The second phase of fund fee rate reform is launched, prohibiting the exchange of commissions for sales

The second phase of fund fee rate reform is launched, prohibiting the exchange of commissions for sales

In order to further strengthen the management of securities transactions of publicly offered securities investment funds and protect the legitimate rights and interests of investors, the China Securities Regulatory Commission recently announced the “Regulations on Strengthening the Management of Securities Transactions of Publicly Offered Securities Investment Funds (Draft for Comments)” (referred to as the “Draft for Comments”, hereafter ) and publicly solicit opinions from the public. This also means that the second phase of fee rate reform in the public fund industry has officially started. Research by the Guotai Junan investment research team shows that based on 2022 data, with the new regulations implemented in the future, the total stock trading commissions of public funds will drop from 18.868 billion yuan to 12.636 billion yuan, a decrease of 33.03%.

The relevant person in charge of the Tianxiang Investment Consulting Fund Evaluation Center believes that on the whole, the introduction of new regulations in the future will promote the further standardization, professionalization and transparency of the fund industry and the securities firms that provide services to it. In the long run, it will help create a fairer and more effective market environment for investors, contribute to the healthy and sustainable development of the entire capital market, and ultimately lead to a win-win outcome.

Plan to reasonably lower commission rates

There are 16 articles in this consultation draft, which mainly cover four aspects: first, to reasonably reduce the securities transaction commission rate of public funds; second, to reduce the upper limit of securities transaction commission distribution ratio; third, to strengthen the behavior of securities transaction commission distribution of public funds. Supervision; fourth, clarify the disclosure requirements for the annual summary expenditures of securities trading commissions of public fund managers.

In terms of reasonably lowering the securities transaction commission rates of public funds, the draft for comments proposes that passive stock fund products shall not pay for research services and other expenses through securities transaction commissions, and the stock transaction commission rate shall in principle not exceed the market average stock transaction commission rate. Level etc.

The upper limit of securities trading commission distribution ratio will also be further reduced. The consultation draft proposes that for managers of equity funds with a management scale of less than 1 billion yuan, the upper limit of the commission distribution ratio will be maintained at 30%; while for managers of equity funds with a management scale of more than 1 billion yuan, the upper limit of the commission distribution ratio will be increased from 30% Lowered to 15%.

Comprehensively strengthen the supervision of trading activities, strengthen internal system constraints and external supervision and constraints. The draft for comments requires fund managers to establish and improve management systems for securities company selection and agreement signing, and it is strictly prohibited to use transaction commissions to transfer payment fees to third parties. In addition, in order to further optimize the content and requirements of information disclosure, the consultation draft also adds new requirements for the disclosure of the overall transaction commission rate level and distribution of fund managers.

“This consultation draft aims to standardize the securities transaction commission and distribution management of public fund managers, protect the legitimate rights and interests of fund share holders, and improve the service capabilities of securities firms and institutional investors.” Guotai Junan Investment Research Team believes that based on 2022 data, After the implementation of the consultation draft, the total stock trading commissions of public funds will drop from 18.868 billion yuan to 12.636 billion yuan, a decrease of 33.03%. It is expected that the concentration of transaction commissions will decrease, the use of transaction commissions will be more transparent, scenarios will be standardized to research services, and scenarios such as fund sales and third-party transfer payments will no longer exist.

Build a good ecosystem for the industry

Reduce the commission distribution ratio, prohibit commissions for sales, strictly prohibit transfer payments, transparent commission rate levels and distribution disclosures… The second phase of the public fund fee rate reform, for companies that provide securities trading services and research services for public funds Brokerages have put forward higher requirements.

“Judging from the content of the consultation draft, from the perspective of fund companies, the more important significance of this downgrade is to keep pace with the times and promote further standardization and sustainable development of the industry, especially the addition of new statutory public information disclosures. Content, this is further extending the advantages of public funds.” Wang Qunhang, director and deputy general manager of Baijia Fund, said that some specific impacts will be reflected in: large companies will have more external service competition; passive Product fee rates have been clearly regulated; specific small companies (stock and hybrid funds with a total management scale of less than 1 billion yuan) will usher in new development opportunities; the bond settlement model will be more used.

Talking about the impact on the fund industry, the Tianxiang Investment Consulting Fund Evaluation Center believes that due to the reduction in transaction commissions and commission distribution ratios, the business structure of the entire public fund industry will usher in adjustments. This will affect the public funds or channels of securities companies that are too concentrated. Fund managers will pose certain challenges. At the same time, in order to decouple the sales behavior of securities companies from transaction commissions, some previous sales models will also be re-regulated.

In addition, the fund industry will also face stricter compliance requirements and information disclosure, as well as the need to upgrade related systems and technologies. “Brokerage institutions serving funds will face a series of challenges and changes under the new regulations.” Tianxiang Investment Consulting Fund Evaluation Center further analyzed that, on the one hand, the draft for comments has restrictive provisions on transaction commissions, which may The compression of the traditional commission model based on transaction volume has led to a decrease in the income of some brokerages. At the same time, the commission income distribution pattern of leading securities firms may undergo certain adjustments. On the other hand, it is necessary to win over customers by providing higher quality services, better transaction execution efficiency and stronger risk management capabilities, and the way of competition will also usher in a change. In addition, in order to adapt to changes in the fund industry and regulatory environment, securities firms may need to innovate service models.

Talking about the impact on securities companies, Wang Qunhang believes that the reduction in commission income is inevitable. There is a high probability that some securities companies with weak research strength will withdraw from the competition for sell-side services, and the competition for sell-side services will also become more intense.

Effectively protect the interests of investors

In July this year, the China Securities Regulatory Commission issued the “Public Fund Industry Rate Reform Work Plan” (referred to as the “Plan”). It plans to adopt fifteen items in phases within two years according to the implementation path of “management fees-transaction fees-sales fees”. Measures were taken to promote fee rate reform and comprehensively optimize the public fund fee rate model. Taken together, since the introduction of the plan, the first phase of reform has been quite effective.

In addition to starting from July, newly registered active equity funds have uniformly implemented the upper limit standard of “management fees not exceeding 1.2% and custody fees not exceeding 0.2%”, and more existing products are also actively “distributing profits”. Data shows that 136 fund managers across the industry have successively issued announcements to uniformly lower the management fees and custody fees of their existing active equity products to below 1.2% and 0.2%. Based on the scale as of the end of June, the public offering industry has saved investors a total of about 14 billion yuan in expenses every year.

Liu Yiqian, business leader of the Shanghai Securities Fund Evaluation and Research Center, said that the fund fee reduction is a timely measure based on the current development stage of the public fund industry. It not only fully reflects the fundamental stance of supervision and the public fund industry of “centering on the interests of investors”, but also its reform measures. Considering the current development status of the industry and taking into account the basic rights and interests of all parties, it further optimizes the fairness of income distribution for all participants in the public offering industry, including investors, managers, custodians, sales agencies, etc., and lays an incentive foundation for the long-term development of the public offering industry.

The successive launch of floating rate pilot products also provides investors with more choices. On August 25 this year, the first batch of 20 pilot products with floating management fee rates were registered, including 9 public funds linked to investor holding periods, 8 public funds linked to investment performance, and 8 public funds linked to product scale. 3 public funds. Recently, a new batch of 8 floating fee funds, including Harvest Innovation Power and Industrial Securities Global Sustainable Investment, have been launched in three years. Among them, 3 products are linked to performance and 5 are linked to holding period. CITIC Securities stated that fee reduction is a normal need of market competition and may accelerate the concentration of the supply side of the industry. Floating fee rates will help differentiate the development of the industry.

Many fund companies also said that the step-by-step implementation of fund industry fee rate reform will help increase the competitive advantage of the public offering industry in fund business, encourage fund companies to continuously improve their comprehensive competitiveness, and attract more medium and long-term funds to increase investment through public funds. Equity asset allocation, thereby promoting the high-quality development of the public fund industry.

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