Leveraging Fintech to Enhance Wealth-Management Inclusion in China

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By Dr. Oliver Rui, Professor of Finance and Accounting, CEIBS, and Director of CEIBS Wealth Management Center, and Max Gong, Research Associate of CEIBS Wealth Management Center

China is one of the fastest-aging nations globally. In just over 20 years, the country has swiftly transitioned from an aging society, with around 7 percent of its population aged 65 and above, to an aged society, with more than 14 percent of its population aged 65 and above. The economic impacts of this rapid aging are compounded by the urgent risk of the country “growing old before getting rich”. In 2021, as China entered the group of aged countries, its gross domestic product (GDP) per capita was approximately US$12,700, significantly lower than that of other similarly aged nations.

The country’s current pension system is also relatively small, making up only about 10 percent of GDP, which is significantly lower than the international average. Moreover, existing pensions are inadequate to meet the needs of the elderly, with a pension replacement rate of only around 45 percent (this rate represents the percentage of a worker’s pre-retirement income that is paid out by a pension program after retirement). It is, therefore, essential to strengthen the role of the “third pillar” of pensions: the voluntary personal savings and investments that individuals make to supplement their retirement incomes. This pillar complements the first two pillars: state-provided pensions (the first pillar) and occupational or employer-based pensions (the second pillar). Promoting personal pension management is a crucial financial-inclusion initiative that must be deeply ingrained in the public’s approach to saving for old age.

Fintech (financial technology) platforms, such as Ant Fortune, have made significant efforts to make wealth management more accessible to the public. An online wealth-management platform under Ant Group’s umbrella, Ant Fortune is dedicated to making wealth management more inclusive and collaborates with financial institutions nationwide. As an open platform, it aims to attract fund providers and investors to enhance the platform’s network effect.

Ant Group’s initial venture into this space was with Yu’e Bao, which was later integrated into Ant Fortune. In 2013, Alipay partnered with Tianhong Asset Management Co., Ltd. to launch the Yu’e Bao service, connecting users with money market fund (MMF) products. Tianhong provided management and sales services for these funds, allowing users to earn interest from their Alipay balances for the first time.

Yu’e Bao, a pioneering fintech wealth-management product, utilized digital technology to introduce several innovations to China’s money market funds. Firstly, Yu’e Bao implemented a quick-redemption feature, offering consumers same-day purchases and fund redemptions, addressing the need for timely access to funds. Secondly, it lowered the investment threshold for money market funds to just one yuan, making cash management more accessible and inclusive for a broader user base. Thirdly, Yu’e Bao popularized the concept of wealth management among the public, raising financial awareness among long-tail customers who fall below a certain spending threshold within a company’s customer base, thus promoting financial inclusion. At its peak in the first half of 2018, the Tianhong Yu’e Bao Money Market Fund managed assets worth 1.69 trillion CNY.

The introduction of Yu’e Bao significantly increased wealth-management awareness among long-tail customers, generating a demand for financial-asset management. However, as a money market fund, Yu’e Bao has primarily focused on liquidity management and has not fully addressed the demand for wealth management. To bridge this gap and further enhance financial inclusiveness, the Ant Fortune platform has expanded into the sale of mutual funds. As easily accessible investment products, mutual funds offer lower investment thresholds, higher specialization and relatively diversified risks compared to other financial products, making them well suited for long-tail users.

Long-tail customers are often overlooked by China’s traditional banking and wealth-management systems, making them an ideal entry point for Ant Fortune. According to the “2019 National Public Fund Investor Status Survey Report” by the China Securities Investment Fund Industry Association (CSIFIA) (also known as theAsset Management Association of China [AMAC]), Ant’s fund customers typically exhibit characteristics such as younger average age, lower average income, lower average education levels and smaller average total asset value. This indicates that Ant Fortune’s long-tail customers generally lack financial knowledge, meaning that helping them develop a correct understanding of the principles of wealth management and the tools for inclusive development is crucial. As a relatively new player in the mutual-fund industry, Ant Fortune’s strategy has been to allow fund providers to engage with clients directly, compensating for its own limited experience.

Ant Fortune introduced its self-operated wealth-management platform, the Fortune Account, in June 2017. This platform, accessible to various fund companies, acts as a gateway within the Ant Fortune ecosystem. Fund providers have full control over their operations, enabling them to serve investors directly; however, this is distinct from direct sales on the platform, acting instead as a comprehensive open ecosystem.

The collaboration between Ant Fortune and fund providers highlights the significant advantages of the digital platform economy in enhancing efficiency and reducing costs. To improve efficiency, Ant Fortune has developed an intelligent operational assistant named Sinan for its Fortune Account backend. Sinan enables fund companies to quickly view and analyze the performances of 15 modules, including product sales and accompanying content, and it can intelligently generate service content and operational plans. This simplifies much of the operational-strategy design work for fund providers, improving their operational effectiveness by up to 80 percent. It also provides data analysis and tools for fund providers to manage their investor relations.

To reduce costs, Ant Fortune leverages popular content tools such as live-streaming sessions and video blogs, which Chinese internet users widely favor. These tools enable users to gain a more comprehensive and in-depth understanding of funds and fund managers. Ant Fortune can assist a single institution in producing more than 30 short videos per day, saving an average of about 300 hours of editing time and millions of dollars in production costs each month.

Both Ant Fortune and fund providers recognize the importance of scaling up. Unlike traditional economic platforms, which face diminishing returns when they exceed an optimal scale, digital economy platforms benefit from the “long-tail effect”; the marginal cost of adding scale after the platform is established is close to zero, leading to higher efficiency as scale increases. As a model of digital economy platforms and a rising star in the fund-distribution industry, Ant Fortune naturally aims to expand its scale. The asset-management scale of a fund provider is directly linked to its economic benefits, which come from enhanced cost-effectiveness, diversified investments, better user connections, operational optimization, smart marketing and improved negotiation ability. Expanding asset-management scale also boosts brand awareness and credibility, thereby attracting more new customers and creating a virtuous cycle.

Data indicates that independent fund-sales institutions such as Ant Fortune have significantly increased their shares of fund-sales holdings since their establishment, rising from just 2.14 percent in 2015 to 22.34 percent in 2022. In 2020, Ant Fortune had approximately 500 million investment users, marking a nearly 20-fold increase over four years. Additionally, the size of the combined non-money market funds managed by Ant Fortune became the largest across all institutions.

The collaboration between Ant Fortune and fund providers also offers significant benefits to investors, particularly long-tail investors, who now enjoy lower investment thresholds. Fund subscription fees in China are set by fund providers, with a unified price but varying discounts across different channels. Traditional fund-sales agencies, such as banks, cater to high-end customers and generally have higher sales costs, resulting in fewer discounts on funds. In contrast, digital wealth-management platforms, given their cost advantages, often offer higher discount policies on subscription fees, sometimes as high as 90 percent off. This reduction in thresholds allows digital platforms to reach a broader range of long-tail customers, who benefit from lower transaction costs.

More importantly, long-tail investors receive professional guidance from fund providers. These fund providers offer simplified product introductions to novice users who lack financial knowledge before they invest. After investing, users receive ongoing information about the sources of product returns, reasons for price fluctuations and future market outlooks from the fund provider. Additionally, Ant Fortune has educated more than 400 million users through engaging content such as graphics, videos and live-streaming in the Ant Investor Education Center.

In response to the growing awareness of wealth management among investors, Ant Group upgraded its Fortune Account into the Fortune Open Platform in 2021. This upgrade marked a deeper level of openness, aiming to help institutions transition from an investment-based business model to a consulting-based service model, thereby achieving a win-win situation centered on investors’ interests.

Wealth-management products often have similar investment methods and targets, making it challenging for ordinary users to distinguish between them, and the traditional guidance mode of institutional wealth accounts falls short in helping users select the most suitable wealth-management products. To address this, Ant Fortune encourages financial institutions to provide personalized options tailored to the unique needs of each user, simplifying the decision-making process and enhancing product relevance for wealth-management users.

Leveraging digital technology, platforms can now offer customized services based on user behaviors and preferences. By fully opening up services and scenarios, fund companies can provide tailored guidance and support based on different users’ KYC (know-your-customer) data. Long-tail clients benefit from personalized assistance and investment education before, during and after investing, gradually developing healthy investment philosophies and methods.

Artificial intelligence (AI) technology also has a significant role to play in popularizing wealth management. Ant Fortune’s AI wealth-management assistant, Zhi Xiaobao, offers long-tail users in-depth services, such as market-view and investment analyses, dialogues and diagnoses, that were typically available only to high-end bank customers. This helps them to make more rational investment decisions; data shows that by the end of 2021, users who received comprehensive services from Zhi Xiaobao had an overall return-risk ratio that was about 10 percent higher than those who did not.

In April 2024, the State Council of the People’s Republic of China issued new guidelines, “Opinions on Strengthening Regulations, Forestalling Risks, and Promoting the High-Quality Development of the Capital Market”—commonly referred to as the “National Nine Articles”. This comprehensive document emphasizes the importance of rational, value-based and long-term investment strategies, encouraging fund managers to shift from a scale-oriented approach to one focused on investor returns, prioritizing investors’ sense of gain.

The new “National Nine Articles” provide clear guidance for addressing the development challenges of China’s capital market, with a stronger emphasis on being “investor-oriented”. This regulatory shift is particularly beneficial for digital wealth-management platforms such as Ant Fortune that aim to promote inclusive finance, supporting the provision of more inclusive wealth-management services for long-tail investors. Given this signal of support from the central government, the growth of inclusive finance—and with it, the development of more effective personal financial planning for long-tail investors in China—looks set to continue.