Xiangcai Securities: Grasping the Passiveization Trend of Securities, Accelerating the Transformation of Buyer's Investment Advisors.

Shaanxi Securities released a research report stating that the US investment advisory industry has undergone a transformation from a seller-oriented to a buyer-oriented model. In the context of long-term decrease in mutual fund fees, top wealth management institutions have seized the opportunity of index fund development to accumulate client assets, while accelerating the transformation to a buyer-side advisory model to offset the impact of fee reductions. The reform of mutual fund sales fees in China has been implemented, and the trend of fee reduction and expansion is inevitable. Low-fee ETFs are developing rapidly, with securities firms having significant advantages in both ETF sales and advisory services. It is recommended to focus on top brokerage firms with strong customer acquisition capabilities, comprehensive ETF service capabilities, and fast-growing advisory business; at the same time, pay attention to third-party advisory institutions with strong referral and monetization capabilities, as well as a rich product range, maintaining an "increase holdings" rating for the industry. Key points from Shaanxi Securities are as follows: The growth in wealth management demand, coupled with intensified commission competition, is driving the transformation of the US investment advisory industry towards a buyer-oriented model. Since 1970, the US has started to liberalize interest rates and commissions. Discount brokerage models have become prevalent, leading to a decline in industry commission income. Traditional financial institutions have focused on wealth management business, but selling financial products remained the early model of advisory services. The emergence of commission-free funds has disrupted the seller-oriented advisory model that primarily relied on fund sales fees, prompting distribution agencies to transform into buyer-side advisory services. From the demand side, retirement assets, especially DC plans and IRA holders, enter the market through mutual funds, with residents lacking expertise more inclined to seek advice from investment advisors, further driving advisory demand. Since 2000, the dual-track system has greatly expanded financial products and services, with the number and scope of institutions offering advisory services continuing to grow. Between 2000 and 2008, the assets managed by US advisory institutions grew at a CAGR of 7%, with the number of institutions increasing by 69% compared to 2000. Brokerages and independent advisory institutions are the main channels for fund investment and advisory services. After 2008, financial technology has rapidly developed, intensifying competition among online brokerages. The trend towards zero commissions has made profit models based on existing customers increasingly important, prompting online brokerages to enter the advisory business. The rapid expansion of independent advisory firms has led to higher concentration among top firms. US advisory institutions are divided into traditional financial institutions and third-party advisory institutions. Traditional financial institutions include comprehensive financial institutions, national and regional brokerages, retail bank brokerages, and insurance brokerages. These types of investment advisors or institutions are directly employed or outsourced by companies, with advisors having limited ownership and operational rights, as well as lower revenue sharing ratios. Third-party advisory institutions include independent brokerages, hybrid RIAs, and independent RIAs, which operate independently as advisory firms without restrictions from other companies and offer more flexible services, with higher revenue sharing ratios. The market share of hybrid RIAs and independent RIAs has grown rapidly, mainly because RIAs have greater control and flexibility in their business operations, with higher revenue sharing ratios than traditional brokerages. Lessons learned: Fund advisory services are crucial for the transformation to a buyer-oriented model. In the case of the US, index products represented by ETFs have rapidly expanded and become the main types of products advised by investment advisors. In China, policy initiatives promote the development of index-based investments, leading to the rapid growth of ETFs, which cover a wide range of underlying assets such as stocks, bonds, and commodities, enriching advisory strategies and providing important tools for buyer-oriented advisory services. At the same time, the pilot conversion of fund advisory services to regular services is expected to accelerate, becoming a key driver for the transformation to buyer-oriented advisory services. Fund advisory services can be fee-based on client asset size, with brokerage firms with economies of scale speeding up the transformation of advisory services to achieve a balance between quantity and price. From the perspective of investors, China has a large number of existing investors, with a younger structure of new clients. The importance of customer segmentation and precise operations for advisory services is becoming more prominent. Facing the investment advisory demand of the new generation of investors, brokerages or other third-party advisors should enhance the richness and precision of service content and product types, diversify their distribution channels, and increase customer conversion rates. Furthermore, the rise of smart advisory services in the US effectively meets the wealth management needs of long-tail clients and further promotes the development of ETFs. With a large long-tail customer base in China, combining ETFs with smart advisory strategies can better meet the needs of this segment, with strategy development and smart advisory capabilities becoming the core competitiveness of future advisory services. Risk factors: Changes in the external environment leading to a decrease in risk appetite in the equity markets, affecting investor demand for advisory services; policies promoting high-quality development in the capital market falling short of expectations; stricter industry regulations exacerbating fee reductions and causing business income to decline more than expected, among other factors.