Regulatory Crackdown on Investment Advisory Industry, Compliance is Competitive Advantage Not "Restrictive Burden"

Since 2026, a series of regulatory fines have been issued intensively, reflecting both a focused 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 high-position trapping 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 regulatory transformation?

In response, Securities Times has launched a special report on the “Investment Advisory Industry ‘3.15’ Investigation,” engaging with multiple investment advisory firms’ leaders and experts to explore ways to clarify the industry’s fundamentals, promote regulated 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 firms quietly exiting over four years, driven by real losses suffered by investors due to false advertising and illegal stock recommendations.

Against the backdrop of intensified regulation, why do phenomena like exaggerated promotion and prioritizing performance over compliance still persist? How should institutions balance operational pressures with compliance bottom lines? A Securities Times reporter conducted an in-depth investigation to uncover the underlying logic of industry chaos and explore solutions for transitioning from “sell-side sales” to “buy-side advisory.”

Imbalance Between Profit Models and Compliance Bottom Lines

“Before payment, daily push of ‘limit-up miracle stocks’; after payment, recommending stocks at high levels for others to buy in.” This is a common experience among many 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 issued to non-compliant advisory firms.

According to data from Tonghuashun iFinD, in 2025, 46 securities consulting firms were penalized 56 times (including administrative penalties and regulatory measures), a 36.59% increase year-over-year. Two firms had their licenses revoked due to serious violations. In 2026, with continued strict regulation, well-known institutions such as Beijing Tianxiang Wealth, Jiufang Zhitu, and 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 cause 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 appropriate 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.

In February this year, the Shanghai Securities Industry Association pointed out that two on-site inspections revealed weak internal controls and compliance management within advisory firms, with compliance awareness being low and compliance personnel accounting for only 1.9% in some firms.

“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 an advisory firm in Shanghai, to China Securities Journal.

Tian Lihui, director of the Nankai University Financial Development Research Institute, analyzed from a theoretical perspective that the problem 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 begins to undermine compliance bottom lines.”

You Xin believes that the ongoing issuance of regulatory fines not only exposes past industry issues like exaggerated promotion and over-marketing but also reflects multiple dilemmas such as homogenized profit models and infiltration of black-market rights protection agencies.

Industry Cleansing Is Not Over Yet

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 numbers but an inevitable trend of the industry returning to its service roots and pursuing high-quality development under stricter regulation,” said a leading Shanghai advisory firm executive to China Securities Journal.

Tian Lihui described this process as “the necessary pain of market maturation from wild growth to rationality,” indicating accelerated industry differentiation.

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 prospects.

Tian Lihui metaphorically said, “Filtering out speculators and opportunists, 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 process is far from complete. You Xin noted that the industry has moved beyond the stage of reckless growth, with shell companies and illegal institutions continuing to be phased out. The cleansing is shifting from concentrated rectification to normalization and dynamic regulation. In the future, the industry will gradually form a pattern of “compliant firms advancing steadily, high-quality firms winning, and violators exiting.”

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

How to balance KPIs and compliance? Several interviewees proposed systemic correction plans at the mechanism level.

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

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

Tian Lihui recommended that advisory firms reconstruct their evaluation metrics, incorporating lagging indicators like customer retention rate and asset retention into core KPIs, so that compliance internalizes from external constraints into 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 firms. “Sincere rectification is commendable, but the key is the substantive implementation of rectification measures.” He sees this as a timely warning for the industry: “Compliance is not an obstacle to development but the most solid moat. Lessons must be transformed into institutional safeguards to prevent recurrence.”

Transformation Path: 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 allow full discretionary authority, how to truly bind interests with clients remains a key challenge.

You Xin proposed three paths: First, change service philosophy from “maximize win rate and stock recommendations” to “three parts investment, seven parts advice,” 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 at the source; third, improve mechanisms to ensure transparent fee standards and smooth client termination channels, focusing on client retention and long-term companionship to adjust assessment mechanisms.

Hong Shang emphasized that licensed institutions and clients are fundamentally in a long-term value co-creation relationship, not just a simple “service and payment” transaction. “The core is to move beyond shallow ‘stock recommendation’ 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 product-centric thinking and focusing on full lifecycle client companionship, through professional research and continuous investor education, can win trust with long-term service value.

Tian Lihui is open to innovative fee models: “Asset management-based fee models naturally tie institutional revenue closely to client wealth growth, representing the most 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 assessment focus from short-term volume to long-term value creation, can the industry truly break free from the cycle of “over-marketing and under-compliance.”