Donghai Securities: Public Offering Fee Reform Implemented in Three Phases, Differentiated Arrangements Continuously Optimizing the Industry Ecology.

East China Securities released a research report stating that the three-stage reform of public fund fees has officially been fully implemented. The reduction of subscription and redemption fees under the current rate discount has limited overall impact, but including full redemption fees in fund assets will enhance the stability of fund operations and effectively protect investors' interests. In addition, the reduction of sales service fee rates and the collection of sales service fees only in the first year for non-money market funds will promote the development of long-term investment behaviors and habits. At the same time, setting different commission ratios will also guide sales institutions to focus more on individual investors and equity funds. East China Securities believes that the high-quality development of the public fund industry under policy regulations is promising, providing a positive stimulus to brokerage business growth. It is recommended to focus on the main themes of mergers and acquisitions, transformation of wealth management, innovation in license expansion, and ROE improvement, and to consider investing in large brokerages with strong capital strength and stable business operations. The main points of East China Securities are as follows: Event: The China Securities Regulatory Commission revised and issued the "Regulations on Sales Expenses Management of Publicly Offered Securities Investment Funds" on December 31, 2025, which came into effect on January 1, 2026, marking the full implementation of the three-stage reform of public fund fees. Optimization suggestions in four dimensions further refine sales expenses in various aspects. Compared to the consultation paper published in September 2025, the new regulations have been further optimized in multiple dimensions after fully incorporating market feedback. The core differences are concentrated in four areas: 1) further refinement of subscription and redemption fees, with index funds isolated from the stock and mixed fund categories in the consultation paper, with their subscription and redemption fee rates capped at 0.3%, while the active equity fund maintains an upper limit of 0.8% and other mixed funds maintain an upper limit of 0.5%, further enhancing the orientation towards index products; 2) more flexible redemption fee rules, including exemptions from fixed redemption fees for ETFs, interbank deposit funds, and money market funds in the consultation paper, adding provisions for individual investors holding index funds and bond funds for over 7 days, as well as institutional investors holding bond funds for over 30 days to agree on additional redemption fees, easing concerns in the market about the weakening of liquidity of bond funds; 3) clearer exemption scope for sales service fees, specifying that all types of funds, except for money market funds and other funds approved by the CSRC, will no longer charge sales service fees after holding for one year, including FOFs and QDIIs that were previously unclear, while retaining the sales service fee rules for money market funds; 4) more lenient rectification period, extending the adjustment period of sales expenses structure and rate levels for existing funds from the consultation paper's 6 months (12 months for those requiring information technology system transformation) to 12 months, providing the industry with more adequate adaptation time, and adding a clause prohibiting fund managers from implementing discriminatory and exclusive sales arrangements, strengthening the principles of fair sales. For investors, investment costs will significantly decrease, strengthening the focus on long-term investment. In addition to the results of the previous two stages of fee reform, the new regulations will result in an annual total of over 50 billion yuan in concessions to investors in the public fund industry, with sales expenses contributing approximately 30 billion yuan. Specifically: 1) substantial reduction in subscription and redemption fees, with subscription fees for stocks and mixed funds at 1.2% and redemption fees at 1.5%, subscription fees for bond funds at 0.6% and redemption fees at 0.8%, the consultation paper unifies subscription and redemption fees, and reduces the upper limit of subscription and redemption fees for active equity funds, mixed funds, and bond/index funds to 0.8%, 0.5%, and 0.3% respectively; 2) the rule that all redemption fees are included in the fund assets completely cuts off the path for sales institutions to profit by inducing "sell old, buy new", while the differential design of high redemption fees in the short term (not less than 1.5% within 7 days) and exemption from sales service fees in the long term effectively encourages investors to give up short-term speculation and practice long-term investment, enhancing the investment experience and smoothing fund operation fluctuations. For fund sales institutions, although facing profit pressure, it accelerates industry transformation. From a profit perspective, the reduction in subscription and redemption fees, the expanded exemption scope for sales service fees, and the requirement that fund advisory businesses do not charge customer maintenance fees directly compress the core income sources of distribution institutions, especially small and medium-sized sales institutions relying on trailing commissions will face significant profitability challenges. On the channel competition front, the new regulations clarify that fund managers can sell their own products directly exempt from subscription and sales service fees, combined with the establishment of industry investor direct sales service platforms (FISP platform), the cost advantages of direct sales channels will be significantly highlighted, expected to divert part of cost-sensitive institutions and individual investors, and the market share of distribution institutions may further shrink. In terms of transformation direction, the new regulations will push sales institutions to shift from "emphasizing scale and volume" to "emphasizing service and customer retention", requiring institutions to abandon a simplistic product sales mindset and transition to providing solutions through enhancing asset allocation recommendations, investment advisory services, and other professional capabilities, in order to stand out in the competition. Furthermore, with the advantage of exempting redemption fees, ETFs will see enhanced sales competitiveness, becoming a focus area for leading sales institutions. In terms of industry ecology, pushing public funds towards a new stage of high-quality development and accelerating industry differentiation and integration. For fund managers, medium and small companies will face short-term pressure from declining income, but the new regulations encourage the development of equity funds by setting a limit on the ratio of customer maintenance fee payment (encouraging the development of equity funds), forcing managers to focus on enhancing investment management capabilities, attracting investors through performance rather than channel advantages, reinforcing the competitive logic of "performance is king". At the industry level, the core research and service capabilities of medium and small institutions will face greater pressure, industry resources will be further concentrated in leading institutions, promoting an increase in industry concentration. In terms of ecological optimization, the new regulations clearly state that settlement fund interest belongs to investors, and prohibit discriminatory sales practices, further purifying the industry environment and addressing long-standing issues such as "selling old and buying new" and "double charging". Meanwhile, the three-dimensional fee reduction system formed by fee reform significantly enhances the industry competitiveness of public funds, helps guide more household wealth into the capital market through public funds, and lays a solid foundation for empowering household wealth management and serving the development of the real economy. Investment recommendation: The three-stage reform of public fund fees has officially been fully implemented, with the reduction of subscription and redemption fees limited in overall impact under the current rate discount, but including full redemption fees in fund assets will enhance the stability of fund operations and effectively protect investors' interests. In addition, the reduction of sales service fee rates and the collection of sales service fees only in the first year for non-money market funds will promote the development of long-term investment behaviors and habits. At the same time, setting different commission ratios will also guide sales institutions to focus more on individual investors and equity funds. We believe that high-quality development of the public fund industry under policy regulations is promising, providing a positive stimulus to brokerage business growth. It is recommended to focus on the main themes of mergers and acquisitions, transformation of wealth management, innovation in license expansion, and ROE improvement, and to consider investing in large brokerages with strong capital strength and stable business operations. Risk warning: Significant fluctuations in the equity market affecting stock trading activity, decreased investor risk appetite leading to lower market sentiment, macroeconomic downturn impacting market fundamentals, and policy implementation falling short of expectations.