Wednesday, 19 June 2024

The new pattern of wealth management innovation and development

5 min read

By Jiang Jianqing

The development of wealth management will reshape China's financial structure, while the integration of finance and technology has injected new impetus into the global wealth management market

The wealth management market is a giant blue ocean for financial innovation and development. By the end of 2018, the total investable financial assets of Chinese citizens had reached $20.89 trillion (RMB 147 trillion). And it is expected that the investable financial assets of individuals will reach $34.54 trillion (RMB 243 trillion) by 2023. From the perspective of high-net-worth clients, in 2018, the number of high-net-worth individuals with personal investable financial assets of $.852 million (RMB 6 million) or more reached 1.67 million, ranking the second in the world.

The development of wealth management will reshape China's financial structure

Financial system is a general term for the organic components of a country's financial system, including economic entities, intermediaries, exchange markets and financial instruments involved in capital flows and market transactions. Each country's financial system has a different structure, which is determined by resource endowment and economic structure. China's financial system is dominated by banks and the social financing function still relies on the banking system. The income structure and asset structure of commercial banks are obviously marked by financing. With the development of economy, enterprises are increasingly relying on direct financing tools such as bonds and stocks and residents' financial needs are increasingly diversified. The wealth structure of residents is also more allocated from single savings to financial management, funds, stocks, bonds, insurance and other fields. The proportion of personal customer finance and savings deposit changed. People began to pay more attention to the income and deposits were quickly transferred into the financial market. However, with the exposure of risks, people began to focus more on the balance between the safety, profitability and liquidity of asset portfolios instead of capital gains, so as to increase the value, preserve the value, avoid risk, inherit and public welfare. The differences between high-end financial services and mass financial services and inclusive finance have widened. High-end and personalised private banking services and popular wealth management of the masses both contain more space for innovation and development.

From the first generation of wealth creation to the second generation of wealth inheritance, the way of wealth management has also shifted from hands-on to principal-agent and the professional requirements for wealth management have been constantly improved. The pursuit of differentiated competitive advantages will accelerate the improvement of the ability of wealth management institutions. The innovative development of wealth management in China is facing the historic opportunities of globalisation. Wealth investors and managers begin to look for opportunities of information asymmetry in a wider range and the globalisation of institutions and products of wealth management in China begins to accelerate.

The other impact of wealth management extends from the impact on bank deposits to the impact on bank balance sheet structure. In the global trend of low and negative interest rates, wealth management business is conducive to mitigate the impact of interest rate liberalisation. However, the decline in deposit growth and the continuous decline in the bank's loan-to-deposit ratio have had an impact on banks' financing capacity, which in turn has changed the structure of banks' passive and active liabilities. However, in the long run, it is beneficial to restrain excessive credit growth in the banking sector, to improve balance sheet mismatches and capital positions in the banking sector and to improve the imbalance in China's financial structure. As one of the ways to allocate capital and resources in the future society, wealth management can connect the supply and demand of wealth management, connect multiple markets such as currency, securities and insurance, combine financial innovation with industrial innovation, innovate products, guide demand, discover price, realise appreciation and promote industrial development. This not only provides a reservoir for the capital flow of wealth management but also converts the accumulation of social wealth into effective investment. 

Integration of finance and technology injected new impetus into the wealth management market

The evolution of wealth management is the process of financial innovation, financial reform and financial deepening. Financial innovation is the logical starting point of modern wealth management. The high integration of technology and finance has profoundly changed the business model, winning elements and competitive pattern of wealth management.

Since the beginning of this century, fintech innovation has entered an explosive period. With the breakthrough development of big data and artificial intelligence, identifying and quantifying risks will rely on sophisticated data analysis. Intelligent financial services mainly include intelligent customer service and intelligent investment. Intelligent customer service is expected to gradually replace the traditional human customer service.

According to investors' risk preference and financial goals, intelligent investment provides investors with wealth management consulting and even asset allocation and management services. Asset allocation will be transformed from expert experience analysis to big data analysis and decision making, providing high-net-worth customers with personalised and complex financial portfolios and providing "long tail" customers with financial solutions with self-service robot consultants.

Citigroup estimates that in a decade, $5 trillion of the $22 trillion of non-pension assets in the United States could be managed by robo-advisers. Kearney expects robo-advisers to become mainstream over the next three to five years, growing at a compound annual rate of 68% and managing assets of $2.2 trillion by 2020. Huge market space and service vacuum bring opportunities for fintech. Users can choose different investment amount, configuration combination and term according to their risk tolerance and intelligent investment will predict investment return, risk coefficient and other information. At present, the intelligent and self-service online wealth management is developing in parallel with the personalised and professional offline wealth management. In the short term, whether artificial intelligence can realise self-learning and improvement and provide better personal abilities than existing financial institutions and professional financial planners remains to be tested by the market. It is still far away from being mature and having a great impact on the existing wealth management model. However, it is foreseeable that most of the wealth management products of the public will become Internet financial products and expert services will also be provided through instant messaging.

The Internet has shortened the distance between the investment and financing parties with an open and shared mode and the wealth holders have more information initiative, which has put forward higher requirements for wealth management institutions to connect the investment and financing parties more quickly, more conveniently and more matched. After breaking the rigid payment, the asset management industry will promote the price discovery of financial assets through competition. The original market pattern will be gradually broken and the existing advantages such as large scale and strong asset strength will be ignored. The new competitive advantages and new brand formation will pay more attention to the long-term stable return, professional ability, integrity level, transparency and digital service quality of capital management institutions. In the future, wealth management business will shift from the growth of "quantity" to the improvement of "quality". In the wealth management market, the ultimate winner is the financial service company that can provide the best service, realise the digital transformation and control the risk substantially. A successful wealth management institution is necessarily a big data institution, an excellent institution for data analysis, interpretation and application.

These are the thoughts I share with you.

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