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Securities firms see a 30% drop in commission income from fund distribution

Data from Tianxiang Investment Consulting shows that the total stock trading volume disclosed in the mid-year report of public mutual funds for the first half of 2024 was 9.45 trillion yuan, a decrease of more than 25% compared to the 12.63 trillion yuan in the same period of 2023. At the same time, the commission income from fund distribution for securities firms also fell from 9.535 billion yuan in the same period last year to 6.618 billion yuan, a drop of over 30%.

Specifically, CITIC Securities achieved a distribution commission of 501 million yuan, ranking first; GF Securities, CITIC Construction Investment, and Changjiang Securities all had distribution commission income exceeding 300 million yuan, at 387 million yuan, 350 million yuan, and 330 million yuan respectively; Guotai Junan, Huatai Securities, China Merchants Securities, Haitong Securities, and Minsheng Securities followed, with distribution commission income all exceeding 200 million yuan.

Except for Minsheng Securities, which saw a year-on-year increase of 4.26% in distribution commission income in the first half of 2024, the other eight securities firms all experienced a decline in distribution commission income, with the decline ranging from 11.75% to 38.37%. Among them, China Merchants Securities, Haitong Securities, CITIC Construction Investment, Changjiang Securities, CITIC Securities, and Guotai Junan all saw a year-on-year decline in distribution commission income of more than 25%.

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Looking back, on the one hand, the average daily turnover of A-shares in the first half of 2024 was 984.6 billion yuan, a year-on-year decrease of 6.83%. In the second quarter, the average daily turnover was 830.6 billion yuan, a sequential decrease of 7.24%. The low trading volume limited the transaction commissions obtained by securities firms. On the other hand, securities firms also anticipated and made corresponding adjustments to the new rules for reducing transaction commissions that officially came into effect on July 1.

Guotai Junan Securities stated in its semi-annual report that in the first half of 2024, the company's investment research business responded to the industry's policy of reducing commissions, comprehensively sorted out the customer service agreements signed, and faced the challenge of the industry's commission rate decline with more professional research capabilities and higher quality services, and actively practiced serving the real economy.

Why was Minsheng Securities able to achieve a counter-attack amidst the general decline? The person in charge of Minsheng Securities said that in the first half of the year, despite the year-on-year decline in the stock trading volume of public mutual funds, the trading volume of the research institute's public mutual funds still maintained a year-on-year increase, maintaining rapid development. This is mainly based on the continuous improvement of the company's research system, product system, and sales service system. Currently, the scale of its research institute has exceeded 200 people.

It is understood that Minsheng Securities adheres to the business development strategy of "investment + investment banking + investment research". Since the second half of 2021, it has focused on research business and successively introduced a large number of well-known and excellent analysts in the industry, such as energy mining, metals, automobiles, and strategy. In 2023, Minsheng Securities won the "Most Potential Research Institution" and "Fastest Progressing Research Institution" in the New Fortune Best Analyst Selection.

Rate reform guides securities firms to return to the essence of research

On April 19, the "Regulations on the Management of Securities Trading Costs of Publicly Raised Securities Investment Funds" were issued and officially implemented on July 1, which is regarded as the official landing of the second step of the reform to reduce fees for public mutual funds. The new rules for transaction commissions require the reasonable reduction of the securities trading commission rates of public mutual funds, and strictly prohibit linking the selection of securities companies, the leasing of trading units, and the distribution of trading commissions to the scale of fund sales and the scale of preservation.According to Pacific Securities' estimates, the average stock trading commission rate in the market for the year 2023 is about 0.021%, with the total commission scale for public mutual funds at approximately 16.8 billion yuan. The corresponding institutional trading commission rate is 0.073%. In line with new regulations, the trading commission rate for public mutual funds is expected to be reduced to around 0.042%. This implies that the brokerage commission income from institutional orders will be further compressed in the second half of this year.

Industry insiders have indicated that under the new trading commission regulations, the decoupling of fund sales from public mutual fund trading commissions has disrupted the industry's long-standing "fund sales in exchange for trading commissions" model. Research institutions need to place greater emphasis on the research itself. In the future, the allocation of commissions will continuously favor securities firms with excellent research capabilities, stable operations, and robust risk control and compliance.

"The separation of fund sales and research services will allow securities firms to return to a research-based model. To gain more institutional commissions in the future, firms will need to focus more on enhancing their trading capabilities and research strength, and the share of research business is expected to increase," said Xia Mi Kang, a non-bank analyst at Pacific Securities.

In terms of securities firms' responses, each has its own emphasis in adjustments. CICC pointed out in a research report that for large securities firms with diversified customer groups and integrated services, research should fulfill both external output and internal empowerment functions. For some medium-sized securities firms that position their research business as a profit center and rank high in public mutual fund institutional commissions, it is expected that they will intensify their competitive efforts in the future, aiming to increase their share to offset the impact of declining rates. For small securities firms that rank low in public mutual fund institutional commissions, as the long-term profitability of research business declines, these firms may gradually reduce research personnel or reposition their research departments as internal research centers.

Zhang Youjun, Chairman of CITIC Securities, stated at the recently held 2024 semi-annual performance briefing that the introduction of new regulations on public mutual fund fee reduction this year may have a certain impact on the company's revenue in the short term. However, the company is actively responding by formulating special work plans to adjust and adapt to new rules and requirements, persisting in and encouraging value and long-term investments, and expanding the scale of revenue through multiple channels. In the long run, the reform of public mutual fund rates will enhance their role as financial tools for public wealth management, which is beneficial for promoting the development of the industry and aligning the interests of investors more closely. The scale of related businesses is expected to grow rapidly, and wealth management institutions may benefit from this.