China’s major fund houses are gearing up to compete more aggressively with the country’s purely digital players. Fund groups that AsianInvestor spoke to say that they plan to expand their robo-advisory services as part of new powers given to them to expand their investment advisory businesses on the mainland.
On October 25, the China Securities Regulatory Commission (CSRC) granted investment advisory licences to five local asset managers. Essentially, the new licences allow firms to tackle a broader market by selling products from third-party managers.
“This is a landmark in China because the interests of the product issuers and those of the customers are better aligned,” said Li Yimei, general manager of Huaxia Fund (ChinaAMC).
William Ma, chief investment officer at Noah Holdings in Hong Kong, told AsianInvestor he believes the move by the CSRC is positive for investors and the market in general. “The China market will be more efficient and investors would have more choices and tools to do asset allocation and construct a diversified portfolio.”
The five fund groups granted licences are ChinaAMC, E Fund Management, NF Fund (China Southern), Harvest and ZoFund (Zhong Ou).
Acknowledging that China's mutual fund industry is still relatively immature, from the perspective of investor sophistication, E Fund believes that the new fund advisory scheme “will help improve the capability of the whole mutual fund industry," a company spokesperson told AsianInvestor.
Ma also acknowledged that China’s domestic funds market needs to evolve client assessment tools. “We believe the ‘services’ part of the financial services industry remains essential, when it comes to understanding clients’ needs, their long term goals, liquidity requirements and risk tolerance,” he said.
The new advisory regime has helped offered extra impetus for some of the five fund houses to revamp their digital advice platforms.
"AI will continue to reshape the asset management industry in the long run. It has tremendously cut the average cost and lowered the bar," said China AMC’s Li. The company is offering its robo advice platform and the 'Charlie Zhitou' app, launched last year, to investors for as little as Rmb500 ($70).
At a press conference in Beijing on October 28, Li said that mainland investors suffer from a surfeit of choice, with over 6,000 public fund products available. “Investors need more than just products, they need an investment solution,” she stated.
Her colleague, Zhang Hui, general manager of Huaxia Fortune (ChinaAMC's wealth management business) said investors were confused about investment and the traditional fund sales model, with the seller's agent as the core, "can only serve as a headache”.
For its part, E Fund plans to offer customised advice from three different aspects: asset allocation, strategically trading the funds and selectively choosing the funds from the pool.
“It’s a helpful way to restrain irrational investment behaviours, such as chasing up the stock when it is pricey and selling the stock when the price declines,” a spokesperson told AsianInvestor.
China’s largest fund managers also see ramping up their advisory offerings as a means to compete with non-traditional fund platforms such as Ant Financial. These newer digital platform players have proved effective in selling simple investment products to the mass market.
In its report on fintech disruption issued in December last year, McKinsey noted that Chinese fintech ecosystems have scaled and innovated faster than their counterparts in the West.
"The large ecosystem players will continue to use technology and digital channels to roll out their financial services offerings, either by going direct-to-consumer or, increasingly, by providing white-label fintech-as-a-service offerings to small and medium-sized financial institutions,” the consultant’s report said.
It added that traditional financial services companies could be expected to invest heavily in digital offerings and "leveraging their brands and existing customer relationships to fight back more successfully against pure digital players”.
Ping An was seen as the most advanced of the traditional financial services players, in terms of investing heavily in a range of digital offerings and beginning to create a digital ecosystem of its own.
Increasing regulation is expected to weed out non-compliant or less competitive smaller fintechs, the McKinsey report concluded.
"The government has tightened control in payments, P2P lending and robo-advisory. This could lead to further consolidation."