Online wealth management services in China, which includes robo-advisory and fund distribution via mobile devices, continue to penetrate the overall wealth management industry, according to a report by consultancy Boston Consulting Group (BCG) and Chinese online financial platform Lufax.
The assets in online wealth management make up 34.6% of the mainland’s overall wealth management market, growing 50% annually over the past five years, the report said. By comparison, in the US, 40% of wealthy management assets through online platforms.
Traditional private banks still remain dominant compared to independent online sales, such as Alibaba’s Ant Financials and Ping An’s Lufax. Non-bank online platforms collectively manage RMB620bn ($97.4bn, €82.5bn, £72bn) in assets, or 10% of overall market.
However, as the asset and wealth management industry comes under tighter regulatory controls, independent online distribution is expected to expand at an accelerated pace, the report said.
China’s overall wealth management market hit $6.1trn (£4.5trn, €5.2trn) and continues to expand, driven by economic growth. Online wealth management has reached $2.13trn.
Domestic individuals’ investible assets grew to RMB126trn ($19.78trn) at the end of 2016, making the country the second largest wealth management market globally, data compiled by BCG shows. The number of high net worth families also reached 2.1 million.
In 2017, the rise in China’s billionaire wealth was strong, accounting for a 12% share of global billionaire wealth, according to Wealth-X’s latest billionaire report. In addition, the number of billionaires in the mainland grew 35.7% year-on-year.
Penetration of digital wealth management service in assets
Source: Boston Consulting Group
The appetite of investors using online platforms does not differ much from those using traditional channels, the BCG report said. China’s investors typically tend to put most capital in products that generate income.
Moreover, the investment duration of Chinese online investors last three-to-12 months on average, much shorter than their US and European peers.
Only 16% of investors using online services hold their investments for more than 12 months, according to the report.
Breakdown of online investments in China
Source: Boston Consulting Group. * Products that generate fixed interests.
Online fund sale rules
In November 2017, China’s financial regulators jointly drafted a new set of rules about wealth management product formation. The guidelines said asset managers will not be allowed to promise investors a guaranteed rate of return.
Additionally, private banks or individual wealth managers with online sales operations will have to obtain a separate license. The report noted that stricter regulations and product standardisation provide a stable operating environment and prove to be beneficial to the development of online wealth management.
The report also noted that the services targeting high net worth investors still require offline support. Relationship managers are still in demand and are unlikely replaced completely by digital services.
A winning wealth management model in China should carry the capability of both online services and offline support, the report said.