CHINA'S PRIVATE WEALTH MARKET CONTUINUES TO EXPAND AT A SCORCHING PACE CREATING OPPORTUNITIES AND CHALLENGES FOR FINANCIAL SERVICES PROVIDERS
Joint research from China Merchants Bank and Bain & Company reveals that the number of Chinese HNWIs has caught fire, increasing from 180,000 to an astonishing 1.6 million in just over a decade
The Chinese private wealth market has continued to skyrocket, with the number of high net worth individuals (HNWIs) with at least RMB 10 million (about $1.5 million) of investable assets having increased dramatically from 180,000 in 2006 to 1.6 million in 2016, representing an expansion of more than eight-fold in just a decade. This growth includes 291,000 ultra-high net worth individuals (UHNWIs) – those with at least RMB 50 million in investable assets – up from just 25,000 in 2006.
In total, China's private wealth has swelled to RMB 165 trillion (about $24 trillion) – five times the level it was in 2006, according to Bain & Company's 2017 China Private Wealth Report, prepared in collaboration with China Merchants Bank. The ever growing pool of private wealth is also roughly twice the size of the country's GDP and represents one of the fastest-growing accumulations of wealth in modern history.
The report finds that as China's wealthy continue to grow richer and more numerous, they`ve also become more diverse in terms of segmentation, more geographically dispersed and they have more diversified wealth goals.
"This year's results are fascinating as they show the continued and immense surge of wealth creation in China that has continued to flourish from a decade ago. It represents an entirely new frontier with abundant opportunities and challenges for financial services providers," said Jennifer Zeng, a partner at Bain & Company and co-author of the report. "While this growth is exciting, firms need to truly understand the high level of sophistication, knowledge and technological savvy among this new generation of HNWIs and UHNWIs if they are to succeed."
Key Report Findings:
- ● While HNWIs remain concentrated in major cities and coastal areas, 22 of mainland China's 34 provinces now each have at least 20,000 wealthy individuals.
- ● In 2009, nearly half of HNWIs ranked "wealth creation" or "quality of life" as their top priorities from a list of seven objectives. Today most respondents name "wealth preservation" and "wealth inheritance" as their main goals.
- ● About 40 percent of UHNWIs would consider using family offices for asset allocation management, wealth preservation and inheritance, tax planning, legal consultation, and business inheritance planning.
- ● The percentage of HNWIs surveyed with overseas allocation has increased from 19 percent in 2011 to 56 percent in 2017, but the overall percentage of assets allocated overseas has levelled off.
- ● Today, 63 percent of China's wealthy rely on financial services providers to manage their domestic financial assets, and among that group, more than half use private banking services provided by commercial banks.
- ● When selecting wealth managers, HNWIs value the institution's reputation above all else, with 61 percent ranking "brand and trust" as the most important criteria, while 58 percent selected "expertise."
As the number of China's wealthy continues to grow exponentially, it's clear from the research that they are incredibly diverse, have a multitude of needs and that their priorities are starting to shift," added Zeng. "As these growing HNWIs are all so unique in their stories of success, a one-size fits all approach is no longer appropriate. It is essential for financial institutions to truly understand how they can help clients achieve their priorities, while at the same time continuing to be innovative by using technology to raise the bar on the speed and quality of services which clients now demand."
Both Chinese and foreign wealth managers face opportunities and challenges when it comes to serving China's increasingly internationally minded HNWIs. In its report, China Merchants Bank and Bain have identified a number of ways which can help both be successful amid these ever-changing demographics.
While it has only been ten years since the liftoff of this boom, the Chinese approach to wealth has changed profoundly in this period. A continued shift in priorities is likely, from a focus on wealth accumulation to and emphasis on wealth inheritance, along with all the implications that holds for estate planning, family governance and business succession.
As the desires of China's HNWIs grow more complex, so too does their willingness to seek advice – creating opportunities for wealth managers who are skillful enough to serve their evolving needs.