3·15 Investigation | Regulatory Crackdown on Investment Advisory Industry, Compliance is Competitive Advantage Not a "Binding Constraint"

Editor’s Note: On the occasion of the 3.15 International Consumer Rights Day, the securities investment advisory industry is facing a rigorous regulatory review.

Since 2026, a series of regulatory fines have been issued, representing a concentrated crackdown on long-standing industry issues and revealing deeper problems in the trillion-dollar investment advisory market, where “performance outweighs compliance.” From investors’ pain points—such as “recommendation of ‘limit-up miracle stocks’ before payment and being trapped at high positions after payment”—to the exit of seven institutions over four years, the market cannot help but ask: What is the root cause of industry chaos? When will the pain of cleansing end? What is the path toward standardized transformation?

In response, Securities Times has launched the “3.15 Survey on the Investment Advisory Industry,” engaging with leaders of multiple advisory firms and experts to explore ways to restore industry integrity, promote compliant development, and effectively protect the legitimate rights and interests of hundreds of millions of investors, ensuring that “trust is truly safeguarded.”

The securities investment advisory industry is undergoing an unprecedented deep cleansing.

Since the beginning of 2026, nine regulatory fines have been issued consecutively, five institutions have been suspended from onboarding new clients, and the industry ecosystem has experienced intense turbulence. The number of firms has shrunk from 83 in 2021 to 76 now, with seven advisory institutions quietly exiting over four years, behind which lie real losses suffered by many investors due to false advertising and illegal stock recommendations.

Against the backdrop of intensified regulation, why do phenomena such as exaggerated promotion and prioritizing performance over compliance still persist? How should institutions balance operational pressures with compliance bottom lines? A Securities Times investigation delves into the underlying logic of industry chaos, seeking a breakthrough in the transition from “sell-side sales” to “buy-side advisory.”

Imbalance Between Profit Models and Compliance Bottom Lines

“Before payment, daily promotion of ‘limit-up miracle stocks’; after payment, recommending stocks at high positions to be bought in.” This is a common experience among investors purchasing products from third-party securities advisory firms. “Exaggerated promotion, live streaming violations, internal control failures”—these are frequently cited keywords in regulatory fines against non-compliant advisory firms.

According to data from Tonghuashun iFinD, in 2025, a total of 46 securities investment consulting firms were penalized 56 times (including administrative penalties and regulatory measures), a 36.59% increase year-over-year, with two firms having their licenses revoked due to serious violations. In 2026, with ongoing strict regulation, eight well-known industry institutions—including Beijing Tianxiang Wealth, Jiufang Zhitu, Huiyan Zhitu—have been penalized, with some even suspended from onboarding new clients.

You Xin (pseudonym), head of a Shanghai-based advisory firm, told Securities Times and China Securities Journal that the root of the industry’s focus on marketing over compliance lies in a systemic misalignment of development logic. “Most institutions habitually prioritize short-term performance and scale expansion, viewing compliance as a cost, constraint, and burden rather than a survival bottom line and core competitiveness.”

He further explained that sales teams, under immense performance pressure, lack corresponding compliance constraints and incentives, falling into a vicious cycle of neglecting customer service and long-term value. Under this development model, compliance requirements are often sidelined in favor of KPIs and marginalized.

In February, the Shanghai Securities Industry Association pointed out that two on-site inspections revealed weak internal controls and compliance management within advisory firms, with low compliance awareness and a small proportion of compliance personnel—some firms had only 1.9%.

“The core issue is that some industry institutions have turned professional advisory services into fast-moving consumer goods sales, where performance overrides compliance,” said Hong Shang (pseudonym), head of a Shanghai advisory firm, to China Securities Journal.

Tian Lihui, director of the Nankai University Financial Development Research Institute, analyzed from a theoretical perspective that the root cause lies in the agency conflict between institutions and investors, as well as the imbalance between short-term interests and long-term reputation. “When customer acquisition costs erode profits, sales pressure undermines compliance bottom lines.”

You Xin believes that the continuous issuance of regulatory fines not only exposes past phenomena such as exaggerated promotion and over-marketing but also reflects multiple dilemmas, including homogenized profit models and infiltration of black-market rights protection.

Industry Cleansing Is Not Yet Complete

Faced with a trend of reducing the number of institutions by seven over four years, interviewees generally see this as a shift from reckless expansion to regulated development.

“This is not just a reduction in quantity but an inevitable trend of the industry returning to its service roots and pursuing high-quality growth under stricter regulation,” said a leading Shanghai advisory firm executive to China Securities Journal.

Tian Lihui described this process as “a necessary pain for market maturation from wild growth,” indicating accelerated industry segmentation.

For compliant firms, this reshuffle is seen as a structural opportunity. You Xin stated that firms that adhere to compliance, proactively transform, and possess professional capabilities will leverage strict regulation to build competitive moats, seize industry resources, and further expand long-term development space.

Tian Lihui metaphorically said, “Filtering out speculators who flood the market, leaving long-term players who value reputation.”

Hong Shang emphasized that investment advisory firms should always embrace regulation; those that can operate steadily and sustainably in the future will be those that regard compliance and professionalism as core competitive advantages.

However, the industry cleansing is far from over. You Xin noted that the industry has moved beyond the reckless growth phase, with shell companies and illegal institutions continuing to be phased out. The cleansing is shifting from concentrated rectification to normalization and dynamic management. In the future, a pattern of “compliant firms advancing steadily, high-quality firms winning, and violators exiting” will gradually form.

Tian Lihui also believes that industry cleansing is a dynamic process aligned with market evolution, and “the normalization of compliance capacity is just beginning.”

How to balance KPIs and compliance? Several interviewees proposed systemic correction plans from a mechanism perspective.

You Xin suggested that regulators should promote institution rating and tiered management, allowing high-compliance, high-risk-control, and well-regarded firms to have more development space; simultaneously, the industry should optimize assessment focus, shifting from “volume expansion” to “quality and efficiency,” emphasizing customer retention, service quality, long-term renewal, suitability matching, and complaint rates as sustainable development indicators.

Hong Shang advocated building a foundational system of “pre-compliance, long-term orientation,” elevating compliance to a strategic red line.

Tian Lihui recommended restructuring the evaluation system for advisory firms, incorporating lagging indicators like customer retention rate and asset retention into core KPIs, so that compliance becomes an internalized part of corporate culture.

Regarding recent penalties on firms like Jiufang Zhitu, Tian Lihui believes this reflects the lag in compliance management amid rapid growth of leading institutions. “Sincere rectification is commendable, but the key is the substantive implementation of corrective measures.” He sees this as a timely warning for the industry: “Compliance is not a development obstacle but the most solid moat. Lessons must be transformed into institutional safeguards to prevent recurrence.”

Pathways for Transformation: Moving Toward Buy-Side Advisory

The industry is calling for a shift from “sell-side sales” to “buy-side advisory,” but under current licensing restrictions that do not permit full discretionary authority, how to truly bind interests with clients remains a key challenge.

You Xin proposed three paths: First, change service philosophy from “winning rate and stock recommendations” to “three parts advice, seven parts consultation,” through ongoing investor education to help clients correct irrational behaviors like chasing gains and frequent trading; second, optimize service channels by promoting inclusive, standardized investment tools like ETFs to reduce conflicts of interest; third, improve mechanisms by making fee standards transparent and ensuring smooth client termination channels, focusing on client retention and long-term companionship to adjust evaluation systems.

Hong Shang emphasized that licensed institutions and clients should fundamentally develop a long-term value co-creation relationship, rather than a simple “service and payment” transaction. “The core is to move beyond shallow ‘stock picking’ services toward deep, client-investment-capability-building services, where service value is reflected in steady asset growth.”

A top Shanghai advisory firm leader believes that abandoning a product-centric mindset and focusing on full lifecycle client engagement—through professional research and continuous investor education—can win trust over the long term.

Tian Lihui is open to innovative fee models: “Asset management-based fee structures naturally tie institutional earnings to client wealth growth, representing a logical evolution.” But he also cautions that any innovation must be based on full information disclosure: “True buy-side advisory is a long process of creating continuous value to earn client trust.”

You Xin believes that only by transforming compliance from a “shackle” into a competitive advantage, turning client service from operational costs into growth drivers, and shifting evaluation from short-term volume to long-term value creation can the industry truly break free from the cycle of “heavy marketing, light compliance.”