Actively prospecting for clients? Consider a new elite client segment

Filed in Asset Management

Many advisors and wealth managers focus on the high net worth (‘HNW’) and ultra high net worth (‘UHNW’) segments of the markets when prospecting for clients. New research indicates that a unique and emerging niche segment is up for grabs in the United States.

Introduction:

In order to be successful as a financial advisor or wealth manager, it is important to have a strong understanding of which client segments present the greatest opportunities for business growth. There are, obviously, many factors at play that cannot be ignored, but one such trend is the exceptional growth in the number of Chinese millionaires and billionaires. This Chinese market segment constitutes an elite segment of HNW and UHNW clients.

As a result, Chinese HNW and UHNW who emigrate to the United States could be a prime opportunity in the coming years based research from the wealth researcher, The Hurun Report. The Hurun Report has reported that 46% of China’s millionaires are considering emigrating and 15% had already done so or had at least begun the process, with the United States listed as their top destination.

What is the client profile of this High Net Worth and Ultra High Net Worth segment?

Utilizing research from the Hurun Wealth Report 2011 and the Deloitte Center for Financial Services ⁽¹⁾ can help a financial advisor or wealth manager create a profile for Chinese HNW and UHNW clientele:

In order to be considered a millionaire in China and begin to enter into the HNW segment, a household must have assets of more 10 million yuan ($1.6 million) as defined by the Hurun Wealth Report.

The demographic profile of China’s millionaires is dominated by their sophistication and desire to increase their social status.

> The average Chinese millionaire was born in 1972 and is now 39 years old. The ratio of male to female millionaires is 7.3 to 1. Luxury goods are an important market, with the average Chinese millionaire owning 3.7 luxury watches, 3.3 cars and partaking in an average of 15 days vacation.

Chinese millionaires can typically be classified into four groups, private business owners, real estate speculators, equity market investors and high salaried executives often at large corporations.

> The private business owner makes up 55% of the overall millionaire population. The majority of their wealth (65%) is tied to their business with only 12% of investable assets.

> The real estate speculator group is older on average at an age of 45 and 60% of their portfolio is comprised of property investments.

> The equity market investor tends to be more cash rich compared to the other groups and make up 15% of the overall millionaire population. The majority of their wealth (65%) is tied to stock market investments.

> The high salaried executive has the second highest level of investable assets at 40% of their wealth and typically has a primary residence worth than 5 million yuan.

Over the next decade, China’s wealth among millionaires will grow by 392% (1).

> In the segment of $1M – $5M in wealth, China is forecasted to have 1.48 million households in the $1–$5 million cohort by 2020. (1)

> In the $5–$30 million cohort, China will potentially see 689,000 households by 2020, the third highest among the 25 largest world economies. (1)

> In the $30 million market segment, China will be number 2 behind only the United States in the number of households with wealth greater than $30M, with 327,000 households by 2020.

Chinese HNW and UHNW clients have unique asset allocation preferences that are unlikely to significantly change.

> The top portfolio allocation belongs to domestic Chinese equities (50% allocation), followed by real estate (35% allocation) and domestic bonds (10% allocation).

How to capitalize on Chinese HNW and UHNW clientele as a new market segment?

Specific steps related to networking, professional partnerships and product offerings will have to be utilized in order to connect to Chinese HNW and UHNW clientele. Some options to consider include:

Networking with community organizations and business organizations focused on Chinese Americans can provide an important source of potential clientele.

Forming professional partnerships with high-end real estate agents in markets such as California and New York.

Providing product offerings that include emerging market equities and bonds and REITs as well as services such as executive compensation planning and wealth transfer as part of an overall wealth management offering.

Do you think that focusing on newly and recently immigrated Chinese HNW and UHNW clientele is a viable strategy?