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Wealth Management for China's Richest: An Industry With a Great Future
This article is by Alex Pigliucci, the global managing director of Accenture Wealth and Aet Management Services.Robin Li emerged from near poverty to start , which is often called “theof.” Now 43, he is worth more than $10 billion and considered the country’s wealthiest man.His ascent was particularly steep, but his rags-to-riches arc is familiar among China’s exploding number of high-net-worth individuals, most of whom rocketed from humble origins to breathtaking wealth with few stops in between.Asia is now home to more high-net-worth, or HNW, individuals than any other continent.Its more than 3 million of them, defined as people with at least $1 million in investible aets, exceeds North America by 200,000, according to industry reports.In the U.S.the number of HNW individuals dropped nearly 5% in 2011, but China’s economic boom continues to generate new wealth, with its count rising by more than 5%.China now boasts the fourth-highest total in the world, behind only the U.S., , and.According to the Accenture Wealth and Aet Management Services study, in spite of this growth, China’s HNW market is maively underpenetrated by wealth managers, with only 7% of its more than $4 trillion in investible aets under management.This could soon change, however.The slowdown of the Chinese economy has prompted HNW individuals to consider overseas investment alternatives.Foreign wealth managers have an opportunity to gain traction based on acce to sophisticated investment vehicles that can’t be entered from within mainland China.But before pursuing this audience, Western firms should first develop nuanced understandings of Lee and his suddenly wealthy peers, who collectively represent an HNW audience quite different from those found in the West.Most of China’s HNW individuals are 40 to 50 years old and were born into poverty, not to mention a world without a stock market.Economic liberalization, which gained momentum over the last decade, catapulted many Chinese into sudden wealth.China recently claimed the No.2 spot on the , with 95 of them, thanks primarily to a record number of initial public offerings that made billionaires out of their founders.Chinese society has long been hierarchical by nature, and China’ HNW individuals so appreciate prestige and the status of wealth that they are among the world’s largest consumers of luxury goods.Therefore they have a persistent interest in short-term, high-return investment channels, which so far they have found in stocks and real estate.However, those two aet claes, which have driven double-digit growth over the last decade, now appear in danger of losing their status as the nation’s dominant wealth builders.The first sign of trouble came in December 2011, when Haitong Securities, the second largest brokerage firm in China, called off its planned IPO.The Shanghai Index subsequently dropped to levels not seen since 2000.In parallel, heavy investments and speculative buying drove housing prices up to levels found in New York and Tokyo, overheating the real estate market and putting housing prices beyond the reach of most Chinese.The first-generation Chinese HNW individuals, being self-made, are confident of their busine acumen, protective of their hard-earned wealth, and inclined to manage investments themselves rather than enlist the help of unfamiliar firms.However, they now face a challenge they cannot solve alone.Amid newfound skepticism about the long-term stability of their economy, many of them want to hedge their investments by acceing markets overseas.Here are four ways wealth managers can capitalize on this opportunity:
1.Addre the specific psychological and behavioral approaches of Chinese HNW individuals: To succeed in China, Western wealth managers must modify their existing products and services.Customizations might include devising products focusing on shorter-term returns;opportunities to enjoy prestigious relationships and exclusive acce;and client-centric fee models driven by investment returns rather than transaction volumes.2.Engage through education: In the name of transparency, foreign firms should consider devoting increased resources to educating HNW individuals.Forums such as profeional conferences, investment workshops, and social events are excellent vehicles for building social capital.3.Pursue an onshore/near-shore model: Given mainland China’s restrictions on investing in foreign currency products, a number of Western companies like Goldman Sachs have pursued onshore/near-shore models so as to provide HNW individuals acce to a portfolio of global products and services.Busine ports like Hong Kong are exempt from the mainland’s foreign currency limitations.Many Chinese entrepreneurs have staged recent IPOs in Hong Kong while also opening overseas branches, thus enabling the yuan to legally flow into the foreign currency investment market.4.Engage in strategic joint ventures with Chinese domestic banks: Chinese domestic banks dominate HNW client acquisitions, thanks to their retail coverage and local client knowledge.Foreign institutions should look closely at collaborating with Chinese banks that have solid client bases and the desire to grow their wealth management businees.With all the uncertainty in its economy, China’s next big export could be the wealth of its HNW individuals.Foreign institutions that provide direction to the next sources of high returns will benefit greatly from having solved a significant problem in the global marketplace.
