Healing Trust Gap: Mutual Fund Contrarian Sales Not an Elective

Steady Progress in the Reform Series of Public Mutual Funds

In the subway passageways of Beijing, the style of fund product advertisements has gradually changed: the star fund managers who used to appear on posters have disappeared, replaced by the promotion of various ETF products.

As the tentacles of the fund industry reaching out to the public, subway advertisements have witnessed the marketing strategies of fund companies gradually shifting from "establishing personal brands" to "promoting tools." This change has driven the continuous surge in the scale of stock ETFs. However, behind the favorable situation of some products, the essential issues in fund marketing seem to remain unresolved.

Scale and traffic are still the chasms that hinder the establishment of trust between fund investors and fund companies, especially for those who bought funds at high market levels in the past and still have lingering fears of losses. The trust gap between investors and fund companies still needs to be bridged.

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After three years, investors have once again sensed the familiar scent of a bull market. But this time it seems a bit different. For novice investors, the three letters that are slightly unfamiliar—ETF (Exchange Traded Fund) have become the focus of overwhelming promotion by fund companies, channels, and media.

On one side, platforms such as Tonghuashun and major securities dealer software display prominent messages like "Buy ETFs in a bull market." On platforms like Ant and Tiantian Fund, the recommended product lists are almost entirely filled with index funds. On the other side, in the busy subway stations and elevators, advertisements for index products and fund teams have also been replaced, linking ETF codes with profit figures.

The once high-profile actively managed funds are particularly low-key, as if no one cares anymore: in this round of market rebound, how much have the products managed by the star fund managers who frequently topped the hot search list recovered?

The public marketing has shown a clear trend of turning, and ETFs have become an indispensable presence in the product promotion map. Under this trend, in the past two years, index funds represented by ETFs have seen explosive growth. Last year, they broke through 2 trillion yuan for the first time in the second half of the year. This year, the ETF scale broke through 2.5 trillion yuan for the first time and then quickly exceeded 3 trillion yuan. Not long after, the scale of stock ETFs also quickly reached the peak of 3 trillion yuan.The effects of publicity are gradually becoming apparent. China Securities Journal reporters have noticed that many new investors entering the market recently have chosen to buy ETFs to test the waters, with "trouble-free" and "transparent" being the most frequently mentioned reasons. More investors are using ETFs to position themselves in the equity market. Data shows that in the week following the National Day holiday (October 8th-October 11th), A-share ETFs saw a significant influx of funds. The net subscription of stock-type ETFs on the market was 113.797 billion shares, with a net subscription amount of approximately 157.222 billion yuan.

From promoting actively managed funds to packaging tool-type products, why has the fund marketing approach shifted? Yuan Yulai, the founder and CEO of Wealth Magic Cube, believes that on the one hand, the advantages of ETF tool products are prominent; on the other hand, it stems from the overall poor performance of equity funds in the past two years, leading investors to generally question the active management capabilities of fund managers, and thus they tend to choose more stable, market trend-driven passive products.

In addition to index funds, bond funds and QDII products investing overseas are also favored by investors. After the "myth" of star fund managers, "the bond market keeps rising" and "fixed investment overseas" have become the new investor "faith." Fund companies and channels are vigorously promoting these products, and the scale of bond funds and QDII products is growing rapidly at a visible speed.

The "scale volume" dilemma remains to be solved, and the pursuit of traffic exacerbates the trend of buying high and selling low.

In recent years, fund companies have generally embraced passive and fixed-income products, seemingly finding a new growth pole, but the old idea of selling products oriented by scale, "promoting whatever sells well," has not changed.

Market lows are often good buying points. Based on this consensus, fund companies have the idea of contrarian sales. Whether it is the subtle fund investment education or the fund investment consulting that insists on the buyer's position, they are all committed to helping investors invest rationally, allocate assets reasonably, and enhance the sense of gain for investors.

However, it is not easy to reverse the investment habit of buying high and selling low. The old curse of "easy to do but not easy to sell, easy to sell but not easy to do" still affects the fund sales model. Recently, as the market sentiment is hot, fund companies and channel market personnel are busy again. "Recently, we have been working overtime to revise materials and urgently update the promotional PPT of equity funds," said Wang Ke (a pseudonym), a market person from a medium-sized fund company. This year, due to the unsatisfactory sentiment of the A-share market for a long time, fund companies and channels have also followed the trend and vigorously promoted bond and index products. Since it has been too long without promotion, almost all the product materials of stock-type funds need to be updated. "We couldn't sell them before, what can we do?"

Contrarian sales have a long way to go, and in the promotion of popular products, it is inseparable from the old path of "rolling scale volume." This year, the issuance of A50ETF and A500ETF of the "A series" index has pushed marketing competition to its peak. From product approval to the first launch, establishment, and then to the liquidity promotion after listing, ETF marketing has ushered in a full-process competition. On October 15th, the first batch of 10 CSI A500ETFs were listed, and in just one week, the scale broke through 30 billion yuan from the listing time of 20 billion yuan, and the product data competition related to it is still in full swing.

China Securities Journal reporters have noticed that in recent years, during the issuance process of many ETFs, it is common for related sales personnel to post "soul questions" on social media: "Why do we have to push ETFs so hard? On Monday, we happily received a new task. If customers don't buy, we can only buy ourselves. The funds we bought before to complete the task are still not unsold, and we are so tired."

Sales institutions that aim at sales amount have no other way, so many "wild roads" have emerged. A front-line salesperson said that as various heavy ETFs continue to be approved, the institution where he is located needs to focus on promoting new products, and it is difficult to sell new funds at market lows. Customers who have lost money before have not yet returned to their original capital, and in the end, they can only lead to guiding redemption of old and buying new or finding funds to "help," and sales incentives are also rising with the tide."Traffic is king" is a common phenomenon in fund sales. Internet distribution platforms that showcase tens of thousands of funds are like large supermarkets with rows of shelves, where popular and easy-to-sell products are naturally placed in the most conspicuous "C position". The powerful traffic effect of the internet, in turn, encourages more investors to buy funds that have performed well in recent years at high points.

Wang Ke stated that compared to fund sales channels that mainly acquire customers offline, the mode of third-party institutions selling funds is essentially a sales mindset centered on product promotion, relying on a traffic promotion mechanism, and lacking the ability to guide customers in the opposite direction, only able to market with the trend. "Under the fund sales dominated by the seller's mindset, the size of the cake that each party gets ultimately depends on the scale, and it is inevitable to chase the hot spots with traffic and the cyclical issuance at high points, which will inevitably cause greater harm to investors." Wang Ke believes that fund sales must shift towards a buyer's mindset and make a great effort to tackle the tough nut of "contrarian sales".

Contrarian sales have a long way to go, and "the right thing" needs to be persisted with. After more than three years of "sad time", facing a significant market rebound, investors still lack trust in public funds, and the rift between the two sides still needs to be healed. Yuan Yulai believes that the most typical phenomenon forming the current distrust between fund investors and fund companies is selling stock funds at high market levels, amplifying customers' irrational emotions. This sales method is the most effective, but the profitability of investors is poor.

Contrarian sales are easier said than done. Zeng Ming (a pseudonym), the deputy general manager of a large public fund in Beijing, said that fund companies need to respond to challenges from aspects such as incentive mechanisms, investment research, risk control, product development, and services. First, further improve the core competitiveness of investment research, enhance the ability to grasp the macro situation, asset selection ability, and risk prevention and control ability, and enrich investment strategies from dimensions such as asset allocation, position management, industry and stock selection. Second, continue to strengthen risk management, enhance the ability to identify risks and resist market risks, and protect the interests of investors to the greatest extent. Third, continue to do a good job in product development innovation and the supply of high-quality products. Strengthen market demand judgment, actively promote the development of innovative products such as equity products and public REITs, explore the development of products with reasonable profit concessions by managers, reduce investment losses caused by transaction costs, and improve investment experience. Fourth, further improve customer service capabilities. Strengthen the service attributes of "caring", allowing many pain points such as "mass fund selection, when to buy and sell" to be resolved, and reduce the impact and interference of market fluctuations on investors' medium and long-term asset management goals. Fifth, explore and implement a variety of long-term incentive and restraint mechanisms, including long-term investment performance, compliance and risk management, professional ethics, and clean business practices in the assessment system for core employees such as fund company management and fund managers.

Regarding the problems of guiding customers to redeem old and buy new, sales scale thirst, and traffic guidance mechanisms in sales channels such as banks, securities firms, and third-party platforms, Zeng Ming believes that reforms should be carried out from the perspective of assessment and incentive mechanisms. First, through assessment and incentive measures, the product holding situation should be made a key assessment indicator, evolving from a product sales orientation to a product holding orientation. Second, the customer's holding profit situation should be included in the assessment and evaluation, including diversified indicators such as customer holding period yield, profit, proportion, and satisfaction. Third, continue to deepen the long-term oriented assessment mechanism, and increase the flexibility of sales assessment indicators, adjust strategies in a timely manner according to market conditions, such as reducing incentives at high points and increasing incentives at low points, to achieve contrarian guidance of "braking at high points and stepping on the gas at low points".

Breaking the trust deadlock and helping investors improve profitability is key. Yuan Yulai said that the premise of this issue is that fund companies reasonably allocate assets and do a good job in risk control. For example, in terms of product design, for ordinary investors with limited professional capabilities, fund companies can prioritize the issuance of comprehensively configured products to achieve goals with a higher probability of long-term profits and lower fluctuations to meet investors' stable needs. At the same time, if fund companies plan to launch fund products with larger fluctuations, it is recommended to actively cooperate with fund advisory institutions or professional wealth management institutions, by introducing advisory service models or scientific asset allocation strategies. In addition, improving the transparency and professionalism of services is also an effective way to enhance trust.

A fund of funds (FOF) fund manager believes that most investors are suitable for low volatility equity products with small increases but few decreases, and he hopes that more fund companies will work towards this direction. "Although this road is difficult, it is correct," he said.

The decision-making layer has recently emphasized the steady promotion of public fund reforms. In this regard, market insiders believe that the public fund industry is expected to undergo changes in the future, including product service innovation, optimization of fee structure, improvement of information disclosure, and strengthening of risk management.

To attract more investors, several interviewed fund insiders said that the fund industry should strengthen the development of advisory services, shift from single product sales to advisory portfolio configuration sales, and enhance the risk resistance of customer asset structures. Leveraging the advantages of the core investment research platform capabilities and product development innovation capabilities of public funds, provide personalized investment portfolio suggestions, asset allocation plans, and professional financial planning and consulting services. Actively promote wealth management to transform from "aiming at product scale" to "aiming at customer account returns", from sales behavior to configuration behavior, and provide investors with multi-asset, multi-strategy, cross-market comprehensive financial solutions according to the risk-return characteristics and financial preferences of different customer groups, effectively meeting customer needs.