The "mid-game crisis" of private wealth management

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In China's vast private wealth management market, a wave of anxiety is spreading from mass-market clients all the way to high-end clients.

The concern is the increasingly elusive “stable return” products.

Once, those private or wealth management products featuring “low risk, high return” were the “trump cards” for client managers and the most attractive products in channel portfolios.

They were “produced” by the “most reliable” or “most professional” teams, with stable returns, high thresholds, and high professionalism, earning strong client trust.

But now, as deposit and bond market yields continue to decline, such products have disappeared from the entire wealth management market.

When stable-yield products overall have entered the “micro-profit (below 2%) era,” and when even insurance products’ guaranteed returns fall below 3%, it has become increasingly difficult for sales channels and VIP clients to find agreement on products.

An unprecedented “mid-game crisis” is sweeping through the wealth management market.

The “New Expressions” of Wealth Management Sales

Zishitang recently discovered a “strange” phenomenon at a well-known internet distribution channel.

Their wealth management products for mid- to high-end clients have switched to new “sales pitches”: instead of simply stating “expected return 2.5%” or “past year’s return 1.9%,” it now becomes “Yu’e Bao +0.74%,” “Yu’e Bao +1.31%.” (See illustration below)

The actual yield is only displayed after clicking into the specific product page.

This setup turns selling the product into a “grade school math problem”: Want to know the yield of the wealth management product? First, you need to know Yu’e Bao’s yield!

Truly a “Helpless Move”

Admittedly, this arrangement goes against the conventions of wealth management marketing: no client likes roundabout discounts—the more convoluted the pitch, the more complicated the page, the less patient the client, and the higher the drop-off rate during the click process.

But a closer look at the yield makes it hard not to sympathize with the platform’s “painstaking intentions.”

Products tailored for mid- to high-end customers only offer a 2.25%~2.5% yield; this number is really hard to shine as a customer magnet.

At a threshold of 300,000 RMB for mid- to high-end clients, buying for a year nets a mere 6,000 yuan or so in income—really incomparable to the 20-30 thousand returns in past years!

But this is already the “greatest sincerity” channels can offer. Looking at deposit rates, you’ll see that the past three years saw fixed deposit rates tumble, with three-year terms falling from 3.5% to around 1.3%, down 63%!

So, the distribution channels changed tack: since everyone knows Yu’e Bao—“the national” money fund—let’s make it the “benchmark.”

It’s like a restaurant posting a sign: “Our beef noodles come with more meat than Lanzhou noodles!”

Not much substantive information, but the psychological suggestion is full: tastier than the “everyone’s tried it” option.

The “Dilemma” of High-Net-Worth Clients

If “Yu’e Bao +0.97%” is a psychological comfort for mass-market investors, then among higher-end clients, this “yield anxiety” is actually more intense.

Previously, China’s wealth management market was in fact “layered”: when an investor’s assets exceed the 500,000 to 1,000,000 RMB threshold, and after a series of risk assessments, their product options greatly expand.

This includes trusts, PE, exclusive private offerings, segregated accounts, high-end insurance, and even more complex products like snowballs and asset securitization. The range of returns and risk combinations also becomes very wide.

But now, in this market, all stable return products have seen rates plummet, and those with slightly higher expected returns without exception bring higher volatility.

Products once “exclusive” to high-net-worth clients are gradually “converging” with mass-market wealth management products, leaving high-net-worth clients with tough choices.

To put it vividly: those products you could sleep well AND earn money with are dwindling. Now, you can only follow the Wall Street saying:

Either earn more, or sleep better!

Where Did the “Perfect Product” Go?

For high-net-worth clients, “a couple of percentage points” hardly excites. But where did those “ideal products,” “perfect products” they liked go? Why aren’t they available?

The answer is simple: there are fewer “entities” willing to pay high costs to raise capital.

Take the once-popular high-return trust products as an example: over a decade ago, many trusts could reach annualized returns of 8%~10%.

The asset packages backing those trusts usually originated from the real estate market, land reserve companies, or local financing platforms, and the latter two’s returns were closely linked to real estate market heat. Such funding rates are now nowhere to be seen.

The driving force for high-yield products isn’t just that: as the economy emphasizes tech innovation and efficiency, overall market interest rates have compressed, lowering the spreads from fixed-rate financing businesses, which naturally drags down product yields.

The aforementioned high net worth client group obviously has broader horizons: they might engage in industry, invest in private equity, co-invest in quant hedge funds, even explore offshore allocations. The broader the choices, the less likely they are to accept low-yield and low-Sharpe (low risk-adjusted return) products.

No wonder platforms are deploying the high-end restaurant menu strategy:

When the chef knows the customer has tried everything gourmet, it’s time to change the messaging: “Our steak isn’t the most expensive, but it’s more tender than the ones at five-star hotels.”

What Can Investors Do?

For investors (be they ordinary or high-net-worth), the only option now seems to be—facing reality.

The chance of a yield rebound is slim: you must either accept higher-risk products, or settle for low return ones, and try to compromise on scale and holding period in exchange for a bit of “Yu’e Bao +” yield.

Or—simply turn to global investing—but that means bearing increased FX risk.

If you choose the former, the market now offers more options. Some channels have recently rolled out many “fixed income plus” products, which apply some quantitative and risk management methods to hopefully control volatility somewhat (though this only means less volatility than full-equity products).

For the latter, high-net-worth clients may have a lot of new knowledge to acquire.

As for mid-level investors, carefully watching post-fee-cut public fund varieties, and the new private wealth management products across channels, may be the relatively rational course.

How Management Institutions Are Responding

For managers (private wealth firms, securities asset management, or small-to-mid public fund firms), lowering fees suitably may also be a strategy in response to client needs.

Indeed, a recent market trend is the appearance of private (segregated account) products with “public pricing.”

For example, in conservative private wealth management products labeled as “brokerage asset management,” part of the pricing is increasingly unlike traditional “private offerings.”

The outside is private offering: needs qualified investor authentication, RMB 300,000 minimum; inside, it’s more like a “public fund in private clothing.”

Let’s look at a brokerage-backed product’s prospectus (pictured below):

Management fee 0.35%/year, custodian fee 0.01%/year

No purchase fee, no redemption fee, no performance fee, all marked as 0%.

This has completely abandoned the traditional private fund “2+20” model (2% management fee + 20% performance cut), and in recent years fixed income private offerings continuously “yielded”—performance cut down to 5%-10%.

It’s like a Michelin restaurant suddenly launching a “light lunch set”: dishes stay delicate but without elaborate plating and surcharges, keeping only the core taste.

This is the current reality for low-to-mid risk private offerings: prices are friendlier, margins slimmer, but at least customers walk in.

But a problem arises: as yields shrink and fees decline, investors naturally ask: since it’s already like public funds, why should I buy private fixed-income products?

This is actually what distribution channels fear hearing the most.

Risk Warning and DisclaimerThe market has risks; invest with caution. This article does not constitute personal investment advice, nor does it take into account any individual user's special investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their specific circumstances. If acting on this information, responsibility is at your own risk. ```