Chinese banks tap technology to build private wealth business

• Philanthropy should be integrated with private wealth management
• More wealth management institutions are setting foot into the emerging family office sector in China
• The wealth management industry is adopting a more advisory-based asset allocation approach

The dialogue focused on hot topics regarding China’s wealth management sector. The wealth management industry in China is experiencing profound changes especially in the way it confronts the opportunities and challenges offer by innovative technologies. How should wealth management institutions utilise technology to improve efficiency and service?

The discussion also touched on the integration of philanthropy and private wealth management, important roles of family offices on wealth preservation and inheritance, and global perspective on asset allocation.

Private wealth management is more than technology

With the high level of digitalisation in China, people can easily conduct their wealth management transactions online or by cell phone. In wealth management, the flourishing financial technologies are not something new, the key is how to utilise those technologies to improve client service. “We need to utilise the most advanced technologies to automate the repetitive labour-intensive work.” opined Urs Bolt, financial technology and regulatory technology advisor, and former director of external asset managers department at Credit Suisse. Charlie O’ Flaherty, partner at Crossbridge Capital, also stated: “We need to use the robo-advisors to attract more HNWIs to become our clients, as well as to improve the efficiency of service.”

Currently, more than 70% to 80% of high net-worth clients are covered by offline services in China. “Most clients still need face-to-face meetings to learn and understand products and asset allocation plans,” said Hou Lin, senior vice president of CreditEase.

Financial technologies can help improve efficiency, but do not build wealth management structures. There is a shared view that the private banking business is built on the capability to design and execute highly customised services and solutions which cannot be delivered by a robo-advisor. Technology is an enabler to make processes and advisors more effective and efficient. Li Zheng, managing director of China International Capital Corporation Limited, said: “We still need to implement the solution by our human advisors to make sure it works well.” Private bankers need to focus on complex client needs and social interactions, while automating as much and fast as possible.

Integrate philanthropy with private wealth management

In 2016, China had 251 billionaires, second only to the United States, and China had the newest billionaires, adding 70 to the list. Despite the rapid wealth accumulation, charitable giving in China is lagging far behind US wealth management and should not merely focus on providing service to high net-worth clients, but also educating them to take more social responsibilities.

“It’s hard to attract high net-worth individuals (HWNIs) without a value driven proposition,” stated Fu Changbo, assistant president, China Global Philanthropy Institute. Why is philanthropy important to HWNIs? “The inheritance for rich families is not merely wealth succession; it also needs the inheritance of right values, influential businesses, and systematic social networking. Without philanthropy, it is hard to realise all those inheritances.” Charity is a unique Chinese heritage, and the traditional moral system always promotes giving back to society.

The Chinese have a saying: “Wealth never survives three generations.” Rich families everywhere face this problem. Fu pointed out “philanthropy should be a must-have element for private wealth management. The charitable foundation could give future generations opportunities to exercise leadership, money management, and social networking.” Philanthropy could help those rich families successfully pass wealth and values to future generations.

The emerging family office in China

With a more established history in the US and Europe, family offices help ultra-high net worth families preserve and transfer wealth to the next generation. While the China family office sector is in its early stage, more wealth management institutions are setting foot into this emerging sector.

Wang Ren, president of InCrease Family Office, shared his view on best practices in the family office business: “Products and services are the core values which family offices should provide. Family offices should offer clients customised products to achieve long term stable returns and provide professional investment, taxation and legal consulting services, or even consult on enterprise management and life planning”.

Will technology reshape the family office business? The emergence of more complex needs for family offices, such as governance, succession, and wealth planning, require customised solutions which cannot be achieved by technology alone. Family offices should focus on developing advisory capability to meet those complex needs while automating processes as much as possible to improve the client experience.

A new emphasis on asset allocation

The wealth management industry is experiencing transformation from the traditional product sales focused model to adopting a more advisory-based asset allocation approach. In terms of the maturing of the private wealth management industry in China, the shift is towards diversified asset allocation. “With the opening of more investment channels, the Chinese investors have more choices to achieve diversification, such as private equity (PE) or venture capital (VC) funds,” Richard Williamson, managing director of CreditEase Wealth Management, expects that there will be a change in the way that asset allocation will be structured in the next four years.

With no doubt, the overseas asset allocation needs are still high for Chinese investors despite foreign exchange control. This natural desire is pushing wealth management institutions in China to provide more professional foreign asset allocation plans and one-stop overseas services. Hou explained her view on the global ability of wealth management institutions by a creative word “Glocal”: “We need to better understand Chinese client needs to build the global team, management, partnership, and ability to provide optimal assets.”

The overseas investment for Chinese should be linked with their long-term goals, like Li said: “A specific aim is to help them start their overseas investment.” It is vital to give a clear message that investment overseas is based on setting a clear target, understanding the regulation, and finding a trustable partner.

Moreover, Kang Chaofeng, managing director of PingAn Trust, explained the popular “1+N” mode: Providing clients “1” - one platform to include value-added services from N - institutions, such as banks, insurance companies, family offices and wealth management institutions. Combining with technologies, the platform can efficiently deliver more services and automate more processes.” Some mega institutions want to be the “1” as befitting their ability and ambition, while others are happy to be “N” to get more clients with less efforts. The private wealth management industry in China is maturing with those modes of cooperation and competition.

Enabling service innovation with technology

The Chinese wealth management industry is still in its infancy, but it is going through a “golden” growth age. Grant Mao, head of China HNWIs marketing department, AIA China, summarised that the Chinese wealth management industry is currently experiencing four areas of growth: “The growth in scale, growth in the next generation of wealth owners, growth in regulation and technology, and finally, the growth in client needs.” Professor Pan Xilong from Southwestern University of Finance and Economics, also pointed out four areas of integration in Chinese wealth management: “integration of intelligent technology with diversified needs, integration of domestic and overseas asset allocation, integration of wealth succession to the next generation and integration of material and spiritual wealth.”

China is at a turning point where new technologies are facilitating more investment opportunities and asset allocation solutions. Despite the advances, trust and human touch cannot be delivered by a robo-advisor. Advisors should keep pace with technological developments while they remain focused on providing superior service.

Wealth management is a highly relationship-based business built on interpersonal trust, and technology is an enabling factor to push this business to a higher stage. As Bolt said: “With the development of technologies, there are still lots of potential for private banking. Now we have more technologies to meet our needs, and we should embrace and not be afraid of it.”