The Difficult Road to Transformation (Part One): How Many Barriers Must "Move Toward the Buyer" Break Through?

Ask AI · Why Has Wealth Management Transformation Fallen Into a Standoff Between Business Logics?

Special Contributor Wang Lining; Jingji Daily (Economic Information Daily) reporter Xia Xin; reporting from Beijing and Shanghai

At the regulatory level, guidance is being actively provided, and industry consensus has already formed: the wealth management industry needs an in-depth transformation that shifts from selling to serving buy-side clients. When you open the annual reports, strategic plans, and external communications of major institutions over the past few years, you will find that phrases such as “customer first,” “fulfilling fiduciary duties,” “long-term companionship,” and “shifting to the buy-side” appear with striking frequency. On the surface, the banner of buy-side advisory is being raised ever higher by more and more institutions.

But beneath the banner lies a different reality: in the day-to-day work of front-line advisors, institutions still operate primarily around product sales. New “hit” funds are pushed to clients first; when market conditions change, the first thing to consider is how to rebalance and drive transactions; and when year-end volume-boosting pressure is transmitted downward, the advisor fees are far less tangible than commissions…

Clearly, the road between policy consensus and real-world implementation is still long and arduous. Of course, the dilemma is not a problem limited to a single institution—it is a widespread experience across the entire wealth management industry along the path of transformation. The logic of buy-side advisory is not complicated: from the customer’s standpoint, centered on asset allocation, carried out through long-term companionship, and aimed at delivering genuine customer “real gains.” However, once this seemingly clear path enters the interior of institutions, it quickly splits, detours, and sinks into the mud.

Where, exactly, is the transformation getting stuck? In interviews with multiple brokerages, public fund managers, and third-party wealth management institutions by reporters from the China Business News (中国经营报), a “dilemma map” made up of three layers of obstacles gradually becomes clear: the fundamental conflict between sell-side and buy-side business logics; a gap in advisory talent and a systems-level shortfall in professional capabilities; and deep attachment to old successful pathways—these together form roadblocks that are not easy to overcome on the way to buy-side advisory transformation. Understanding these dilemmas is the prerequisite for grasping why buy-side advisory transformation is so difficult.

Fundamental Conflict of Business Logic

In the past, under the sell-side model, the revenue logic for investment institutions was straightforward: once products were sold, the commission was realized in the period, and the client’s subsequent investment experience had no direct linkage to the institution’s revenue. After operating this way for many years, a self-consistent evaluation system, incentive mechanisms, and product logic were formed.

But buy-side advisory has radically different requirements: revenue is tied to the long-term retention and appreciation of customers’ assets; the upfront investment is large and the payback period is long—returns need to be realized only after assets under management accumulate to a certain scale.

This means that, in general, sell-side advisory tends to anchor on short-term scale and current-period profit, while the underlying logic of buy-side advisory is customer interest first, with long-term returns as the priority. Since these two underlying logics involve a fundamental value rift, the mismatch is inherent.

“An adaptation problem between the business logic of the sell-side model and the value orientation of the buy-side model is the core contradiction in an institution’s transformation to buy-side advisory.” A relevant executive from Citic Securities said that the sell-side model focuses on product provision and transaction services, aligning with certain clients’ immediate trading and single-product allocation needs, and is an important component of a broker’s wealth management business. The buy-side model centers on identifying and matching clients’ risk–return characteristics, focusing on diversified allocation solutions and full lifecycle services. The two differ in core appeals and in the client groups and scenarios they serve. While top-tier institutions may have the resource endowments and organizational capabilities to break through existing systems, for many mid-sized and small institutions, the difficulty of replication is not to be underestimated.

In an interview with reporters, the chairman of Yimi Fund, Xiao Wen, said that the features of buy-side advisory are “high investment upfront but low afterward, with low returns upfront and high returns later.” The underlying logic is “customer interest first, with long-term returns prioritized.” Meanwhile, the equity structure, management-layer evaluations, and business targets of licensed financial institutions are generally anchored to short-term scale and current-period profit. These two underlying value foundations are fundamentally incompatible.

“Previously, institutions’ earnings mainly came from transaction commissions and product distribution fees. This profit logic has been deeply embedded into the institution’s evaluation and incentive framework.” Xu Haining, founder, chairman, and CEO of Shanghai Zhixun Technology, said that in the buy-side model, the source of revenue undergoes a fundamental shift: advisory fees and asset management fees become the core. In terms of driving direction, the two business logics are fundamentally opposed—under the sell-side model, incentives encourage selling more and faster; under the buy-side model, it requires putting the long-term appreciation of clients’ assets first. Constrained by existing institutional structures, the intrinsic motivation for advisors to conduct buy-side services is suppressed at its source, thereby forming the deepest institutional obstacle to transformation.

This contradiction is also laid bare in the evaluation mechanisms.

Xu Haining pointed out that currently, most institutions’ core performance indicators still emphasize sell-side dimensions such as “sales scale” and “commission income,” while the weight of buy-side indicators is clearly too low. At the same time, the tendency toward short-term evaluation periods is hard to match the service nature of buy-side advisory. “Executive terms are typically three years, and operating evaluations are on a one-year cycle. But the long-term companionship and value accumulation emphasized in buy-side advisory often require a longer time horizon to fully show results. This mismatch means that institutional resistance to transformation is already formed at the level of evaluation design.” Xu Haining said.

It is understood that in the past, within the evaluation mechanisms of investment institutions, the board of directors and shareholders’ meetings have long focused on hard indicators for management—annual revenue, profit growth rate, and short-term AUM scale. Management compensation levels, appointments and removals, and even promotion pathways are all highly bound to short-term performance.

Under the sell-side model, the revenue logic is clear: sell the product, and the commission is realized in the period. An institution’s income is essentially locked in at the moment the transaction is completed; the client’s subsequent investment experience is no longer directly connected to the institution’s revenue. After years of operation, this model forms a complete set of mature evaluation systems, incentive mechanisms, and product logic—and in the process, it has cultivated a large group of vested interests: from senior executives to front-line wealth managers, every person who succeeded under the sell-side logic has, in an invisible way, become a defender of that logic.

Xiao Wen said that buy-side advisory requires using client retention volume, account real returns, average holding period, and sustainable advisory-fee income as core evaluation metrics. These indicators have long cycles and slow visibility, which are inconsistent with the current-period operating goals pursued by management. This contradiction leads to an industry-wide “dual-track evaluation” phenomenon: formally including buy-side indicators, but in reality still using sales indicators as the basis for allocation. Advisors “turn talk into the branding, but do not turn action,” and evaluation cannot truly switch to a buy-side orientation.

Tian Xuan, a professor of Peking University’s Boya Distinguished Professorship, pointed out that when evaluation weight is excessively tilted toward quarterly or annual scale growth and commission income, advisors in practice are forced to rebalance frequently to cater to clients’ short-term return expectations, rather than following the long-term allocation logic of assets. Under this kind of evaluation orientation, the standards of “doing the right thing” and “doing it well” do not align with the “customer first” direction required by buy-side advisory.

This contradiction also exists when building product systems within investment institutions.

Brokerages, public funds, and similar institutions often have multiple independent profit units inside them, such as asset management and public funds. With department separation and a “profit center” mechanism, product screening tends to prioritize internal product routing and high-commission product sales to achieve short-term performance across business segments. But buy-side advisory requires that the product system be optimized across the entire market, with zero-interest binding, and with matching clients’ risk–return profile as the sole standard. The internal interest barriers created by the organizational structure prevent institutions from constructing a truly independent buy-side product shelf; the product system cannot escape the path dependency of sell-side sales.

Tian Xuan, a professor of Peking University’s Boya Distinguished Professorship, believes this is a “lack of neutrality in the product system.” Traditional sell-side institutions tend to prioritize recommending products managed by their own units or related parties, using products with high commissions and high market heat as the core product shelf. Meanwhile, the basic requirement of buy-side advisory is to start from client needs, select the best tools across the entire market, and use matching clients’ risk–return profile as the only standard. This directly conflicts with the product logic of the sell-side model. In real operations, even if some institutions label themselves as buy-side advisory, they still apply the sell-side product sales logic, leading to a transformation that is “name only, reality not present.”

“The core contradiction of transformation is not the business, not the technology, but the underlying distribution of interests determined by the organizational structure and evaluation mechanisms. If you do not change this foundation, then buy-side advisory transformation can only remain superficial.” Xiao Wen summarized.

Talent Shortage and Capability Gaps

Even if consensus is formed at the level of interest structures to drive transformation, in the execution stage institutions face another equally troublesome obstacle: a systematic capability gap in talent. And among all the bottlenecks, this is the most time-consuming and hardest to achieve quickly.

The capability requirements for advisors in buy-side advisory are fundamentally different from those of traditional sales-oriented wealth managers. The latter’s core skills are product promotion and maintaining customer relationships. Buy-side advisory, however, requires understanding asset allocation and portfolio management, and also deeply understanding clients’ financial goals, risk preferences, and behavioral psychology. It also requires a composite knowledge reserve in areas such as tax planning, legal structures, and retirement planning. Under the old model, in the past decade or more, the industry has densely produced sales talent under the sell-side logic. But what is needed now is a new type of practitioner that has previously not been cultivated at scale.

Tian Xuan believes that under the buy-side advisory model, the core responsibilities of advisors shift from “product sales” to “full lifecycle wealth management for customers.” But currently, most advisors still remain at a single-point knowledge level, lacking systematic training and practice-based accumulation.

Relevant people from Citic Securities also acknowledge that within the advisor industry, talent who has comprehensive configuration capabilities still remains scarce. Professional competence in asset allocation requires systematic cultivation and is difficult to fill in the short term through hiring or training.

Regarding the current talent gap problem in buy-side advisory, Xiao Wen also holds that domestically, composite talent who can integrate investment research, trading, and customer service capabilities is relatively scarce, and it is difficult to fill the gap quickly.

“The deeper problem is that most practitioners have already formed stable behavioral inertia under the sell-side logic. Traditional front-line wealth managers are used to earning compensation through volume-based evaluations, expanding scale, and the mindset of selling first-issue funds. To give up short-term high commissions and switch to long-term advisory fees, without a reasonable transition mechanism, the willingness of the team to cooperate itself becomes a challenge.” Xiao Wen said. That is why, for the capability transformation of the advisor team, it must be based on rebuilding evaluation and incentive mechanisms. If evaluation metrics still primarily follow the sell-side logic, then even if advisors have buy-side capabilities, they will lack the motivation to actively deliver buy-side services.

In response to the current talent and capability gaps, Xu Haining offered a straightforward analogy with a “marathon.” “If you don’t accumulate enough running volume day to day each month, when you get on the track you won’t have muscle memory. You don’t know how to breathe, how to generate power, and how to allocate your energy.” Xu Haining explained that “advisors are the core carrier of buy-side advisory services. All transformations ultimately need to be implemented by advisors to reach clients. The capability transformation of the advisor team is the foundation for transformation success. Training buy-side advisors is not something that can be done in a single day; it requires long-term theoretical training, hands-on rehearsals, and real-world accumulation.”

Xu Haining added that “even if you complete theoretical training, if you return to work and there is no supporting work desk, no standardized service process, and no real practical scenarios, advisors still cannot truly apply what they learned.” “It’s like the ‘bookworm type’ in real life: once they get a driver’s license, they still don’t dare to drive because there’s no car.”

There is also a serious adaptation challenge on the side of existing clients. For a long time, in sell-side model environments, investors have formed behavioral inertia of “chasing rallies and selling in panic,” and “maximizing short-term returns,” and they have an instinctive resistance to buy-side models where advisory fees are charged based on scale or service.

Liu Yuzhen pointed out that for a long time, Chinese investors have generally formed operational inertia of “chasing rallies and selling in panic” and “maximizing short-term returns,” and lack recognition and acceptance of buy-side advisory concepts such as “long-term holding” and “goal-oriented” approaches. The more realistic problem is that clients have an obvious aversion to the buy-side advisory model of charging service fees based on scale.

“In the existing cognitive framework of the vast majority of investors, traditional product sales do not require extra payment. Buying a fund itself is considered to be the whole of the service. But when buy-side advisors charge advisory fees, it is seen as an additional cost—what lies behind that cost is long-term value that has not yet received broad market recognition.” Liu Yuzhen said.

As for why, traditional product sales are “free” in clients’ perception, whereas the paid-service logic required by buy-side advisory needs clients to complete a restructuring at the level of cognition.

In Tian Xuan’s view, because existing clients have long formed rigid return expectations and product-dependence inertia, they will significantly increase the difficulty of adapting to buy-side advisory services. This is work that cannot be replaced through technical means, nor can it be achieved quickly in the short term. Therefore, reforming the mindsets of existing clients cannot be solved systematically; it requires professional advisors to provide long-term educational support and companionship. This, in itself, is an engineering effort that consumes enormous manpower and time.

Wu Fei, professor at Shanghai Advanced Finance Institute of Shanghai Jiao Tong University, believes the hardest bottleneck to break through right now is “rebuilding customer cognition and trust.” Because even if an institution solves internal mechanism and technology problems, if clients do not understand, do not accept, and do not pay, the transformation lacks a sustainable commercial foundation. This requires improving financial literacy across society and cultivating a culture of long-termism.

There is also a clear lag at the technology level. Most existing systems are designed with a sales orientation and cannot effectively support functions needed by buy-side advisory, such as tracking customer objectives, dynamically alerting on risk exposures, providing portfolio rebalancing recommendations, and generating personalized reports.

Xiao Wen mentioned that the current common state in the industry is that front-line advisors heavily rely on individual experience, with fragmented workflow, manual operations, and non-standardized service outputs. This makes it difficult to ensure stable service quality and also impossible to provide large-scale, inclusive services. What buy-side advisory needs is a digital middle platform that covers the full process of “investment research decisions—portfolio construction—risk monitoring—client companionship.” But in most institutions, this is nearly a ground-up construction project.

Talent, tools, and scenarios are interdependent. Yet in the current buy-side advisory market, the relationship among the three is highly tense. Without tools, even capable advisors cannot serve efficiently; without scenarios, trained talent will quickly churn out; without talent, even the best tools become mere fixtures. This situation traps buy-side advisory capability building in a dilemma of “which comes first—chicken or egg”: either the missing tools prevent capability building, or the missing talent prevents tool usage, and so on endlessly.

It’s hard to break free from old path dependence

Behind the rift in interest structures and the break in execution capabilities, investment institutions also face a deeper dilemma that cannot be easily quantified, evaluated, or changed—and this becomes the most difficult roadblock to move on the way to buy-side advisory transformation.

Asset management institutions have accumulated successful paths after years of operating under sell-side models. In the organization, from executives to front-line advisors, and from product departments to compliance teams, members have an almost instinctive attachment to old successful pathways. Institutions’ tolerance for fundamental change is extremely limited.

Tian Xuan believes this is an “inertia of organizational mindset.” Buy-side transformation requires management to the front line to completely abandon the “sales-first” gene, establish a long-termism culture centered on “service,” and be willing to endure the “income pain” during the transition period. For institutions that have long depended on the commission-driven logic, that means a self-denial-style revolution—so it is obvious how enormous the resistance would be.

On the front line, this path dependence manifests even more concretely and is harder to intervene in.

“Many traditional wealth managers at the front line have long been accustomed to earning compensation through volume-based evaluations, expanding scale, and selling first-issue funds. After transforming to advisory, it is still difficult to eliminate the ‘sell-side sales’ mindset inertia.” Xiao Wen said—this is a contradiction that is common across the industry.

“To give up short-term high commissions and shift to long-term advisory fees is a dual restructuring of both revenue sources and working methods. Without a reasonable transition mechanism, it is hard for teams to truly cooperate.” Xiao Wen said. “The core of this issue is not whether advisors agree with the buy-side philosophy; it’s the huge gap between agreement and action.”

So, from the external viewpoint of investment institutions, the banner for buy-side advisory transformation has already been changed. But in everyday customer contact and product promotion, sell-side sales logic continues to quietly drive every small, concrete decision.

Some practitioners believe the deeper root cause lies in the fact that individual incentive structures have not truly been rebuilt yet. When evaluation indicators are still dominated by sales scale and commission income, and when monthly and quarterly performance pressure is actually placed on advisors’ shoulders, the rational choice is essentially only one: under the slogans of buy-side, continue moving along the sell-side track. As a result, “transformation” becomes a kind of surface-level language update rather than a substantive behavioral change.

Liu Yuzhen was direct: the traditional advisory model brings with it established success experience and vested interests, causing the organization to generate enormous internal and external resistance when facing transformation. Even if senior managers have strategic resolve, the inertia of self-interest on the front line often prevents reforms from taking root.

Interviewees believe that the failure of transmission between executive will and grassroots execution within investment institutions does not come from deliberate opposition by subordinates. Rather, it originates from a more fundamental fact: within an incentive mechanism where sales metrics are the core, choosing behaviors that fit the buy-side logic means actively damaging one’s own interests under the existing rules framework.

Before rebuilding the incentive mechanism, the widespread occurrence of such behavior is itself contrary to common sense.

In Liu Yuzhen’s view, the transformation first faces risks such as short-term income pressure and declining market share. This will cause some institutions to repeatedly “jump back and forth” during the shift to buy-side advisory: when market conditions are favorable, they have spare capacity to explore buy-side models; but once market turbulence occurs or short-term performance pressure rises, they quickly revert to sell-side behavior patterns to cover gaps with rapidly realized commission income. This wavering state of “forward in fair winds, retreat in headwinds” makes transformation face the risk of being reset at any time.

And in the context of ongoing reform to reduce fees in the asset management industry, the urgency to “do the math” is further increasing. Multiple interviewees admitted that the commission income from product sales and the space for management fee splits that the sell-side model depends on are being systematically compressed, but the replacement of buy-side model earnings still needs time to be established. For mid-sized and small institutions whose finances are already not comfortable, the “window period” in the middle—when income is temporarily absent—is a real make-or-break moment. For investment institutions under pressure, resolving the dilemma of “survive in the short term” versus “most likely be right in the long run” is not easy.

At the compliance and internal control level, this path dependence also leaves a deep institutional gap.

Tian Xuan believes that most of an investment institution’s current compliance systems are designed around “product sales compliance,” covering traditional scenarios such as fund sales, information disclosure, and suitability management. But the buy-side advisory model generates new types of service behaviors—continuous portfolio optimization, asset rebalancing based on clients’ life cycles, intervention recommendations from the perspective of behavioral finance, and long-term tracking of progress against objectives. Under the current compliance framework, the boundaries are blurred and the standards are unclear. The compliance system lacks dispute-resolution and compensation mechanisms specifically for buy-side advisory services. Once service disputes arise, institutions are likely to expose legal risks.

Hu Conghui, deputy dean of the School of Economics and Business Administration at Beijing Normal University, believes that capability transformation and cultural reshaping in buy-side advisory involves reassigning interests, and in the short term, resistance is the highest and this is also the most path-dependent characteristic. Precisely because the old model is still continuously producing visible returns, the cost of breaking it will be so heavy.

The rift in business logic, the break in the capability system, and the inertia of reliance on old models—these roadblocks on the path to buy-side transformation for investment institutions each have real weight. They require real costs to cross. What lies in front of institutions is a long road with no shortcut.