Rich pickings for managers
According to an HNWI survey, conducted on the mainland by the International Academy of Financial Management (IAFM) in May this year, 69 per cent of the 250 wealthy mainlanders - those with at least US$1 million in investable assets - expressed a desire to emigrate, with Hong Kong their top choice.
"A quarter of them already have family members who have emigrated to various places, including Hong Kong. Meanwhile, 22 per cent have offshore properties, mainly in Hong Kong," said Vincent Lee, a governor and marketing director for Asia at IAFM, which offers finance-related training through local professional education institutions around the world.
Sixty-four per cent of the respondents held offshore bank accounts, with a large chunk in Hong Kong, according to Lee, who addressed an audience of private bankers, wealth managers and other financial service professionals at the seminar "Winning Strategies for Hong Kong Wealth Managers in China" on October 28. The seminar was organised jointly by Kornerstone, IAFM and Classified Post.
Research released by Merrill Lynch in the second quarter valued the total estimated assets of HNWIs on the mainland at US$2.35 trillion. "Based on our research data [compiled through discussions with wealth managers in China], assets of property developers and manufacturers account for 95 per cent of the total estimated assets of mainland HNWIs," Lee said. "Many of these property development enterprises and manufacturing companies are family businesses."
Beijing has taken measures to cool the mainland property market, while the mainly export-driven manufacturing sector faces challenges, including falling demand from major overseas markets and calls to allow the renminbi to rise against major currencies. Many mainland HNWIs were concerned about the country's rising inflation, Lee said.
"The investment environment in China is unstable. The government policies are volatile because officials are replaced constantly. Investors have become passive under these circumstances," he said. "Many HNWIs are seeking offshore investment opportunities. They look for secure long-term investment tools to protect their wealth so that their children can inherit it."
To help the seminar's participants develop a more systematic approach to tap into HNWIs on the mainland, Lee classified this affluent class into eight categories based on their psychological profiles and investment needs. The categories are: family-oriented, "fearful of financial affairs", anonymous, VIPs, the well-connected "big shots", savers, gamblers and innovators. Lee said those from the first three categories accounted for more than 50 per cent of all mainland HNWIs.
"The family-oriented HNWIs make investments for the future of their families," Lee said. "They are very cautious and conservative. Many owners of enterprises in Guangdong are in this category. They value the relationship with their wealth managers highly and expect them to show keen interest in their families. These people have an emotional button. They want the managers to participate in their family activities."
Those "fearful of financial affairs" are typically younger individuals who have just inherited assets from their parents, so they still have doubts about their ability to manage their wealth. "They want the wealth managers to make the decisions on their behalf. But the managers will be held accountable if their decisions lead to losses," he said. "The managers should assume the role of troubleshooters."
The "anonymous" type refers to HNWIs who are very secretive about their assets so they want their identities hidden. "These individuals are highly knowledgeable about investments," he said. "Once they have built a trusting relationship with a manager, they tend to leave all investment decisions to the manager. I recommend that managers approach these individuals by building trust initially."
Lee added that good communication should enable wealth managers to categorise prospective HNWI clients. Wealth managers also needed to be aware of the cultural differences and language barriers, and understand that many wealthy mainlanders straddled categories. "Meanwhile, they should equip themselves with in-depth knowledge of the taxation policies in China," Lee said.
He suggested several ways for wealth managers to do business on the mainland. Family enterprises are estimated to account for more than 90 per cent of the overall assets of HNWIs on the mainland, and the heads of the families make all the important decisions.
"Hong Kong wealth managers can assume the consultant role," Lee said. "Family businesses can be very complicated because they involve many different relatives and other parties. Most family enterprises aim at financing to expand their operations, primarily through initial public offerings in Hong Kong. Wealth managers should have financing specialists in their teams for these clients."