Charging Towards Buyers | Tian Lihui from Nankai University: Transition of Buy-Side Investment Advisory Must Abandon "Sales as King" Institutions Need to Undergo Revenue Growth Pains During the Transformation Period

Questioning AI · How can institutions uphold long-termism amid the income pains of transition?

China Economic Journal reporter Luo Ji, Beijing report

“Currently, the ‘long money’ sources flooding into the buy-side advisory market are showing structural changes. To carry ‘long money,’ buy-side advisory institutions must complete a comprehensive upgrade—moving from the outside in.” Tian Lihui, Dean of the Financial Development Research Institute at Nankai University and a professor of finance, said in a recent exclusive interview with reporters from the China Business Journal.

As a key lever for meeting the demand for “long money,” and for sustaining a virtuous cycle in which “long money” keeps entering the market, Tian Lihui believes that the transformation of institutional buy-side advisory needs to break through bottlenecks in core capability leaps and in mechanism and model design.

Moreover, regarding the core contradiction of transformation, Tian Lihui emphasized that from institutional management all the way to frontline employees, they must completely discard the gene of “sales comes first,” establish a long-termism culture rooted in “service first,” and be willing to endure the income pains during the transition period.

In addition, he suggested that regulators, industry associations, and leading institutions should all participate in jointly standardizing market statistical standards, so as to build a long-term service ecosystem.

Structural Inflow of “Long Money”: Institutions Face an All-Around Test of Capability

With China’s capital market advancing toward high-quality development, a large amount of “long money” is flowing into the buy-side advisory market, and its sources show clear structural characteristics.

Tian Lihui said that this round of “long money” funds mainly comes from three channels: first, with the awakening of residents’ savings awareness, massive transfers of deposits from households; second, reforms to the pension system have given rise to the second- and third-pillar pension systems, which systematically enter the market; third, institutional funds such as insurance capital and corporate annuities that pursue absolute returns are reallocated.

This special structure of funding sources means that the investment logic of current capital is fundamentally different from that of short-term “hot money,” and it also creates a need for wealth management institutions to transform into buy-side advisory.

Tian Lihui believes that the core demands of “long money” are “emphasizing reallocation rather than timing, emphasizing win rates rather than odds.”

That is, the primary goal of this kind of capital is steady value growth across cycles. It can withstand short-term volatility in exchange for a long-term risk premium. Its core demand is to seek an investment process that is explainable and replicable, along with a good experience of holding, thereby countering the impulse toward “short-term behavior” in human nature.

“This determines that the investment behavior of ‘long money’ must be disciplined and allocation-driven. Under this change, institutions urgently need to achieve a leap in buy-side advisory capabilities and fill in shortcomings, so as to meet the demand for ‘long money,’” Tian Lihui stressed.

Based on his observations, leading institutions are driving the leap in core capabilities from “single-product research” toward “asset allocation from an account perspective.”

On the one hand, leading institutions are already able to build diversified portfolios spanning markets and asset classes, and including some alternative assets, and actively manage drawdowns using tools such as risk budget models. On the other hand, the evaluation system is also starting to place outcome indicators such as “the proportion of client profits” and “risk-adjusted returns” at the core.

However, Tian Lihui also pointed out that, overall, buy-side advisory institutions still have shortcomings to address, the most prominent of which are “fragmented capabilities” and “insufficient depth.”

“Both problems mainly show up in three aspects. First, there is a disconnect between investment research and advisory services at current buy-side advisory institutions, making it difficult for professional capabilities to reach clients effectively and with warmth. Second, the talent bottleneck is prominent—there is a severe shortage of advisory professionals with comprehensive skills in asset allocation and behavioral guidance. Third, stress testing for extreme scenarios and contingency plans are still under development, and systematic risk management remains a long and arduous task,” Tian Lihui said.

Therefore, to meet the demand for “long money,” buy-side advisory institutions need to complete a “comprehensive upgrade from outside to inside.”

Tian Lihui offered specific suggestions: in team building, they should cultivate composite talents with “macroeconomic allocation thinking + product solution design + behavioral coaching ability.” In product selection, they should shift from “qualitative evaluation” to “strategic, modular” management based on clear labels, so that products can be flexibly assembled. In expectation management, the core is to use frameworks such as “Four Funds” for managing the capital lifecycle, and to guide clients to focus on long-term goals through continuous companionship.

Breaking Deep-Seated Contradictions in Transformation to Promote Healthy Industry Development

Against the backdrop described above, the transformation of institutions toward buy-side advisory is already on the verge, but there are clear differences in transformation progress among institutions.

In fact, the transformation toward buy-side advisory is not only a matter of upgrading capabilities and filling gaps. If we dig deeper, there is a core contradiction that is difficult to avoid and that urgently needs to be addressed in the process of institutional transformation.

Tian Lihui refers to this contradiction as “the fragmentation of business logic.”

Tian Lihui analyzed that in the past, institutions mainly relied on a “sell-side” income model that depended on transaction commissions. This is incompatible with the “buy-side responsibility” of pursuing increases in clients’ assets.

This contradiction is reflected in performance evaluation: short-term sales KPIs overpower long-term account health. It is reflected in products: “shelf-style” promotion of high-commission products rather than constructing “allocation-based” objective portfolios. And at the micro level, it is reflected in the shortage of professional talent, insufficient technical support, and the difficulty of transforming existing clients.

To break through this contradiction, it is necessary to first overcome the inertia of “organizational mindset.”

“This requires that from management to frontline teams, institutions completely abandon the ‘sales comes first’ gene, establish a long-termism culture rooted in ‘service first,’ and be willing to endure income pains during the transition,” Tian Lihui emphasized.

For example, some institutions find it difficult to advance buy-side advisory transformation in the near term mainly due to concerns that the transformation costs are higher than the benefits. Tian Lihui said bluntly that these concerns are understandable, but they represent short-sighted thinking.

Tian Lihui believes: “Under the inevitable trends of regulatory push and upgrades in client demand, the transformation of buy-side advisory is not an optional cost—it is an ‘investment in survival’ for the industry’s future. The earlier you transform, the earlier you can seize the industry’s development opportunities.”

Based on his observations, the current buy-side advisory market presents a pattern of “leading institutions are steady but slow, while third-party institutions are lively and fast.” This is because the former face huge historical inertia and difficult internal coordination of interests, while the latter, free from the burden of traditional businesses, can quickly build business models aligned with clients’ interests, with higher decision-making and innovation efficiency.

Looking ahead, Tian Lihui expects the industry structure to evolve toward a direction of “competition coexisting with cooperation.”

Among them, leading institutions will promote accelerated systematic transformation through organizational separation such as independent business units, and through an overhaul of evaluation toward long-term indicators such as AUM (Assets Under Management). Their large existing client base and comprehensive resources will serve as a strong backing. Third-party institutions will see competition intensify in areas such as investment research resources, acquiring online traffic, brand competitiveness, and compliance barriers. Ultimately, a symbiotic market may form in which leading institutions dominate the integrated ecosystem, while distinctive third parties deeply cultivate their niche areas.

As for the overall development of the industry, Tian Lihui also pointed out that there are at least three mainstream ways within the industry to measure the scale of buy-side advisory. This makes it difficult for investors to identify truly service-focused institutions. It may also weaken the precision and fairness of regulatory policies (such as classified evaluation). The industry can fall into a “scale-number game,” rather than competing in a distorted way that focuses on improving “client account health.”

Therefore, the industry urgently needs to establish unified and transparent standards for scale accounting.

“Regulators, industry associations, and leading institutions should all participate. First, the industry association should take the lead in clearly defining accounting guidelines; then, regulatory policies should form a pull-through effect; and finally, leading institutions should be encouraged to disclose according to the new standards first, thereby forcing the whole industry to complete the transformation from ‘scale-oriented’ to ‘value-oriented,’” Tian Lihui suggested.

(Edited by Xia Xin, Reviewed by Li Huimin, Proofread by Yan Jingning)