3 features to mark pilot wealth management products

China's pilot wealth management products aimed at retail investors looking to boost their retirement savings will have three main features－long-term investment, sound investment and financial inclusion, an industry expert said.

Financial inclusion means that individuals have access to useful and affordable financial products and services that meet their needs－transactions, payments, savings, credit and insurance－and are delivered in responsible and sustainable ways, said the World Bank.

"The pilot program of wealth management products launched by China in four cities is an important step to deepen supply-side structural reform in the financial sector and to promote common prosperity," said Zhang Xuyang, chairman of Everbright Wealth Management Co, a wholly owned subsidiary of China Everbright Bank Co.

"The product term for closed WMPs for retirement planning will be at least five years, longer than that of other WMPs, and the money raised will be used for long-term investments. Financial institutions participating in the program will encourage investors to start retirement planning when they are still young and will try to mobilize their medium- and long-term precautionary investment needs, with the aim of helping investors share China's economic achievements via medium- and long-term investment strategies," Zhang said.

The China Banking and Insurance Regulatory Commission announced on Sept 10 the launch of a pilot program of wealth management products for retirement planning in four cities, namely Wuhan, Hubei province; Chengdu, Sichuan province; Shenzhen, Guangdong province, and Qingdao, Shandong province.

"Adopting the mindset of 'taking small steps and making gradual but steady progress', we chose the four cities based on comprehensive consideration of the size of the cities, the level of economic and social development, and residents' pension demands, while also taking into account the needs in eastern, central and western regions of the country," said Wang Zhaodi, chief examination officer and spokesman of the CBIRC, at a news conference on Oct 21.

"Pilot wealth management products for retirement planning have entered into the phase of regulatory reporting and may be available to consumers at the end of this month or next month," Wang said.

Based on the risk management capacity of participating institutions, the CBIRC decided to cap the total amount of funds raised by each financial institution taking part in the program at 10 billion yuan ($1.57 billion) and cap the total value of WMPs for retirement planning purchased by each investor at 3 million yuan, he said.

Pilot WMPs for retirement planning will soon be available to the general public, with minimum investment set at 1 yuan. In addition, institutions participating in the program will charge fees for such products at favorable rates, said Zhang of Everbright Wealth Management.

"In adopting prudent asset allocation strategies, asset managers will give full play to multi-asset and multi-strategy advantages of bank-led wealth management to help investors get through business cycles and endure fluctuations. As WMPs for retirement planning are long-term investments, asset managers can better guarantee the stability and consistency of investment strategies in the hope of achieving higher returns and truly match investor life cycles with their long-term pension demands," Zhang said.

Moreover, the regulator requires wealth management companies participating in the pilot program to put their WMPs for retirement under the independent custody of a third party rather than under the custody of their parent banks. This will make their risk management mechanisms sounder, he said.

The pilot program of WMPs for retirement is one of the reforms carried out by the CBIRC to further promote the development of a multilayered, multi-pillar pension insurance system in China. The regulator is also doing research and joining hands with other government departments to make a detailed implementation plan for the launch of a retirement savings pilot program, said Wang of the CBIRC.