Family trusts gaining more traction among Chinese HNWIs

The growing number of HNWIs together with uncertain times mean more wealthy families are resorting to maintaining wealth

The growing amount of traditional wealthy Chinese families, as well as younger newly wealth Chinese in the technology, media and telecom (TMT) sector, has led to a growing need for setting up family trusts.

Chinese high net worth individuals (HNWIs) are especially concerned about maintaining their wealth and family wealth inheritance in uncertain times like the present so more of them are considering setting up family trusts compared to previous years.

With the 2018 slowdown in economic growth, the growth of the Chinese private market has slackened.  However, China is still a powerhouse in generating new wealth in Asia. The investable assets of Chinese individuals reached 190 trillion yuan (US$27.59 trillion) as of the end of 2018, according to a recent report on Chinese private wealth jointly issued by China Merchants Bank and Bain & Company, noting that the number is expected to surpass 200 trillion yuan by the end of 2019.

The number of Chinese HNWIs with investable assets of over 10 million yuan reached 1.97 million in 2018 and is expected to surpass 2.2 million by the end of 2019, the report says. These HNWIs hold total investable assets of 61 trillion yuan, which is expected to increase to 70 trillion yuan by the end of 2019.

With the increase of wealth and market uncertainty, there is a rising awareness among wealthy Chinese of the importance of preserving their wealth or family wealth inheritance. Young entrepreneurs, who make up a lot of the private banks’ HNWI clients, also have a need for trust service.

“During the past 12 months, we have onboarded more than 300 Chinese young entrepreneur clients from the TMT sector. Their ages range from 30 to 50,” says a senior executive from a Chinese private bank. “We found that such clients have a strong need for setting up family trusts,” says the executive, noting that the bank has launched 10 to 20 family trusts during the past 12 months.

In fact, 53% of HNWIs in China have prepared for family wealth inheritance in 2018, according to the private wealth report. This was the first time that the number of HNWIs have surpassed 50%.

A family trust is one of the major tools to maintain family wealth so as a result, the market is seeing the launch of a number of new family trust businesses in 2019.

There are 23 provinces or cities with an HNWI population of over 2,000, according to the private wealth report. There is an increasing number of HNWIs in the second and third-tier cities as well. For example, Shandong Province’s HNWI population has surpassed 100,000 for the first time. Therefore, besides first-tier cities such as Beijing and Shanghai, private banks are expanding their family trust businesses to the Greater Bay Area cities as well as the second- and third-tier cities.

In addition to private banks, securities firms, trust companies and independent financial advisors are also competing for this business. With Chinese regulators continuing to implement the new regulation on the asset management industry, the competition is expected to intensify.

Whether these institutions can create net new money inflow is the challenge, according to an executive from a Chinese trust.

In terms of major concerns, a majority of Chinese HNWIs mention the underperforming of asset classes and the risk and uncertainty from market fluctuations, according to the private wealth report. On the other hand, Chinese HNWIs are expecting asset managers to provide customized solutions.

The growth prospect of the family trust market is significant given that it is still in its infancy. “There are not too many Chinese banks offering full trust services. We are planning to further develop this business and add more resources to it,” says the trust executive.

Date

11 Jul 2019

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