Wealth in China: HNW Investors 2018

Table of Contents

Table of Contents

1. EXECUTIVE SUMMARY 2

1.1. The maturing China wealth market offers plentiful growth potential 2

1.2. Key findings 2

1.3. Critical success factors 2

2. OVERVIEW 8

2.1. Understanding the changing demand and demographic patterns of HNW investors is critical in China's rapidly evolving wealth market 8

2.2. Demographics: Targeting entrepreneurial males across three industries is key 9

2.3. Expats: Providers should leverage the expansive expat opportunity 10

2.4. Investment style preferences: The prospect of superior returns drives the uptake of advice 11

2.5. Asset allocations: All asset classes have strong momentum, especially bonds and commodities 12

2.6. Offshore preferences: A solid track record and a wide product range can entice wealth home 13

2.7. Wealth managers should lead with tax and pension planning 14

3. WEALTH MANAGERS MUST PREPARE FOR A SHIFT IN GENDER AND GENERATIONAL INFLUENCE 15

3.1. China's wealth market is comparatively young, but wealth preservation strategies should be given greater attention 15

3.2. Women form a small but growing target segment 15

3.2.1. UBS leads the way in Asia, having declared female investors a key target market 16

3.3. Intergenerational wealth is complex but not to be underestimated 17

4. EXPATS ARE AN ATTRACTIVE SEGMENT, BUT UNDERSTANDING THEIR UNIQUE SERVICE REQUIREMENTS IS CRUCIAL 19

4.1. Offering business banking services is paramount to appeal to Chinese HNW expats 19

4.1.1. The large HNW expat market is underpinned by entrepreneurs and long stays 19

4.1.2. HNW entrepreneurs looking to migrate to China will appreciate support navigating the country's hazy business environment 20

4.1.3. Family life challenges have the potential to have a negative effect on the wide expat market 21

4.2. Wealth managers should foster closer collaboration with their investment banking arm to grow their expat client book 22

5. OFFERING ROBO-ADVICE IS MANDATORY TO COMPETE IN CHINA'S WEALTH MARKET 24

5.1. Robo-advice is rapidly expanding amid mounting industry adoption 24

5.1.1. Once known as laggards, Chinese wealth managers are now embracing the opportunity automated services provide 25

5.2. A combination of automation and in-person will allow wealth managers to target a broader audience and free up time 26

5.3. An over-reliance on automated investment services has a negative effect on retention rates 26

6. BROAD GROWTH IS EXPECTED ACROSS INVESTMENT OPTIONS 28

6.1. While providing an easy sell, rising demand for commodity and bond investments calls for caution 28

6.1.1. HNW demand for commodity and bond investments is set to rise rapidly 28

6.1.2. Wealth managers need to ensure HNW investors understand the risks involved in commodity and bond investments 30

6.2. Wealth managers should redirect HNW demand for real estate towards REITs as volatility picks up 31

6.2.1. China's residential real estate market is cooling down after years of buoyancy, curbing HNW demand for the asset class 31

6.2.2. The establishment of a REIT sector will allow for greater diversification while freeing up capital traditionally locked in real estate 32

7. CHINESE OFFSHORE HNW WEALTH IS BIG BUSINESS 33

7.1. The offshore proportion of China's HNW market is above average despite increasingly strict capital controls 33

7.2. Property accounts for the majority of China's offshore investments 34

7.2.1. Diversification benefits provide a compelling draw for real estate investments offshore 34

7.2.2. The US, Australia, and Canada are the top property investment locales 35

7.2.3. Broad disincentives may dampen appetite for offshore property 36

8. WEALTH MANAGERS MUST BE COMPREHENSIVE 37

8.1. Chinese HNW clients show strong demand for auxiliary services 37

8.2. Wealth managers have to address demand/supply gaps around tax planning and inheritance 38

8.2.1. An aging entrepreneur community calls for a greater focus on succession planning 38

8.2.2. Chinese investors' significant offshore holdings will continue to support strong demand for tax planning services 39

9. APPENDIX 40

9.1. Abbreviations and acronyms 40

9.2. Supplementary data 40

9.3. Definitions 42

9.3.1. Affluent 42

9.3.2. HNW 42

9.3.3. Liquid assets 42

9.4. Methodology 42

9.4.1. GlobalData's 2017 Global Wealth Managers Survey 42

9.4.2. GlobalData's 2016 Global Wealth Managers Survey 43

9.4.3. Level of agreement calculation 43

9.4.4. Service level of demand score 43

9.4.5. Forecast level of demand calculation 43

9.5. Bibliography 44

9.6. Further reading 46

List of Figure

List of Figures

Figure 1: Female HNW investors tend to be younger than their male counterparts 9

Figure 2: Expats account for almost a quarter of Chinese HNW investors 10

Figure 3: Demonstrating effectiveness is crucial given the factors that drive uptake of advice 11

Figure 4: An over-reliance on direct property limits earning potential 12

Figure 5: A better range and the prospect of better returns offshore are driving HNW wealth abroad 13

Figure 6: With the exception of philanthropy, HNW individuals exhibit strong demand for all auxiliary services 14

Figure 7: China's wealth market has a comparatively younger and marginally more male-dominated profile than evident elsewhere in Asia Pacific 16

Figure 8: UBS targets female investors with its Unique proposition 17

Figure 9: Chinese wealth managers recognize the intergenerational wealth opportunity, but less so than their global peers 18

Figure 10: Chinese HNW expats are more likely to be longer-term residents pursuing business interests 20

Figure 11: Chinese HNW expats have complex demands and are lucrative from a loyalty perspective 21

Figure 12: Chinese wealth managers are most reliant on client referrals and contacts for HNW expat acquisition 23

Figure 13: Chinese wealth managers are already meeting increased demand for automated advice 25

Figure 14: Hiring talent represents a significant challenge in China 26

Figure 15: Chinese HNW demand for commodities and bonds is forecast to record the highest increase 28

Figure 16: Bonds appeal to more risk-averse Chinese HNW investors-a reality evident elsewhere in the world 30

Figure 17: The leading property investment drivers have added importance for Chinese HNW investors 32

Figure 18: China's HNW investors hold a more significant offshore portfolio than elsewhere due to perceived access to a better range of investments 34

Figure 19: Offshore property is of great appeal to Chinese HNW investors 35

Figure 20: Chinese HNW investors show high levels of demand for auxiliary services 38

List of Table

List of Tables

Table 1: Cash and near-cash products: importance of asset allocation drivers 40

Table 2: Equities: importance of asset allocation drivers 40

Table 3: Bonds: importance of asset allocation drivers 41

Table 4: Property: importance of asset allocation drivers 41

Table 5: Commodities: importance of asset allocation drivers 41

Table 6: Alternatives: importance of asset allocation drivers 42