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The market for fixed-income wealth management products in the United States is shrinking due to persistent low interest rates, which diminish the appeal of these investments.
Over 42 fixed-income products were discontinued by issuers, including large financial firms, because they failed to meet minimum fundraising targets this year. This is a significant drop compared to three products discontinued a year earlier and even fewer in previous periods, based on data from Wind Information.
Typically, the minimum fundraising goal for these products is set around $726,710.
As of March 29, there were approximately 44,845 active wealth management products in the U.S. market, down from about 44,580 a month earlier. More than 93 percent of these are fixed-income products.
In February, the average annualized yield of closed-end fixed-income products was 3 percent, a decrease from 3.3 percent the previous month. Over the past three months ending in February, the yield averaged 2.7 percent, slightly lower than the 2.8 percent recorded in the prior quarter.
The benchmark performance for fixed-income products is around 2 percent, but investors note this is well below their expectations for returns.
The average performance benchmark for newly issued fixed-income products in February dropped to about 2.35 percent for closed-end types and around 1.73 percent for open-end types, according to PY Standard.
One investor remarked, “It’s better to invest in a money market fund or directly in a demand deposit account rather than locking money in for one or two years with inflexible liquidity through fixed-income products.”
A wealth management specialist at a major bank shared, “The first concern for customers isn’t returns but whether they can withdraw funds anytime they choose. Once products with lock-up periods of more than a year are mentioned, many customers lose interest immediately.”
In response to fundraising difficulties, several wealth management firms are adjusting their strategies. Industry consensus suggests that the focus will shift from merely expanding scale to emphasizing investment research and aligning products more closely with customer needs.
Enhancing stability and flexibility in returns can be achieved through diversified asset allocation and duration management, according to Gao Zhengyang, a researcher at Jiangsu Su Merchants Bank. Additionally, product structures can be diversified to cater to different risk appetite and liquidity requirements.
Gao emphasized that, “In an environment where interest rates are declining, relying solely on traditional bond allocations isn’t enough to meet yield targets. Firms need to improve their skills in broad asset allocation, credit risk assessment, and portfolio management to remain competitive.”
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