Multiple products failed to establish themselves; the wealth management industry is focusing on solving the problem of homogenization.

Xinhua Finance, Beijing, April 2 (Reporter Li Yunqi)

Since March, several wealth management companies have issued product non-issuance notices. Because the total fundraising amount did not reach the minimum发行规模 threshold for issuance stipulated in the product prospectus, the products were unable to be successfully issued. Interviewed experts said that in a low-interest-rate environment, the homogenization of fixed-income products is relatively prominent, causing investors to develop “a sense of fatigue” with these offerings, which is an important reason why product issuance has been unsuccessful. At present, the wealth management industry is strengthening product innovation and investor accompaniment efforts, aiming to address the challenge of product homogenization.

Minimum issuance scale not reached

On April 1, the reporter searched the Wind terminal using keywords such as “not established” and “not issued,” and found that approximately 40 such notices related to wealth management products that could not be issued have been released since the beginning of this year. Judging from the wealth management companies that issued the notices, Huaxia Wealth Management has had more than ten products that failed to be issued since this year, and Su Yin Wealth Management, Huihua Wealth Management, and Pingyin Wealth Management also had products that failed to raise funds successfully.

As for the reasons why the products could not be issued, the notices released by the aforementioned wealth management companies all stated that during the subscription period, the total subscription amount did not reach the minimum issuance scale threshold set in the product prospectus. The reporter reviewed the prospectuses of the wealth management products that were not issued and found that the minimum issuance scale threshold differs across products, ranging from 5 million yuan to 50 million yuan.

In fact, not all wealth management companies set a minimum issuance scale threshold when issuing products. A person from a product department of a wealth management company told the reporter that whether to set a minimum issuance scale threshold is decided independently by the wealth management company. Whether a product can be established smoothly is closely related to the requirement of a minimum issuance scale threshold.

Why do wealth management products need to set a minimum issuance scale threshold? Su Yin Wealth Management said that wealth management products require certain costs for investment and operation, such as audit fees and transaction handling fees. If the product scale is relatively small, it may result in higher cost burdens per unit of wealth management product for each share; large subscriptions or redemptions by investors may cause significant fluctuations in the total scale of the wealth management product, and the underlying investment operations as well as product liquidity would also be affected.

Severe product homogenization

Judging from product names, the wealth management products that failed to be issued are mostly closed-ended fixed-income products, with the lock-up periods concentrated around one year. To a certain extent, product homogenization leads to investors experiencing “a sense of fatigue.”

Lou Feipeng, a researcher at the China Postal Savings Bank, said that multiple wealth management products failing to be issued reflects a mismatch between investors’ risk preferences and product supply. Against the backdrop of a low interest rate market, investors are more sensitive to net value fluctuations, especially as the prices of multiple asset classes have been adjusted recently, investors’ wait-and-see attitude toward newly issued products has grown stronger. In addition, wealth management products mainly invest in fixed-income assets; in recent years, the interest rates of this category of assets have declined, causing wealth management product yields to continue falling in recent years, which has also weakened investors’ willingness to subscribe. Under the combined effect of the above factors, in recent period, the fundraising scale of multiple wealth management products has failed to reach the minimum issuance scale threshold.

Zhao Ran, Chief Analyst for Non-Banking and Financial Technology at CICC (CITIC Jian) Securities, said that on the asset side, wealth management products mainly invest in fixed-income assets. The continued decline of broad-spectrum interest rates has made high-quality assets increasingly scarce. The space for managers to obtain excess returns by moving down the credit curve has been gradually compressed. As a result, it is becoming increasingly difficult for the yields of wealth management products to reach the performance comparison benchmarks set for various wealth management products. At the same time, because product investments focus on a single fixed-income asset, wealth management product asset allocation also cannot reflect differentiated advantages. The industry has fallen into involution-style competition in areas such as fee rates, products, and channels.

Product innovation and investor accompaniment go hand in hand

To address the current predicament of product homogenization in wealth management products, multiple wealth management companies have formed a tacit understanding: to help investors better understand the underlying logic of the products. For example, in response to recent market volatility, multiple wealth management companies have issued a “Letter to Investors,” interpreting the reasons behind recent market fluctuations and also offering coping recommendations to investors. In addition, product teams of multiple wealth management companies strengthen cooperation with consumer rights and interests protection teams at the issuance stage, translating professional content such as investment strategies into investor education materials that investors can understand and find easy to accept.

Besides strengthening investor accompaniment, multiple wealth management companies also put efforts into the representativeness, pioneering nature, and originality of their products, focusing on multi-asset and multi-strategy approaches, and launching wealth management products with stronger innovation for investors to choose from. For instance, Bei Yin Wealth Management’s Gao Yuan series wealth management products use fixed-income assets such as bank deposits, interest rate bonds, credit bonds, and ABS as the base portfolio, and add strategies such as preferred stock allocation, new issuance subscriptions, and REITs investment strategies to enhance returns. It has now become one of Bei Yin Wealth Management’s representative product series.

Lou Feipeng suggests that wealth management companies should make changes in their product layouts: first, increase the supply of open-ended, short-duration products to enhance liquidity appeal; second, optimize the “fixed-income plus” strategy by controlling equity allocation and net value volatility, and clearly define the risk-return characteristics; third, strengthen investor education by explaining product investment strategies and risks thoroughly; fourth, explore differentiated products, such as those linked to specific indexes and thematic investment products, to meet the needs of niche markets.