The Difficult Road to Transformation (Part One): How Many Barriers Must "Move Toward the Buyer" Break Through?

Log in to the Sina Finance APP and search for [Information Disclosure] to see more evaluation levels.

Special contributor Wang Lining, China Economic Journal reporters Xia Xin, reported from Beijing and Shanghai.

The regulatory level is actively leading, and the industry consensus has already formed: the wealth management industry needs a profound transformation from the sell-side to the buy-side. Flipping through the annual reports, strategic plans, and external publicity documents of major institutions in recent years, phrases like “customer-centric,” “adhere to fiduciary duty,” “long-term companionship,” and “transition to buy-side” appear frequently. On the surface, the banner of buy-side investment advisory is being raised higher by more and more institutions.

But beneath the banner lies a different reality, as investment advisors on the front lines of institutions still operate primarily around product sales: new popular funds are pushed to clients at the first opportunity; when market conditions change, the first consideration is how to adjust positions to facilitate transactions; the pressure to meet year-end volume targets is passed down, and advisory fees are far less tangible than commissions…

Clearly, the road between policy consensus and practical implementation remains long and arduous. Of course, the difficulties are not just an issue for individual institutions, but a common encounter for the entire wealth management industry on its transformation journey. The logic of buy-side investment advisory is not complicated: standing in the customer’s position, focusing on asset allocation, using long-term companionship as a means, and aiming for the clients’ genuine sense of achievement. However, this seemingly clear path quickly bifurcates, detours, and becomes mired in mud once it enters the internal workings of institutions.

Where exactly does the transformation get stuck? In interviews with multiple brokerages, public funds, and third-party wealth management institutions by reporters from the China Business Journal, a picture of a dilemma composed of three obstacles gradually becomes clear: the fundamental conflict between the business logic of the sell-side and the buy-side, the talent gap and the systematic disconnection in professional capabilities, and the deep-rooted attachment to old successful paths, all constitute formidable barriers to the transformation toward buy-side investment advisory. Understanding these dilemmas is a prerequisite for grasping the difficulties of the buy-side investment advisory transformation.

Fundamental Conflict of Business Logic

In the past, under the sell-side model, the income logic of investment institutions was clear: products sold out generated immediate commissions, and the subsequent investment experience of clients was no longer directly related to the institution’s income. This model has operated for many years, forming a self-consistent assessment system, incentive mechanism, and product logic.

However, the requirements of buy-side investment advisory are entirely different: income is tied to the long-term retention and appreciation of client assets, with high upfront investment and long return cycles, and returns need to await the accumulation of a substantial asset management scale.

This means that sell-side investment advisors generally anchor to short-term scale and current profits, while the underlying logic of buy-side investment advisory prioritizes client interests and long-term returns—these two underlying logics represent a fundamental value rupture.

“The business logic of the sell-side model and the value orientation of the buy-side model represent the core contradiction in institutions’ transformation toward buy-side investment advisory,” said a relevant person from CITIC Securities. The sell-side model focuses on product provision and transaction services, catering to some customers’ immediate trading and single-product allocation needs, which is an important component of brokerage wealth management; the buy-side model centers on identifying and matching clients’ risk-return characteristics, focusing on diversified allocation solutions and full lifecycle services. The core demands of the two differ, and the service clientele and scenarios each have their emphasis. While top-tier institutions may possess the resources and organizational capabilities to break through systems, the difficulty of replication for numerous small and medium-sized institutions should not be underestimated.

Xiao Wen, chairman of Yingmi Fund, stated in an interview that the characteristics of buy-side investment advisory are “high investment upfront, low afterwards; low returns initially, high later,” with the underlying logic being “client interests first, long-term returns prioritized.” However, the ownership structure, management assessment, and operational goals of licensed financial institutions generally anchor to short-term scale and current profits, creating a fundamental contradiction between the two underlying values.

“In the past, institutions’ revenues primarily came from transaction commissions and product distribution fees, and this profit logic has been deeply embedded in the institutions’ assessment and incentive systems,” said Xu Haining, founder, chairman, and CEO of Shanghai Zhihui Technology. Under the buy-side model, the sources of income undergo a fundamental shift; advisory fees and asset management fees become core, and the two business logics are fundamentally opposed in their driving directions—the sell-side model incentivizes institutions to sell more and sell quickly, while the buy-side model requires prioritizing the long-term appreciation of client assets. Under the constraints of the old system, the intrinsic motivation of advisors to provide buy-side services is suppressed from the outset, forming the deepest institutional barrier to transformation.

This contradiction is also starkly evident in assessment mechanisms.

Xu Haining pointed out that currently, most institutions’ core performance indicators remain focused on “sales volume,” “commission income,” and other sell-side dimensions, while the weight of buy-side indicators is significantly low; meanwhile, the tendency for short assessment cycles also fails to align with the service attributes of buy-side investment advisory. “Executive terms are usually three years, and operational assessments are conducted on an annual basis, while the long-term companionship and value accumulation emphasized by buy-side investment advisory often require a longer time frame to fully manifest. The misalignment between the two creates institutional resistance to transformation from the assessment design level,” Xu Haining stated.

It is understood that previously, in the assessment mechanisms of investment institutions, the boards of directors and shareholders have long focused on annual revenue, profit growth rates, and short-term AUM scale as core hard indicators, with the management’s compensation levels, appointment and dismissal decisions, and even promotion pathways being highly tied to short-term performance.

The income logic of the past sell-side model was clear: products sold out generated immediate commissions, locking in institutional income at the moment the transaction was completed, and the subsequent investment experience of clients was no longer directly related to the institution’s income. This model has operated for many years, forming a mature assessment system, incentive mechanism, and product logic, and in this process, it has cultivated a large group of vested interests— from institutional executives to front-line financial managers, every individual who succeeded under the sell-side logic has inadvertently become a defender of this logic.

Xiao Wen pointed out that buy-side investment advisory requires core assessments focused on client retention, real account earnings, average holding duration, and sustainable advisory fee income. These indicators have long cycles and slow effects, which are inconsistent with the management’s pursuit of current operational goals. This contradiction has led to the investment advisory industry generally adopting a “dual-track assessment” system: nominally incorporating buy-side indicators while actually still using sales indicators as the basis for distribution. The advisory team “talks a good game but fails to act,” making it impossible for the assessment to genuinely switch to a buy-side orientation.

Professor Tian Xuan, a distinguished professor at Peking University, pointed out that when the assessment weight is overly skewed toward quarterly or annual scale growth and commission income, investment advisors are effectively forced to frequently adjust positions to meet clients’ short-term return expectations, rather than following the long-term allocation logic of assets. In such an assessment orientation, the standards for “doing right” and “doing well” do not align with the buy-side investment advisory’s requirement of being “client-centric.”

This contradiction also exists in the construction of product systems within investment institutions.

Brokerages, public funds, and other institutions have multiple independent profit units internally, such as asset management and public funds. Under the separation of company departments and profit center mechanisms, product selection prioritizes internal product flow and high-commission product sales to achieve short-term performance for various business segments; however, buy-side investment advisory requires the product system to be optimally selected from the entire market, with zero profit binding, and customer risk-return matching as the only standard. The internal interest barriers created by organizational structures prevent institutions from establishing a truly independent buy-side product shelf, and the product system remains unable to escape the path dependency of sell-side sales.

Professor Liu Yuzhen, a distinguished professor at Peking University, believes this is a “lack of neutrality in the product system,” as traditional sell-side institutions tend to prioritize recommending their own or affiliated products, focusing on high-commission and high-market-heat products as core offerings. The basic requirement of buy-side investment advisory is to start from client needs, select the best tools from the entire market, and use client risk-return matching as the sole standard, which directly conflicts with the product logic of the sell-side. In practice, some institutions, while nominally serving as buy-side investment advisory, still adhere to the sell-side-oriented product sales logic, leading to a transformation that is “merely nominal.”

“The core contradiction of transformation lies not in business or technology, but in the underlying interest distribution determined by organizational structure and assessment mechanisms. Without changing this foundation, the buy-side investment advisory transformation can only remain superficial,” Xiao Wen summarized.

Talent Shortage and Capability Gap

Even if a consensus has formed at the structural level to drive transformation, institutions face another equally thorny obstacle at the execution end: a systematic capability gap in talent, and this is the most time-consuming and difficult aspect of all bottlenecks.

The capability requirements for investment advisors in buy-side investment advisory are fundamentally different from those of traditional sales-oriented financial managers. The core skills of the latter are product promotion and client relationship maintenance; whereas buy-side investment advisory requires knowledge of asset allocation and portfolio management, a deep understanding of clients’ financial goals, risk preferences, and behavioral psychology, as well as a composite knowledge reserve in tax planning, legal structures, and retirement planning. Under the old model, the industry has densely produced sales talent under sell-side logic over the past decade, but what is now needed is a new type of practitioner that has hardly been cultivated at scale before.

Tian Xuan believes that under the buy-side investment advisory model, the core responsibility of advisors shifts from “product sales” to “wealth management for clients throughout their entire lifecycle,” but most current advisors still remain at the level of single-point knowledge, lacking systematic training and practical accumulation.

Relevant personnel from CITIC Securities also admitted that talent with comprehensive configuration capabilities in the investment advisory industry is still scarce. The professional competence required for asset allocation needs systematic training and cannot be quickly filled through hiring or training in the short term.

Regarding the existing talent gap in buy-side investment advisory, Xiao Wen also believes that there is a relative shortage of composite talents in China who possess both research and trading abilities as well as client service skills, and it is difficult to fill this gap in a short time.

“The deeper issue is that most existing practitioners have formed stable behavioral habits under sell-side logic. Front-line financial managers at traditional institutions are accustomed to obtaining compensation through sales assessments, expanding scale, and selling newly launched funds. Transitioning to long-term advisory fees requires giving up short-term high commissions, and without a reasonable transitional mechanism, the willingness for team cooperation itself is a challenge,” Xiao Wen stated. Therefore, the capability transformation of the advisory team must be premised on the reconstruction of assessment and incentive mechanisms. If assessment indicators still primarily follow sell-side logic, even if advisors possess buy-side capabilities, they will lack the motivation to proactively provide buy-side services.

Xu Haining uses a “marathon” as an intuitive analogy for the current talent and capability gap in investment advisory: if there hasn’t been enough running volume accumulated monthly, once on the field, there will be no muscle memory, leaving them unsure how to breathe, exert force, and distribute energy. “Investment advisors are the core carriers of buy-side investment advisory services. All transformations ultimately need to be realized through advisors at the client end. The capability transformation of the advisory team is the foundation of a successful transformation; cultivating buy-side investment advisory is not accomplished overnight, requiring long-term theoretical training, practical exercises, and experiential accumulation,” Xu Haining explained.

Xu Haining believes that even if theoretical training is completed, if there is no accompanying workbench, no standardized service processes, and no real-life scenarios to apply what they have learned, investment advisors will still be unable to genuinely utilize their knowledge. “It’s like the ‘bookish’ individuals in reality who have obtained their driver’s licenses but dare not drive because they lack a car.”

On the side of existing clients, there are also profound adaptation challenges. For a long time, investors have formed behavioral habits of “chasing highs and killing lows” and “maximizing short-term returns” under the sell-side model, leading to an instinctive resistance to the buy-side model of “charging advisory fees based on scale or service.”

Liu Yuzhen pointed out that for a long time, domestic investors have generally formed an operational inertia of “chasing highs and killing lows” and “maximizing short-term returns,” lacking understanding and recognition of the buy-side investment advisory concepts of “long-term holding” and “goal-oriented.” The more immediate issue is that clients exhibit clear resistance to the buy-side investment advisory model that charges advisory fees based on scale.

“In the existing cognitive framework of the vast majority of investors, traditional product sales are perceived as ‘free,’ and purchasing funds is seen as the entirety of the service; while buy-side investment advisory charging advisory fees is viewed as an additional cost, the long-term value it represents has not been widely recognized by the market,” Liu Yuzhen stated.

The reason lies in the fact that the traditional product sales model is perceived as “free” by clients, while the paid service logic required by buy-side investment advisory necessitates a cognitive reconstruction on the part of clients.

According to Tian Xuan, existing clients face significant challenges in adapting to buy-side investment advisory services due to long-standing rigid expectations of returns and dependency on products. This is work that cannot be replaced by technical means and cannot be achieved quickly. Therefore, transforming the mindset of existing clients is not something that a system can resolve; it requires the long-term educational companionship of professional investment advisors, which in itself is a highly labor-intensive and time-consuming project.

Wu Fei, a professor at Shanghai Jiao Tong University’s Shanghai Advanced Institute of Finance, believes that the most challenging bottleneck to break through currently is “rebuilding client cognition and trust.” Because even if institutions resolve internal mechanism and technical issues, if clients do not understand, accept, or pay, the transformation will lack a sustainable commercial foundation, which requires the enhancement of financial literacy and the cultivation of a long-term mindset at the societal level.

On the technical side, the lag is also evident. Existing systems are mostly designed for sales orientation and cannot effectively support the functions needed for buy-side investment advisory, such as client goal tracking, dynamic risk exposure alerts, portfolio rebalancing suggestions, and personalized report generation.

Xiao Wen mentioned that the current state of the industry is characterized by front-line investment advisors heavily relying on personal experience, fragmented operational processes, manual operations, and non-standardized service outputs, making it difficult to guarantee the stability of service quality and impossible to achieve scalable and inclusive service provision. The buy-side investment advisory model requires a digital platform covering the entire process of “investment research decision-making—portfolio building—risk monitoring—client companionship,” and this is nearly a construction project starting from scratch for most institutions.

There is interdependence among talent, tools, and scenarios; however, the relationships among the three in the current buy-side investment advisory market are highly strained. Without tools, capable advisors cannot provide efficient service; without scenarios, trained talents will quickly leave; without talent, even the best tools become useless. This state leads to the capability building of buy-side investment advisory being trapped in a “which came first, the chicken or the egg” dilemma.

Difficulties in Breaking Old Path Dependencies

Behind the torn interest structure and the execution capability gap, investment institutions face an even deeper dilemma that is difficult to quantify, assess, or change, which constitutes the most immovable barrier to the transformation of buy-side investment advisory.

Asset management institutions, operating under the sell-side model for many years, have accumulated successful paths, and members within the organization, from executives to front-line advisors, from product departments to compliance teams, have almost an instinctive attachment to old successful paths, leading to a very limited tolerance for fundamental changes from the institution as a whole.

Tian Xuan believes that this represents an inescapable “organizational cognitive inertia.” The buy-side transformation demands a complete abandonment of the “sales-oriented” gene from management to front-line staff and the establishment of a long-termist culture centered on “service,” while being willing to endure the “growing pains” of income during the transformation period. For institutions that have long relied on commission-driven logic, this means a self-denying revolution, and the resistance is understandably formidable.

This path dependency is more concretely reflected in the personnel on the front lines and is harder to intervene.

“Many front-line financial managers at traditional institutions have long been accustomed to obtaining compensation through sales assessments, expanding scales, and selling newly launched funds. After transitioning to investment advisory, they still find it difficult to eradicate the ‘sell-side sales’ mindset,” Xiao Wen stated. This is a contradiction commonly present in the industry.

“Shifting away from short-term high commissions to long-term advisory fees represents a dual reconstruction of income sources and working methods. Without a reasonable transitional mechanism, teams find it difficult to genuinely cooperate,” Xiao Wen stated. The core of this issue lies not in whether investment advisors recognize the buy-side concept, but in the significant gap between recognition and action.

Thus, from external observations of investment institutions, the flag of transformation to buy-side investment advisory has indeed been raised; however, in daily client interactions and product promotions, the logic of sell-side sales still quietly drives every subtle and specific decision.

Some practitioners believe that the deep-seated root of this phenomenon lies in the personal incentive structures having yet to be truly restructured. When assessment indicators remain primarily focused on sales volume and commission income, and the monthly and quarterly performance pressures still genuinely fall on the advisors’ shoulders, the rational choice becomes singular: under the banner of buy-side, continue along the sell-side track. Thus, “transformation” degenerates into a superficial verbal update rather than a substantive behavioral change.

Liu Yuzhen bluntly stated that the vested interests and successful experiences brought by the traditional investment advisory model create enormous internal and external resistance in organizations when facing transformation. Even if top management possesses strategic resolve, the vested interests of the execution layer often lead to reforms failing to materialize.

Interviewees believe that the failure of the transmission between the high-level will within investment institutions and the grassroots execution does not stem from deliberate resistance from lower levels but from a more fundamental fact: under a set of incentive mechanisms centered on sales indicators, taking actions that align with buy-side logic means proactively damaging one’s own interests within the existing rules framework.

Before the incentive mechanisms are restructured, the widespread occurrence of such behaviors is itself counterintuitive.

Liu Yuzhen believes that the first challenge in transformation is the risk of short-term income pressure and a decline in market share. This leads some institutions to repeatedly oscillate in their transition to buy-side investment advisory—when market conditions are favorable, they have the capacity to explore buy-side models, but once they encounter market fluctuations or short-term performance pressures, they immediately revert to sell-side-oriented behaviors to quickly realize commission income to fill the gap. This “wind transformation, reverse wind retreat” oscillating state puts the transformation at risk of being reset at any moment.

Against the backdrop of ongoing reforms in the asset management industry aimed at reducing fees, this sense of urgency to “account” further rises. Multiple interviewees candidly stated that the spaces for product sales commissions and management fee sharing that sustain the sell-side model are being systematically compressed, but the revenue replacement for the buy-side model will take time to establish. The “window period” for revenue in between poses a real life-and-death challenge for small and medium-sized institutions whose financial conditions are already under pressure. For investment institutions already under strain, resolving the dilemma of “surviving in the short term” versus “being likely correct in the long term” is not easy.

At the level of compliance and internal controls, this path dependency also leaves profound institutional gaps.

Tian Xuan believes that the current compliance systems of investment institutions are mostly designed around “product sales compliance,” covering traditional scenarios such as fund sales, information disclosure, and suitability management. However, the new service behaviors generated by the buy-side investment advisory model—such as continuous portfolio adjustment, asset rebalancing based on client lifecycle, behavioral finance intervention suggestions, and long-term tracking of goal progress—are vague and unclear in the existing compliance framework. The compliance system lacks dispute resolution mechanisms and compensation mechanisms specifically for buy-side investment advisory services, making institutions vulnerable to legal risks in the event of service disputes.

Hu Conghui, associate dean of the School of Economics and Business Administration at Beijing Normal University, believes that the capability transformation and cultural reshaping of buy-side investment advisory involve a redistribution of interests, which presents the greatest resistance in the short term and represents the most path-dependent characteristic. It is precisely because the old model continues to yield visible returns that the cost of breaking it becomes so heavy.

The tearing of commercial logic, the gaps in capability systems, and the dependency inertia of the old model—each of these barriers standing in the way of investment institutions’ transformation to the buy-side carries its own real weight and requires a genuine price to overcome. What lies ahead for institutions is a long road with no shortcuts.