In the fiercely competitive landscape of the financial market, a recently observed trend has emerged among banks as they vie for clients through a war of fund fee reductionsThis phenomenon, often referred to as "involution," has particularly intensified in the realm of individual pension products, which have become a vital battleground for market players striving to draw in potential investors.

To illustrate, Qingdao Bank has announced a significant cut in subscription and systematic investment plan (SIP) fees for selected public mutual funds during the period from December 20, 2024 to March 31, 2025, reducing fees to as low as 10% of their original ratesSimilarly, on December 31, 2024, Minsheng Bank declared a reduction of trading fees for various securities investment fundsFrom January 1, 2025 to March 31, 2025, multiple products will receive discounts on subscription fees, limited to specific conditions; for instance, fixed subscription fees won’t be part of these discounts and only apply to front-end subscription fees of funds in their normal selling phase, excluding fund conversion transactions.

Importantly, as individual pension initiatives steadily advance across the nation, several banks have included personal pension fund products in their promotional campaigns

Agricultural Bank of China, for example, declared on December 27, 2024, that they will offer a 90% discount on subscription and SIP fees on certain personal pension fund shares, though the end date for this promotion remains undeterminedThe publicly offered Y-shares that are part of this discount are selected fund shares that have been included in the list of personal pension funds approved by the China Securities Regulatory Commission and are marketed through Agricultural Bank.

The rationale behind these fee reductions, according to Agricultural Bank, is primarily to support the establishment of a multi-layered and multi-pillar pension insurance system in China, which is aimed at lowering fund holding costs and optimizing the investment experience for customers.

In a quick follow-up, on December 30, 2024, Bank of Communications released an announcement regarding the continuation of reduced fees on fund purchases and SIPs from January 1, 2025, to December 31, 2025. The bank indicated discounts ranging from 10% to 20% based on specific conditions across several of their open-end funds

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Notably, by the end of 2025, all personal pension fund Y-shares will be included in the fee reduction campaignThe bank stated that this gesture aims to express gratitude towards long-standing customer loyalty and support, enhancing the service experience for customers engaged in fund investments.

A member of a large bank’s pension finance department explained that the Y-share classes are specifically designed for individual pension investmentsIn the same fund, there are generally public offerings for the general populace, labeled A and C shares, while those tailored for personal pensions are identified as Y shares (the 'Y' stands for pension). Typically, the Y shares carry lower fee rates, a strategy intended to make investments in personal pensions more appealing to the public and encourage a more robust participation in pension savings.

According to data from Wind, by the end of the third quarter of 2024, the total scale of Y shares had reached 7.344 billion

There were a total of 1.03 million holdersAs per the previous announcements from the China Securities Regulatory Commission, the number of public pension funds had increased to 284 by December 12, indicating a sequential growth in options available for investors looking for diverse and enriched avenues for pension investments.

Given the current landscape where banks are hastily adjusting fund distribution fees, analysts have noted that this trend not only serves to attract customers but also to increase market share, thereby enhancing banks' competitive edgeBank of Communications specifically mentions that lowering transaction fees may stimulate growth in fund distribution revenue, though they must concurrently focus on internal management of intermediary incomes and constantly innovate in products and services offered to enhance overall customer experience.

Renowned researcher Dong Ximiao echoed similar sentiments, suggesting that banks' strategy of lowering fund distribution fees is essentially a 'thin profit, high sales' approach—a necessary step in fierce competition with internet platforms

In instances where the fee rates were previously high, reducing these rates can significantly boost competitive positions within the market, thereby luring more clients inWhile individual product revenues may dip due to these discounts, if overall business volumes increase significantly, banks can capitalize on economies of scale to enhance revenues, effectively balancing out the lower costs.

Furthermore, in interviews, Xue Hongyan, vice president of Star Map Financial Research Institute, elaborated on the multilayered factors driving these fee cutsFirstly, the trend of reducing product fees aligns with the broader directional guidance from regulators aimed at enhancing the marketCurrently, in response to public pressure and competitive necessity, reductions within public funds are occurring, putting additional pressure on banks to lower their own investment product feesFrom the banks' perspective, amidst a significant shift towards diversified wealth allocation among new users, the priority has shifted towards acquiring larger assets under management (AUM) rather than prioritizing profits alone

Thus, adopting lower fees to capture greater AUM share becomes a strategic priority, which is central to their willingness to engage in this 'fee war.'

With the turn of the year typically being a season marked by year-end bonuses and increased capital flow during the festive season, banks find themselves presented with a ripe opportunity for marketing their wealth management products, making fee reductions around this time particularly well-aligned with market rhythmsMeanwhile, investors have become increasingly sensitive to fixed costs like management fees as the absolute yields on various investment vehicles continue to declineConsequently, the strategy of competing on reduced fee rates has emerged as an effective tool for enhancing sales dynamics in this environment.

Dong Ximiao also cautioned that while the current financial market experiences cut-throat competition over fund fees with various discounts aimed at attracting a multitude of investors, one should not overlook that fee structures should not be the sole basis for selecting asset management products