,000 withdrawal limit, Internet financial platforms have to launch several money funds at the same time, and guide users to diversify their investment. These measures increase the education cost for investors and even sacrifice user experience to a large extent, but it is a desperate move to survive in the gap. CSRC has promulgated The Public Securities Investment Fund Sales Institutions Supervision and Management Regulations (draft) and relevant supporting rules for public opinion, which means fund sales business is facing a systematic strict regulatory era with higher requirement for continued operation of independent fund sales institutions. It is the way of survival for participants to follow the rules, comply with the management principle, steadfastly expand public funds market, and help to build a benign market order.

The fixed income insurance financial products, mainly universal insurance, have improved the risk-free rate of return in the market in a hidden way and are gradually exiting the stage of history， while the Internet financial platform is still diligently exploring the cooperation with insurance companies to launch investment insurance products that are more in line with regulatory intentions. However, it is also difficult to obtain regulatory approval for net worth investment with insurance, and net worth products with risk carried by investors have no difference with public funds, so the existence necessity of such products greatly weakened. It is expected that Internet insurance financing is difficult to shine in the next few years,.

The path of wealth management cooperation between securities firms and Internet platforms has not achieved the ideal expectation, but the securities industry has not sat idly and started to innovate itself with unprecedented determination. From the end of 2018, some established securities firms have been making a high-profile transition to wealth management. Citic Securities changed the name of Brokerage Business Development and Management Committee to Wealth Management Committee, and reformed the organizational structure and incentive mechanism. Almost at the same time, Galaxy Securities and Industrial Securities announced the change of the Brokerage Business HQ to Wealth Management HQ. For securities industry, online trading system has been formed many years ago, but didn’t escape  the dependence on brokerage business path that has been established for twenty years. If it wants to get a good position in wealth management industry, it has to overcome human nature of myopia and offensiveness, design and manage asset products based on the industrial advantage, build their own barriers in product design and management, and continue to enlarge its securities trading client quantity. Only in this way can it compete with banks, funds and trust industry.

Internet financial platforms and the trust industry have made many trial and error, but still have not found a good path for the internet-based trust products. After all, most of the Internet financial platform users are incompatible with the million threshold of trust products. Even so, platforms with a large customer base are still making exploratory efforts, such as Tencent Wealth Management and Lufax, etc. These platforms provide flow drainage and information technology services for trust companies and display million-level trust products to high-value users of the platforms. However, the private nature of trust products and the difficulty in the verification of qualified investors doomed that this cooperation mode could only be piloted in a small scope and is difficult to achieve scale growth. Recently, the market rumors that the regulatory authorities plan to launch the “public trust products” with minimum 10,000 yuan investment. The supervision will select 2-3 companies with an industry rating of “A” for the pilot implementation, and it is expected to be implemented by the end of 2019. It is a big positive for trust industry to limit the minimum investment of public trust product the same as bank financial investment threshold. However, the letter of trust from CIRC [2019] No.16 Document still determines it as violated recommendation if trust companies attract flow to fund trust products through a third party internet agency, thus, it is still a long way to go before the internet trust industry.

Cold winter in other areas, the cooperation between internet financial platform and bank ushered in a new spring. JD finance has set up the bank+ sector and cooperates with some small and medium-sized banks, such as Zhenxing Bank and Huarui Bank, to develop bank deposit products. On the one hand, small and medium-sized banks do not need to set up physical outlets thanks to the convenience of the Internet, solving the deposit attracting problem. On the other hand, JD finance also provides low-risk financial products to the majority of user groups through this mode, thus to retain users. Lufax, Du Xiaoman Financial Services, Ant Financial Services, Suning Finance and other large internet financial platforms have followed the model, leading a spreading potential.

As small and medium-sized banks struggle to attract deposits, state-owned banks are once again leading the way in terms of access to qualifications. China Banking and Insurance Regulatory Commission has approved the application of China Construction Bank, Bank of China, Agricultural Bank of China and Bank of Communications for establishing financing subsidiaries since December 2018, and promulgated the Management Methods of Financing Subsidiaries of Commercial Banks, allowing the public financing products issued by financing subsidiaries to directly invest in stocks，no starting amount of sales for financial products, requiring non-standard creditor assets only not exceeding 35% of the net assets of financial products, “greatly loosen” in sales channels- both through bank path and other organizations that CIRC approves… This series of BUG-level settings have laid the foundation for the status of “direct descendants” of the bank’s wealth management subsidiary, which can almost be “left to kick the public offering fund, right to hit the trust fund”. It is expected that in the next five or ten years, banks, especially state-owned banks and joint-stock commercial banks, will become the brightest star in China’s financial industry. Internet financial platforms will become the largest distributors of banks’ financial products. Some banks may only release high-quality wealth management products to their own apps to increase activity and retain customers. Most urban commercial banks and rural commercial banks will have to become offline distribution channels of financial products of banks’ financing subsidiaries.

The market is there, as one tide goes, another is coming.