Recently, a notable decline in the returns of wealth management products has garnered considerable attention in the financial markets. This trend, although anticipated by industry insiders, has proven to be more rapidly descending than many had expected. Projections indicated that by 2025, the performance benchmark for newly issued wealth management products would drop below 2%, yet the baseline benchmark for existing products has already achieved this concerning threshold much sooner.

On the evening of February 21, Guizhou Bank Wealth Management announced a modification in response to the prevailing market conditions. Starting from March 2025, the performance benchmarks for several products within their “Shuangyin Wealth” series would be adjusted. The new benchmarks for “Shuangyin Wealth – Weekly Treasure,” “Shuangyin Wealth – Monthly Open No. 2,” and “Shuangyin Wealth – Monthly Open” products would now sit at 1.8%, 1.9%, and 1.9% respectively – a historic plunge below the 2% mark.

Guizhou Bank isn't operating in isolation; many other wealth management firms, including Bank of China Wealth Management and Industrial and Commercial Bank of China Wealth Management, have also released new products with similar benchmark reductions below the 2% threshold. For instance, ICBC's recently launched closed-end fixed income wealth management product set a new benchmark baseline as low as 1.70%, while Bank of China's newly offered open-end fixed income products displayed benchmarks at 1.90% and 1.80%.

The yields on wealth management products are influenced by an array of factors, transcending just the type of product offered. As economic growth slows down, the demand for capital declines, resulting in lower pricing for funds. This decline subsequently affects the yields on bonds and interbank deposit rates that typically underlie wealth management products, thus translating to reduced returns. Accommodative monetary policies also contribute to the scenario by enhancing liquidity in the market, leading to a further decrease in market interest rates and subsequently, the yields on these products.

Regulatory bodies have stepped in to control financial risks associated with these products, resulting in tighter regulations for financial institutions regarding their investments and operations. This brings a more cautious approach that invariably affects the yields on wealth management products. Moreover, to alleviate the pressures on redemption associated with market fluctuations, regulators have imposed restrictions on valuation methodologies such as net asset value smoothing. Consequently, this affects mixed-asset products, making it challenging to maintain higher performance benchmarks in the face of declining underlying asset returns.

Furthermore, the predominance of fixed-income assets within wealth management products places a significant limitation on overall yield potential. Data indicates that in January of this year, a staggering 98% of newly launched wealth management products were fixed-income products, amounting to a total of 3,588 offerings primarily investing in instruments like interbank certificates, bank deposits, and various bonds. In stark contrast, only 44 new mixed-asset products were launched, and the equity category had an incredibly low turnover of just four new products, all stemming from foreign banks’ open-ended offshore financial offerings.

In the current context of decreasing market interest rates, while yields on wealth management products have also declined, they continue to hold more appeal than conventional savings. Recent research reports indicate that by the end of January 2025, the total scale of wealth management products reached approximately 30.1 trillion yuan, reflecting a modest increase from the previous year.

However, for wealth management companies aiming to sustain the attractiveness of their offerings, it remains imperative to bolster their investment research capabilities and innovate their products. A focus on optimizing investment strategies is essential to provide investors with compelling returns. In an environment where interest rates on deposits and bond yields have broadly diminished, companies should seek out fixed-income categories that show room for recovery, such as long-duration credit bonds and financial bonds.

Additionally, firms should actively explore configurations that include equity-like assets. Recently, a joint implementation plan issued by six governmental departments, including the Central Financial Office, explicitly allows bank wealth management entities to participate as strategic investors in the designated increases of publicly listed companies. The plan also stipulates that bank wealth management, insurance asset management, and public funds will enjoy equivalent policy treatment in areas regarding new stock subscriptions and established standards for investment recognition. This easing of policies concerning the investment of wealth management funds into capital markets could enable firms to diversify their asset allocation structures while diminishing reliance on traditional fixed-income assets. Engaging in designated increases can also encourage wealth management funds to invest over the medium and long term, mitigating the impact of short-term market fluctuations and realizing a long-term stable return. Therefore, it is crucial for wealth management companies to seize these opportunities, refine their investment capabilities, and elevate their risk management measures to secure favorable returns in equity investments.

For individual investors, it is essential to approach the declining yields of wealth management products with a rational mindset. Investment decisions should go beyond merely focusing on yields; it is crucial to holistically consider the associated risks, liquidity, and other factors affecting the products. Furthermore, adapting investment strategies based on one's risk tolerance and investment goals, alongside current market movements, is advisable. Establishing a reasonable asset allocation and diversifying investments can be effective strategies to achieve asset preservation and appreciation.