Understanding the High Net Worth Market in China

In 2011, Asia Pacific surpassed North America as home to the most high net worth individuals (HNWIs) in the world. An estimated 1.3 million of the region’s 3.37 million HNWIs live in China alone.

As opportunities in developed markets continue to decline, wealth management firms are increasingly lured by Asia Pacific’s rising disposable incomes, strong appetite for luxury Western brands and growing interest in sophisticated wealth management services. The underserved Chinese market is particularly attractive for foreign entrants: just $266 billion, or 7 percent, of the more than $4.3 trillion in investible assets held by China’s HNWIs is currently under management.

In this report, Accenture examines what makes China’s wealthiest tick and explains how foreign wealth managers can tap into this growing opportunity.

Historically, stocks and real estate have been the investment channels of choice in China. Indeed, strong momentum in both of these markets spawned a tremendous number of billionaires in RMB or Chinese Yuan until 2010. More recently, these traditional sources of wealth appear to be drying up.

To help wealth management firms determine what the future holds for China’s high net worth individuals, Accenture studied the group’s social, behavioral and cultural characteristics. We found that:

• Unlike their counterparts in the West, most of China’s HNWIs are between 40 and 50 years old, were born in poverty and grew up without modern technology.
  
  
• Many Chinese HNWIs take pride in their personal successes, but remain skeptical about long term economic stability and the sustainability of their prosperity.
  
  
• Many Chinese HNWIs appreciate tangible rewards of wealth, including consumption power, exclusive access and social status.

Local banks dominate China’s wealth management industry thanks to strong asset bases and extensive branch networks. Despite their superior trading and settlement capabilities, foreign wealth management firms hoping to stake a claim in this promising market face an uphill battle.

To compete, foreign firms must recognize and respond to the distinct needs of China’s high net worth individuals. That means:

• Focusing on short-term returns.
  
  
• Providing transparency into gains and losses.
  
  
• Cultivating relationships that offer exclusive access to prestigious products and services.
  
  
• Building local financial advisory workforces with strong relationship management skills.
  
  
• Developing client-centric fee models driven by investment returns instead of transaction volumes.

Accenture has identified four steps that foreign firms can take to capitalize on wealth management service opportunities among China’s growing number of high net worth individuals (HNWIs):

• Develop products, services and approaches that address the psychological and behavioral characteristics of the country’s HNWIs.
  
  
• Engage current and future generations of HNWIs with targeted marketing campaigns and investment education programs.
  
  
• Use onshore and nearshore models to build relationships with HNWIs, and offer access to global products and services.
  
  
• Partner with domestic Chinese financial institutions on strategic joint ventures.