The banking wealth management sector in China is undergoing a significant transformation, despite its ongoing growth. An important milestone was reached when Zhejiang Bank Wealth Management received approval for establishment on December 29 of last year. However, ever since that approval, the issuance of wealth management licenses to small and medium-sized banks has come to a standstill. The regulatory environment has intensified with new requirements aimed at limiting the size of proprietary wealth management operations, and further regulatory ratings frameworks are on the horizon.

A professional from a city commercial bank expressed, “In the face of a countdown for the clearance of existing wealth management products, and with regulators focusing more on quality rather than quantity, an increasing number of small and medium-sized banks are now exploring transformations in their wealth management services.” This sentiment reflects a broader trend among these institutions seeking innovative channels to maintain customer loyalty and expand their offerings.

Reports indicate that to enhance customer retention, many smaller banks are actively pursuing new routes, including improving distribution channels and collaborating with wealth management companies. Such partnerships are envisioned to unlock new avenues for business growth amidst mounting pressures from regulatory expectations, mandating banks to not only control the scale of their wealth management services but also improve the quality.

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Looking ahead to 2025, industry professionals anticipate that competition among banking wealth management companies will escalate, accompanied by stricter regulations. Going beyond merely innovating products and enhancing research capabilities, the wealth management sector is also encouraged to broaden its product line, widen sales channels, and accelerate digital transformations to stay competitive in the evolving financial landscape.

The shift toward distribution channels has gained momentum, with many smaller banks seeking partnerships to facilitate the sale of wealth management products through external channels. As reported, increases in collaboration dynamics between smaller banks and wealth management companies have been noted, as the former attempt to navigate regulatory pressures aimed at reducing their scale of wealth management services. Financial institutions are branching out to explore various distribution resources, which has led to a notable uptick in the number of affiliated distribution agencies.

According to the mid-year report on China's banking wealth management market for 2024 published by the Banking Wealth Management Registration and Custody Center, there are currently 511 institutions authorized to distribute wealth management products, up from 20 institutions last year, marking a new high. Among the 31 operational wealth management companies, 28 have already established distribution capabilities beyond their parent banks, tapping into external banking channels as a critical part of their strategy.

Industry analysts have pointed out that for many small and medium-sized banks without their own wealth management licenses, exploring distribution partnerships can yield considerably quicker business growth compared to pursuing license applications. This is especially relevant as they commence to expand their cooperation channels for external distribution.

<p“A key strength of small and medium-sized banks lies in their local customer resource advantages, presenting them with specific advantages in sales channels,” noted a representative from a regional city bank. “Moreover, by amplifying their distribution efforts, these banks can diversify their wealth management product offerings, enhance customer stickiness, and consequently elevate business revenue.”

Interestingly, within this year, numerous wealth management firms have been expanding their distribution networks, initiating collaborations with local agricultural banks and provincial associations. Smaller regional banks that do not yet have their own wealth management corporations are stepping up their partnerships with established wealth management companies, establishing a distribution model to compensate for losses in intermediary business revenues.

A prominent example is Xingyin Wealth Management, which significantly increased its distribution channel efforts in the first half of the year. The company revealed that it had established partnerships with over 510 small and medium-sized banks for distribution, resulting in a wealth management balance of 195.8 billion yuan, exceeding 14 billion from the end of the previous year. Another major player, Zhaoyin Wealth Management, stated that it aligned its strategies closely with market needs and client demands, ramping up investments in short-term debt and fixed-income products while innovating features such as a 24-hour operational capability for short-term debt investments to enhance client experiences.

Statistics from third-party firm FaXun Financial indicate that Xingyin Wealth Management leads the sector with 866 products distributed via 493 external banks, a notable achievement within this competitive landscape. Moreover, other companies such as Nanyin Wealth Management, Huaxia Wealth Management, and Ping An Wealth Management have also established more than 100 external distribution channels, showcasing the robust nature of this market adaptation.

Moreover, banking wealth management companies are systematically constructing direct sales channels, enhancing comprehensive channel building. Representative of shareholding banks, these companies are utilizing social media platforms, official websites, video accounts, and mobile applications to extend their direct sales channels, putting an emphasis on providing clients with financial management tools, investment advisory services, and other value-added features for enhanced customer experience.

Recent reports indicate that 18 wealth management companies have embarked on direct selling initiatives, generating a cumulative direct sales amount of 233.1 billion yuan in just the first half of the year. In addition, steps are being taken to develop distribution channels for Internet banking, with major players like My Bank and WeBank establishing partnerships with over ten distribution agencies.

The steady rise in distribution interactions has been pivotal for smaller banks that have not yet obtained wealth management licenses. Industry experts maintain that enhancing their selection of distributed products, integrating financial technology, and improving customer service are key areas where small banks need to bolster their capabilities to cultivate a distinctive distribution system.

A representative from a city commercial bank in East China observed that the disparate resource endowments and business strategies across different wealth management firms contribute to varied approaches when expanding external distribution channels. State-owned bank wealth management firms tend to be more conservative regarding non-parent channels, while shareholding bank wealth management firms are generally more open to these opportunities.

Notably, data from FaXun Financial indicates that organizations like Jiannong Wealth Management, Nongyin Wealth Management, and Gongyin Wealth Management have fewer than 20 distribution agencies, showing varying responsiveness in strategy implementation. Some shareholding banking wealth management companies, such as Everbright Wealth Management and Minsheng Wealth Management, are similarly exhibiting a cautious approach with a limited number of distribution partnerships.

“In contrast, shareholding banks and local small banks exhibit greater motivation for expanding non-parent sales channels. Currently, we see them collaborating not only with state-owned banks and other shareholding banks but also proactively seeking to develop ties with rural commercial banks and credit cooperatives,” added the aforementioned city bank representative.

Dai Zhifeng, head of the research institute at Zhongtai Securities, emphasized that as the substitution effect of banking wealth management products against deposits increases, it is essential for wealth management companies to have not only compelling product designs but also a strong focus on their sales channels. Similar product attributes can lead to greater scale and profitability for those with advantageous channels.“A meticulous due diligence process concerning distribution agencies is essential. We assess factors such as distribution data, staffing situations, and governance before collaboration. We prefer associations with those local small banks that hold unique resources and client advantages,” a representative from a wealth management firm remarked, highlighting the strategic criteria for establishing successful partnerships.