The landscape of financial company ratings under the big test: leading firms trimming down while smaller ones add on

Li Jing China Securities Journal

Currently, the wealth management industry is witnessing a striking contrast: on one side, leading institutions are proactively “slowing down” and optimizing product structures, transitioning towards quality-oriented strategies; on the other side, some small and medium-sized wealth management companies are caught in scale anxiety, striving to “boost volumes” by relying on parent bank channels.

This divergence is closely related to the recently issued “Interim Measures for the Regulatory Rating of Wealth Management Companies.” The measures are viewed as a watershed moment for the wealth management industry, marking a shift from “scale competition” to “quality competition.” However, for some smaller wealth management companies, scale expansion remains a “defensive behavior.” “Scale is the ‘base score’ for ratings,” described a person from a city commercial bank’s wealth management company, emphasizing that the enhancement of asset management capabilities, risk management, and information technology requires a certain scale for support.

Divergent Development Directions

Although the rating details have yet to be finalized, leading institutions have already begun transitioning towards quality orientation. A survey by China Securities Journal of several joint-stock bank wealth management companies found that a few have made adjustments to their product structures. A person from a leading wealth management company revealed that after the company’s assets briefly surpassed a new threshold, the company actively reduced its scale and has now clearly identified optimizing product structures as a key task. Specific measures include: reducing the scale of cash management products, increasing the issuance of long-term wealth management products, and strengthening the layout of “fixed income +” wealth management products.

In stark contrast to the proactive “slowdown” of leading institutions, some small and medium-sized wealth management companies present a different picture. Journalists learned that some wealth management companies still regard scale growth as a core assessment indicator. Since the beginning of this year, certain city commercial banks have significantly increased their protective measures for their wealth management companies, employing specific tactics such as displaying only their own wealth management products on the first few pages of the bank’s app product listings while tightening the entry conditions for selling other companies’ wealth management products.

According to the measures, the total score for ratings is 100 points, with the weight of each rating element distributed as follows: corporate governance (10%), asset management capabilities (25%), risk management (25%), information disclosure (15%), investor rights protection (15%), and information technology (10%). This is seen by the industry as a turning point for the wealth management sector, shifting from “scale competition” to “quality competition.”

“Scale is the ‘Base Score’ for Ratings”

On one side, leading institutions are actively optimizing structures and “doing subtraction,” while on the other side, some small and medium-sized wealth management companies still prioritize scale growth as a core indicator. The paths may seem opposite, but the goals remain the same—both aim to achieve better results in ratings.

“Scale is the ‘base score’ for ratings,” described a representative from a city commercial bank’s wealth management company. He stated that scoring in dimensions like asset management capabilities, risk management, and information technology is highly correlated with scale. Asset management capabilities assess the investment research system, product line richness, and investment performance stability—these capabilities require sufficient scale to dilute fixed investments. A company managing 50 billion yuan finds it difficult to support an investment research team equivalent to that of a company managing one trillion yuan, naturally putting it at a disadvantage in terms of asset management capabilities. The same applies to risk management; risk control systems, compliance teams, and system construction are all fixed costs. The smaller the scale, the higher the unit cost, making capability building more challenging.

He further explained: “For companies like ours, which are on the smaller side, scaling up is a ‘defensive behavior.’ It’s not because it can directly increase scores, but to avoid problems caused by being too small, such as liquidity tightness and a single product line, which could lead to a plummeting comprehensive score.”

Ongoing Investment Education Upgrades

The measures include investor rights protection as a key assessment element, with a weight of 15%. Coupled with the comprehensive transition of wealth management products to net worth this year, many institutions have reported increased pressure in investment education training.

A representative from a joint-stock bank’s wealth management company revealed that foundational investment education training was already conducted within the system last year, and this year, according to company requirements, investment education training will achieve full coverage of wealth managers within the parent bank. The next step for this institution will be to conduct investment education training for small and medium city commercial banks and distribution agencies. At the same time, the company’s investment capabilities are also transitioning towards net worth, gradually improving in aspects such as product display and product performance stability, in line with the measures.

CITIC Securities Chief Economist Mingming stated that the measures are conducive to strengthening regulatory guidance, leveraging the “guiding role” of ratings to urge wealth management companies to establish a prudent and stable operational philosophy.

(Edited by Qian Xiaorui)

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