Why do securities firms now need to emphasize fund advisory services?

(From: Quan Yan She)

— A inevitable choice to move from channel competition to wealth management

1. Industry turning point: the failure of traditional brokerage models

If we simply divide the development of China’s securities industry over the past 20 years, it can be broken into three stages:

Channel era → Capital intermediary era → Wealth management era.

In the past, brokerages relied on “channel dividends”—commission income, the spread from margin financing and securities lending (two financing), and investment banking business. The core characteristics of this model were:

Income is highly dependent on market conditions

Weak customer relationships, low stickiness

Single, undiversified profit structure

But with the following key changes, the traditional model is accelerating toward failure:

1. Commission rates keep falling

Internet brokerages, price wars, and regulatory pressure pushing for transparency have compressed trading commissions to extremely low levels.

2. Market volatility is increasing, making transaction-driven performance unstable

The activity level of retail investors is highly cyclical: when sentiment is strong, revenue surges; when sentiment is weak, revenue drops quickly.

3. Clear institutionalization trend

Long-term capital such as public funds, insurance, and pension funds is gaining a higher share, while the marginal influence of retail investors declines.

4. Changes in regulatory orientation

Shifting from “encouraging trading” to “encouraging long-term investing and value investing.”

The conclusion is very clear:

👉 Brokerages that rely solely on trading will be unsustainable in the future.

2. The essence of fund investment advisory (fund投顾) business: from “selling products” to “managing customers”

Many people mistakenly think that fund investment advisory is just “helping clients pick funds,” which severely underestimates this business.

The essence of fund investment advisory is:

👉 A client-centered asset allocation service system.

Its core capabilities include:

1. Asset allocation capability

It’s not about selecting a single fund, but building a portfolio (equities + fixed income + alternative assets).

2. Risk management capability

Control drawdowns and volatility so clients can “hold on.”

3. Behavioral management capability (extremely critical)

Help clients overcome the human weakness of “chasing rallies and selling at lows.”

4. Long-term companionship capability

Through ongoing communication, enhance clients’ trust and retention.

In other words:

👉 Fund investment advisory solves the problem of “clients not being able to make money,” not whether there are good funds.

3. Why “now” must receive special attention?

(I) The policy dividend window has opened

In recent years, regulators have clearly supported pilot programs for fund investment advisory and gradually made them routine. The logic behind it is very clear:

Increase residents’ property-related income

Promote long-term capital market participation

Change the “short-term speculation” culture

Fund investment advisory is becoming one of the important foundational infrastructures of the financial system.

👉 Whoever builds capabilities first will occupy the commanding heights of future competition.

(II) Major changes in residents’ wealth structure

Chinese residents’ assets are undergoing a profound transformation:

In the past:

Real estate dominated

Bank deposits were the mainstay

Now:

Real estate returns are declining

Interest rates are falling

Residents begin to look for alternative investment channels

The continued growth of public fund scale is the most direct reflection.

But the problem is:

👉 Residents “know how to buy funds,” but they don’t “know how to hold funds.”

This is exactly where the value of fund investment advisory lies.

(III) Customer demand shifts from “products” to “services”

In the past, customers asked:

👉 “Do you have any good stocks?”

👉 “Which fund has been performing well?”

Now customers care more about:

👉 “How should I allocate my assets?”

👉 “How can I earn steadily?”

👉 “How do I avoid large losses?”

This means:

Demand has shifted from trading tools → wealth solutions.

And fund investment advisory is the core vehicle that carries this demand.

(IV) The key lever for brokerages to transform into wealth management

All brokerages are calling for “wealth management transformation,” but the question is:

👉 What is the key lever?

The answer is fund investment advisory.

Because it has several key features:

1. High standardization, easy to replicate

Compared with private placements and personalized services, advisory portfolios are easier to scale.

2. Natural synergy with public funds

They can directly connect with mature product systems.

3. Can be embedded into internet channels

Suitable for online and intelligent operations.

4. Advanced fee model (management fees)

Gradually reduce reliance on commissions.

4. The strategic significance of advisory business for brokerages

(I) Reconstruct the income structure: from trading income to management fee income

Traditional brokerage income structure:

Brokerage business (trading commissions)

Margin financing interest

Investment banking business

The problem:

👉 Strong cyclicality and large volatility

Changes brought by advisory business:

Ongoing management fee income

Growth in client assets under management (AUM) drives returns

Improved income stability

👉 From “living by the weather” to “living by one’s assets.”

(II) Increase client stickiness: from low-frequency relationships to long-term relationships

Traditional model:

Clients trade only a few times per year

Almost no ongoing interaction

Advisory model:

Continuously track portfolio performance

Regular communication

Long-term companionship

The result is:

👉 Client churn rates decline significantly

👉 Asset retention rates increase substantially

(III) Open the entry point to high-net-worth clients

The core needs of high-net-worth clients:

Asset allocation

Risk control

Long-term planning

Advisory business is the “ticket” to enter the high-net-worth market.

Once trust is established, it can be further extended to:

Private placement products

Family offices

Comprehensive financial services

(IV) Build differentiated competitive capability

Against the backdrop of commission rates converging, the differences among brokerages are becoming smaller.

But advisory capabilities differ:

Research and investment capability

Portfolio construction capability

Client service capability

👉 These are all barriers formed through long-term accumulation.

Future competition is essentially:

“Who understands clients better” + “Who can help clients make money.”

5. Building the core capabilities of fund investment advisory

If brokerages truly want to do advisory well, they need to build four major systems.

(I) Research and investment system: the foundation of capability

Includes:

Macroeconomic research

Asset allocation models

Fund selection system

Risk control framework

The key is not predicting the market, but:

👉 building stable, replicable portfolio strategies.

(II) Product system: portfolios instead of single products

The traditional sales logic is:

👉 Recommend one fund

The advisory logic is:

👉 Provide “portfolio solutions”

For example:

Conservative portfolios

Balanced portfolios

Aggressive portfolios

Meet different risk preferences.

(III) Client operations system: the core competitive strength

Includes:

Client segmentation (asset size, risk preferences)

Refined operations (content, services, companionship)

Behavioral guidance (avoid frequent subscriptions and redemptions)

👉 The outcome of advisory business, to a large extent, depends on “operations.”

(IV) Technology system: key to scale

Advisory must rely on technology to enable:

Robo-advisor (intelligent investment advisory)

Data analysis

Automatic rebalancing

Client profiling

Otherwise it cannot be scaled and replicated.

6. Challenges facing the industry today

Although the outlook is promising, many issues still exist in reality:

(I) Insufficient client education

Many investors still remain at:

Chasing hot themes

Looking at short-term returns

Whereas advisory emphasizes long-term and stable performance.

👉 The cognition gap needs time to be bridged.

(II) Uneven advisory capabilities

Some institutions:

Still focus on sales orientation

Lack true asset allocation capability

Leading to poor client experience.

(III) Fee models are not yet mature

Clients’ acceptance of “paid advisory” is still being cultivated.

But this is an inevitable trend:

👉 In the future, it will definitely shift from “making money by selling products” to “earning from service fees.”

(IV) Impact from short-term market volatility

When the market falls sharply:

Client trust can easily waver

The advisory system faces tests

Truly excellent advisors need to get through market cycles.

7. Future trends: three major directions

(I) Full-scale online transformation

APP becomes the main battlefield

Content drives growth

Robo-advisor becomes widespread

(II) Advisory + content ecosystem

In the future, it won’t be just allocation. It will be:

👉 Content + services + community

Strengthen trust through continuous content output.

(III) Evolve from fund investment advisory to full-asset investment advisory

In the future, it will expand to:

ETF allocation

Global assets

Alternative investments

Form a true “family asset management platform.”

8. Conclusion: This is an industry reshaping

Fund investment advisory is not a simple new business; it is:

👉 A fundamental shift in the commercial model of the securities industry.

In one sentence:

In the past, brokerages made money from “trading”; in the future, they will make money from “trust.”

Who can do it:

Client-centered

Provide a long-term, stable return experience

Build deep trust relationships

Will win in the competition over the next 10 years.

If we look from the perspective of someone with 20 years of industry experience, the importance of this round of change is no less than the earlier transformation from the branch-office era to internet brokerages.

But this time is deeper, because it does not only change the channel—it changes:

👉 the entire industry’s way of creating value.