Online financial services are no longer the reserve of the mass affluent. Chinese HNW investors are increasingly embracing online-only platforms, suggesting that traditional wealth managers should evaluate the viability of their business models.
Over the past few years, new online-only financial services providers such as Alibaba, Tencent, and Baidu which offer low-cost money market funds and other simple investments have become extremely popular in China, and our data suggests that HNW investors are not immune to this trend.
Our HNW Asset Allocation Analytics shows that almost one quarter of Chinese HNW wealth is already held in execution-only mandates, and investors’ insatiable demand for money market funds will see this proportion grow among China’s yield-hungry rich. A short-term seven-day money market fund available from Ant Fortune, an Alibaba joint venture, offers 2.49% per year, which compares to an average interest rate of 0.23% standard savings account offer.
Furthermore, while Chinese HNW investors have some part of their wealth managed professionally to gain access to more sophisticated investments, they are also happy to manage simple investments such as money market funds themselves. In fact, being worth more than $1.75tn, China is the second largest HNW self-directed market globally.
It’s time for wealth managers to revise their existing business models, particularly for simply low-yielding investments such as basic money market funds. Online-only investment services can no longer be regarded as an issue for mass market players, but should be integrated with and complement a private wealth manager’s service proposition. If private wealth managers don’t offer their HNW clients such low-cost options, investors will simply get their funds elsewhere.
By Heike van den Hoevel, Senior Wealth Management Analyst