Wealth and Asset Management Services | Point of View

Understanding the High Net

Worth Market in China

The fast growing countries in Asia Pacific are expected to be

among the worlds largest economies in the coming years. The
number of high net worth (HNW) individuals in Asia-Pacific
expanded 1.6% to 3.37 million in 2011, making Asia-Pacific the
largest region for HNW individuals for the first time, surpassing
North Americas HNW individual population of 3.35 million.
After Japan, China currently has
the second-highest number of
HNW individuals in this region
about 1.3 million with a
combined wealth of $4.3 trillion.1
The demographic make-up of
these countries also makes
them extremely enticing to
wealth managers, as their
populations are educated
and technologically savvy.
In addition, they have rising
disposable incomes, a strong
appetite for luxury western
brands and growing interest
in sophisticated wealth

management services. This high

growth, coupled with regional
political stability and the
relaxation of regulatory controls
by central banks in Asia, has
produced an environment
in which the investment
management sector has enjoyed
double digit growth over the
past several years. However, the
recent economic slowdown in
China will likely dampen growth
at least over the near-term.

The HNW Opportunity in China

Populated by of the broadest segment of
HNW individuals in the world, China is
obviously at the heart of the Asia Pacific
market. Though the Chinese economy
appears to be experiencing sluggish
growth in 2012, the demographic trends
and easing of restrictions are compelling
firms to increase their investments in
this market, especially as the developed
markets continue to oscillate lower. The
easing of restrictions on foreign holdings
will provide greater opportunity for
additional foreign influence for Chinas
very young wealth management culture,
a business that has seen considerable
evolution over the past decade. The
wealth management market in China
is highly attractive to foreign entrants
as it remains an underserved market
with approximately $266 billion under
management This translates to just 7%
of the more than $4 trillion in investible
assets held by HNW individuals in 2011.2

Accordingly, over the past decade, the

China wealth management industry
has become one of the most frequently
studied topics by the media, academia
and institutional researchers (for example
BCG, Bain, Accenture, Capgemini, Credit
Suisse and other financial services).
However, the market insights published
have been based primarily on microeconomic data and quantitative analysis.
Not much has been written about the
social, behavioral and cultural aspects
of Chinese HNW individuals, which is an
important piece of the puzzle to help
increase penetration of these investors.
In this paper, we explore some of the
cultural and psychological characteristics
of Chinese HNW individuals and their
impact on investment needs and
preferences. In addition, we discuss how
an understanding of these factors can
inform wealth managers and help them
develop strategies to more effectively
penetrate the Chinese HNW market.

The Psychological and Behavioral Make Up

of Chinese HNW Individuals
China, with a population of over 1.3
billion people and 18 trillion in bank and
financial institutional assets, earned the
number two spot on the 2012 Forbes
Billionaires List with 95 billionaires,
compared to 424 in the United States.
This ranking can largely be attributed
to the record number of Initial Public
Offerings which made billionaires out
of their founders, such as search engine
Baidu co-founder Robin Li.
Unlike their counterparts in the West,
most of Chinas HNW individuals are
between 40 and 50 years old, were born
in poverty, and grew up in an environment
bereft of the modern technology that is
now quite common.3 The stock market
didnt even exist for most of these HNW
individuals lives. Economic liberalization,
which gained momentum over the last
decade, catapulted many Chinese out of
poverty and into sudden wealth. Despite
giving up the #1 spot on the latest Forbes
China Rich List to beverage magnet Zong
Qinghou, Baidu founder Robin Li, in the
#2 spot with a personal wealth estimated
at just over $8 billion, continues to
be the face of first generation Chinese
HNW individuals.

He spent most of his childhood in the

city of Yangquan in Shanxi Province. Both
of his parents were factory workers. He
rose from modest beginnings to great
wealth without many stops along the
way. 4 For most very wealthy Chinese,
there was no intermediate, middle class
stage in their wealth accumulation. The
memories of the hard times they endured
early in their lives remains fresh in their
minds. This social and historical context
helps rationalize a set of seemingly
contradictory characteristics of Chinese
HNW individuals and informs their
investment preferences and risk profiles.
Many Chinese HNW individuals take
pride in their personal successes which
paralleled the phenomenal rise of their
nations economic power. Yet, they remain
skeptical about the long-term stability
of their economic environment and
the sustainability of their prosperity.5
While keeping their faith in continued
economic success over the coming
decade, they are mentally cautious about
potential slowdowns, political turmoil
and any resulting loss of their hard
earned wealth. Many HNW individuals
are hedging this perceived risk by

accessing overseas markets and sending

their children, usually the only child
in the family, to western countries for
education or immigration.6 So, while
Chinese HNW individuals are optimistic
about their near-term future, many
remain reserved about the long-term
prospect of the Chinese market. Thus,
their preferred investment strategy tends
to be near-term oriented rather than
over a longer time horizon.
A large number of Chinese HNW
individuals like to translate their fast
track wealth into tangible rewards, such
as consumption power, exclusive access
and social status. The long-standing
hierarchical nature of Chinese society
in combination with the very unequal
distribution of wealth in China today
have resulted in Chinese HNW individuals
greatly appreciating prestige and wealth
status, along with the services/life styles
that correspond to that status. Chinese
HNW individuals are among the largest
consumers of luxury goods in the world.
Even with the hefty taxes applied to
the price tags of imported brands such
as Hermes, modern shopping centers in
China rarely lack cash paying customers.

At the same time, the first-generation

HNW individuals prefer to be discreet
about their financial holdings and income
sources, considering visibility such as
being listed on the Forbes or Hurun (the
Chinese version) Lists of richest people as
unwanted recognition. They even believe
that many such honors have proven to be
the start of personal demise. In contrast,
second generation HNW individuals, who
grew up wealthy, enjoy showing off their
affluence. In keeping with these first and
second generation HNW biases, wealth
management service providers could
effectively cultivate relationships with
both first and second generation HNW
individuals by offering them prestige,
status-based services but in a very
discreet fashion.
To continue the momentum of wealth
growth, Chinese HNW individuals have
a persistent interest in high return
investment channels. For the past two
decades of economic boom, leaving
money in savings accounts or funds with
modest returns, versus investing in the
stock market and/or real estate, would
have meant a hefty opportunity cost, and
wealth being left on the table. Meanwhile,

China has been on a journey from an

immature, under-regulated economic
environment towards a gradually
modernizing financial infrastructure.
HNW individuals still have reservations
about external advisors and wealth
management providers without strong
credentials, sufficient transparency and a
proven track record in China. The selfmade nature of the first generation of
HNW individuals has also made them
confident in their business acumen and
protective of their hard-earned wealth.
They would prefer to manage their
wealth/investments themselves rather
than enlist the help of a management
or advisory firm. While they are not
extremely risk-averse investors, they do
tend to think twice before signing up for
a discretionary service that they really
dont understand. However, the tolerance
for substantial loss for first generation
HNW individuals is quite low. To address
these characteristics of Chinese HNW
individuals, wealth management firms
can structure their product portfolios
to cater to this type of risk profile and
transparency requirements.

The Current State of the Chinese Market

Historically, the preferred investment
channels in China have been the stock
market and real estate, which have driven
double digit growth over the last decade.
Indeed, the strong momentum in the
stock and real estate markets spawned
a tremendous number of billionaires (in
RMB or Chinese Yuan) up until 2010.
Cash deposits have also been a preferred
means of investment, although with high
inflation and falling real interest rates
their popularity has waned. While the
investment portfolios of HNW individuals
are evolving along with their changing
wealth objectives, the real estate and
stock markets remain their primary
investment channels.
However, these traditional sources of
return may be drying up. While Chinas
economic growth prospects remain bright,
despite a lower-than-expected forecast of
7 percent GDP growth in 2012, real estate
and stocks appear shaky. One of the signs
of trouble came in December 2011 when
Haitong Securities (HTS), the secondlargest brokerage firm in China, called off
its planned IPO. HTS was widely expected
to replicate the huge success of CITIC
(China International Trust and Investment
Corporation), another brokerage firm IPO
on the Hong Kong Stock Exchange. HTS
decision to pull back its IPO was prompted
by a falling stock market, which saw the
Shanghai index drop to levels not seen
since 2000. Those who held stocks during
this period saw their wealth evaporate,
negating any value, real or perceived, in

long-term holding investment strategies.

While many stock market investors are
on the watch for a turnaround, many
companies continue to delay plans to tap
the market for funds. In parallel, 2011 was
also a turning point for the real estate
market in China. Heavy investments
and speculative buying drove housing
prices up to levels found in New York or
Tokyo, overheating the market. Housing
in urban areas has become something
an average employee could only afford
if he/she worked straight through until
the life after. The resulting government
interventions, including enforcing
stringent laws on building, owning and
selling property have helped cool the
market. But housing prices remain beyond
the reach of most Chinese. Indeed, ghost
cities, such as the one in Ordos, a wealthy
coal-mining town in Inner Mongolia
where an entire newly built resort-style
township lays empty, stand as testament
to the dramatic oversupply.7
So, while the investment portfolios of
HNW individuals are evolving along with
their wealth objectives, the real estate
and stock markets are also losing their
dominant status as the wealth builders
of the nation. This change in fortune, as
well as the uncertain global economic
environment, leaves wealth management
firms at somewhat of a cross roads.
They will need to answer whats next for
Chinas HNW individuals what will be
the new sources of high returns.

Wealth Management Services in China

are Evolving
Today in China, local banks dominate
the wealth management market based
on their strong asset bases and their
extensive branch networks which serve
large markets and regional hubs. The wide
customer base also offers Chinese banks
the opportunity to convert high-end
clients. While foreign wealth management
firms do have an advantage over domestic
banks as a result of their superior trading
and settlement capabilities, gaining shelf
space in China is difficult for foreign
firms. They must have an extensive
footprint, brand recognition and a solid
track record. To make their mark in
China, foreign wealth management firms
are working to optimize and diversify
their distribution capabilities in order to
challenge the established channels of the
largest state-owned banks.

Additionally, the domestic banks

provide more transparency in portfolio
management compared to foreign banks,
which tend to offer only discretionary
servicesfunds where clients are only
informed of the returns and not the actual
investments. Local banks acknowledge
Chinese HNW individuals propensity
to micro-manage their investments by
providing more transparency regarding
gains and losses. Domestic banks also
have the exclusive rights to sell RMBbased products (funds, insurance, etc.)
which are more transparent and easier to
comprehend by local investors.

Four Ways Foreign Wealth Management Firms

Can Address Under Penetration in China
Today, the Chinese wealth management
market remains under penetrated. The
availability of alternative sources for
wealth accumulation over the past
decades combined with the immaturity
of services for HNW individuals have
impeded the progress of wealth
management as a popular means of
financial growth.
However, the most recent slowdown in
the Chinese economy has prompted the
worlds 2nd largest economy to look for
different growth drivers, such as global
acquisitions in several areas, including
energy (CNOOC bid for Canadas Nexen),
financial services and even entertainment
(AMC theatre acquisition). The slowdown
has also triggered HNW individuals
to consider alternative investment
approaches to manage and grow their
wealth. This slower growth environment
presents a unique opportunity for
foreign financial services organizations
to penetrate the Chinese marketplace
based on their strong brands, highly
skilled advisors, superior operational
capabilities and most importantly, on
their sophisticated foreign investment
vehicles that are not accessible to HNW

individuals within China. Foreign firms can

differentiate themselves from domestic
providers and increase their penetration of
Chinese HNW individuals by:

1. Developing products,
services and approaches
that address the specific
psychological and behavioral
characteristics of Chinese
HNW individuals
Western wealth managers have
more advanced client segmentation
techniques that they apply to dayto-day operations, including data
mining, CRM and micro-economic
research. Although Chinese domestic
banks are intimate with the HNW
individual community and gained an
initial advantage by understanding the
intangible side of this client segment,
foreign banks are now in a position to
take advantage of the psychological
insights described earlier in this paper.

They can infuse these factors into their

existing operating models and pursue
product offerings and services geared
towards the specific psychological and
behavioral characteristics of Chinese
HNW individuals. Here are some of
the most important customizations for
Chinese HNW individuals:
Focus on shorter term returns vs. a
longer time horizon
Provide more transparency over
products and services
Offer prestigious relationships and
exclusive access to products and
services
Build local financial advisory
workforces that have strong
relationship management skills
Structure client-centric fee models
driven by investment returns vs.
transactions volumes

2. Engaging the current

generation and the next
generation of HNW
individuals through
education

also help foreign firms gain traction and

build connections with potential clients.
Investing in educating and building
connections with this client group should
prove to be rewarding in the short-term.

The current generation of Chinese

HNW individuals demand transparency
in investment decisions. Foreign firms
can benefit by devoting resources to
educating this segment to help gain their
buy-in around investment objectives and
approaches. This will also help to engage
them in direct investment activities
over time. Forums such as professional
conferences, investment workshops
and social events are excellent vehicles
for educating HNW individuals and will

The parents of the upcoming HNW

individual generation have invested in
their children by sending them overseas
to study and to prepare them to take
over their businesses and inherit their
wealth. Given that second generation
Chinese HNW individuals are western
educated, their recognition of foreign
brands is very strong and as such, they
have already begun looking beyond the
domestic Chinese banks for services.
In addition, this group is more attuned

to financial management practices and

more comfortable with the professional
services offered by western financial
institutions. Engaging the second
generation of Chinese HNW individuals
through marketing campaigns and
investment education programs will also
plant the seeds that will be beneficial
in years to come. For example, Standard
Charted Bank developed a wealth
management program to encourage
children from wealthy families to lead
healthy lifestyles, follow responsible
consumption practices, and learn about
basic investment management principles.
This type of program not only serves to
curb irresponsible spending habits, but
also builds relationships at younger ages.

Chinese First and Second Generation High Net Worth Individuals

Risk Profile

Career Choice

Education

1st Generation

Risk averse and

protective

Practical

2nd Generation

Risk accepting
and broad
thinking

Inherit parents
business or
broad range of
choices

Life Style

Attitude
towards
Western World

Attitude
towards
Investment
Services

Limited to
Practical with
moderate formal some luxury
education

Limited access
and reserved

Skeptical and
reserved

Western
educated and
often advanced
degrees

More exposure
and more
receptive

Receptive and
attuned

High-end,
much luxury,
some abusive
spending

3. Pursuing an onshore/
near shore model to offer
products and services to
Chinese HNW individuals
With the current restrictions preventing
investment in foreign currency products
within mainland China, a number of
western companies such as Goldman
Sachs have pursued on onshore/near
shore model to build relationships with
Chinese HNW individuals. The onshore/
near shore model helps companies to
offer Chinese HNW individuals access
to a portfolio of global products and
services through offices in strategic
near shore locations such as Hong Kong.
Free business ports like Hong Kong
are exempt from the foreign currency
product limitations that exist in mainland
China. For Goldman Sachs, which has a
offices in mainland China as well as an
office in Hong Kong, they can establish
relationships in their mainland offices and
then provide their HNW clients with more
sophisticated, higher yielding foreign
currency investment options through their
Hong Kong office.
There is precedent for this onshore/near
shore model which has been embraced
by some financial services organizations.
Of late, many Chinese entrepreneurs
have pursued IPOs in Hong Kong and

also opened overseas branches outside

of China, thus enabling the China Yuan
to find legal channels to flow into the
foreign currency investment market.
Providing access to foreign investment
markets through an onshore/near
shore model is an important way for
foreign institutions to demonstrate their
advantage over domestic Chinese firms.

4. Engaging in a strategic
joint venture with a
domestic Chinese financial
institution
While the Chinese domestic banks
are not yet able to match the brand
names, financial advisor competencies,
or products/services maturities of the
foreign banks, they continue to enjoy
the upper-hand from the demand side
from the HNW client base. Their retail
coverage, local client knowledge and
long history have given Chinese banks
the dominant position on HNW client
acquisitions. Despite domestic products
not being diversified and the lack of
service differentiation from competing
banks and between different client
segments, domestic banks still enjoy a
substantial degree of loyalty from HNW
individuals. Given the strength of these

relationships, foreign banks should look

hard at opportunities to collaborate with
Chinese banks with solid client bases
and the desire to grow their wealth
management businesses. Through a
joint venture with a Chinese bank, a
foreign financial institution can create a
winning combination of its local partners
substantial client base with its own best
of breed wealth management offerings.

As Chinese businesses move towards

overseas markets for expansion
opportunities to sustain high economic
growth, Chinese HNW individuals are also
looking to the global financial stage to
maintain their high investment returns.
This environment presents a tremendous
opportunity for foreign financial services
organizations to flex their muscles and
embrace new psychological and behavioral
insights to reverse the under penetration of
the Chinese HNW market.

10

Notes

About Accenture

1. Source: RBC Wealth Management/

Capgemini 16th annual World Wealth
Report 2012

Accenture is a global management

consulting, technology services and
outsourcing company, with 257,000
people serving clients in more than
120 countries. Combining unparalleled
experience, comprehensive capabilities
across all industries and business functions,
and extensive research on the worlds
most successful companies, Accenture
collaborates with clients to help them
become high-performance businesses and
governments. The company generated net
revenues of US$27.9 billion for the fiscal
year ended Aug. 31, 2012. Its home page is
www.accenture.com.

2. Source: China Banking Regulatory

Commission (CBRC) Annual Report 2011
3. Source: China Economic Weekly - 2012
Annual report
4. Source: The Forbes China Rich List 2012
5. Source: WSJ.com, Nov. 11, 2011, http://
online.wsj.com/article/SB100014240529702
04394804577011760523331438.html
6. Source: www.ibtimes.com, April 7,
2012, http://www.ibtimes.com/90china%E2%80%99s-super-rich-wantsend-children-abroad-434838
7. Source: http://www.time.com/time/
photogallery/0,29307,1975397,00.html

Contact
Alex Pigliucci
Accenture Wealth and Asset Management
Services, Global Lead
alex.pigliucci@accenture.com

Kevin Boyle
Accenture Wealth and Asset Management
Services, Asset Management Lead
kevin.p.boyle@accenture.com

Disclaimer
This document is produced by consultants
at Accenture as general guidance. It is
not intended to provide specific advice
on your circumstances. If you require
advice or further details on any matters
referred to, please contact your Accenture
representative. This document makes
descriptive reference to trademarks that
may be owned by others. The use of such
trademarks herein is not an assertion
of ownership of such trademarks by
Accenture and is not intended to represent
or imply the existence of an association
between Accenture and the lawful owners
of such trademarks.

Yi. Gao
Accenture Wealth and Asset Management
Services NA
yi.a.gao@accenture.com

Kelvin Luo
Accenture Financial Services, China
kelvin.luo@accenture.com

Copyright 2012 Accenture

All rights reserved.
Accenture, its logo, and
High Performance Delivered
are trademarks of Accenture.

ACC12-2941/02-5069