China’s Emerging Affluent Investors...Charles Schwab conducted a survey of 450 emerging affluent...

Charles Schwab Corporation

China’s Emerging Affluent Investors: Addressing Rising Expectations May 24TH, 2016

Lisa Hunt Executive Vice President International Services and Special Business Development Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. © 2016 Charles Schwab & Co., Inc, All rights reserved.

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About the White Paper

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Charles Schwab Corporation 3

Why the white paper

The emerging affluent class* is a significant group whose consumption and investing power is playing an increasingly important role in shaping China’s economy. Their aspirations merit close examination.

2012

120 million

2020

280 million**

Account for 35% of China’s consumption

And 5% of total global consumption

* The emerging affluent is used to describe the high end of the mass market. In the white paper, we define China’s emerging affluent as those with RMB 125,- 1 million annual household disposable income ** Estimate. Statistics on this slide come from a Boston Consulting Group 2012 study


About the research

* Information gathered from the participants was self-reported and was not independently verified by Schwab.

1 Background survey 450 people* 4 cities: Shanghai, Beijing, Guangzhou, Hangzhou RMB 125,000 – RMB 1 million (US$ 20,000 – US$ 170,000) annual household disposable income

2 Stakeholder interviews 30 interviews with industry plays, scholars, and media

3 SAIF cooperation

6 SAIF professors providing academic support


Key Findings

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Key highlights

Nearly half respondents invest to improve their standard of living. Long-term goals are important reasons for investing as well, with one-third hoping to support retirement and some hoping to fund education for children or grandchildren

Only one-third of the emerging affluent have sought professional financial advisory services. Of those who have engaged with an advisor, just one quarter describe their advisors as “caring about my financial future and investment goals”

Only 8% of China’s emerging affluent investors have assets overseas

Seven in ten of the emerging affluent cite market volatility as their biggest investment concern, and tend to prefer tangible assets such as cash and real estate


Rising Expectations


Forces behind the rising expectations

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From wealth to happiness China’s emerging affluent earn to achieve personal fulfillment

Shifting consumption habits: “trading up” to achieve emotional benefits i

Compared with six years ago, more Chinese prioritize happiness over wealth i

Rising costs Healthcare: concerns around future high healthcare expenses are the number one reason Chinese save ii

Raising children: average cost of raising a child in China is estimated at RMB 40,000 per year iii

Society getting older China’s current national pension system provides far less than the US$ 1.79 million (RMB 11.1 million) desired by the middle class to have a comfortable retirement iv

i 2016 McKinsey & Co. survey ii Charles Schwab 2014 survey results iii KapronAsia 2015 estimates iv 2015 AIA Group report


People are investing for various reasons instead of just short-term gains

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* Statistics on this slide come from Charles Schwab 2015 survey


And “successful investing” means different things to different people. Long-term goals becomes an increasingly important criteria

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“Long-term investment goals” are so important to the emerging affluent

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That 61% of people deemed “helping me meet my long-term investment goals” an important attribute to judge a financial advisor*

* Statistics on this slide come from Charles Schwab-Tsinghua University 2014 survey


Investing Behaviors


Investors prefer “tangible” assets and investment channels are limited

Respondents hold nearly two-thirds of their assets in stocks (20%) and cash or cash equivalents (45%)*

Only 8% of the respondents have assets overseas**

Respondents have more than twice as much real estate assets as non-real estate assets*

* Charles Schwab-Tsinghua University 2014 survey ** Charles Schwab 2015 survey


Emerging affluent attitudes towards risk varies

54% indicate they would invest in an asset that offered a 100% chance, but lower, return on investment*

48% survey respondents indicate that they would double down on a stock after a price decline in the hopes of capturing upside



China’s emerging affluent trust their inner circles, while may not have taken full advantage of many available resources for education and expertise



Not many people use financial advisors

Only one quarter (23%) of the respondents who say they have engaged with a financial advisor describe their advisor as “caring about my financial future and investment goals.”



Offshore assets are limited because investors lack the knowledge and information about opportunities

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Only 8% of the respondents have overseas investment*



Therefore, we can share our thinking about a new type of

investing

With their rising expectations, China’s emerging affluent have not been given the investment

options their foreign counterparts enjoy


Our Observations

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Investor Education is Needed


The emerging affluent understanding of wealth management is unclear

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*Definitions which accounted for less than 10% of the base are not shown Statistics on this slide come from Charles Schwab 2015 survey


And Their Expectations Can Be Unrealistic

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“A six percent return would be very high in the US, but in China it’s considered low.”

-- A vice-president of an investment firm interviewed for the white paper


Our Observations


Emerging affluent value financial planning help therefore client-centric investing has room for growth in China

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Importance of Advisor Attributes vs. Perceptions of Current Advisor* (Base: Those Responding Who Have Financial Advisor)



Investors do more online banking and investing, but still value professional knowledge. Therefore the right balance of technology and human service is a big opportunity

Usage of Banking / Investing Methods* (Base: Those Responding)

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While 54% of respondents indicated that it was important for investments firm to offer accessible online platforms, even more (58%) prioritized the opportunity to work with knowledgeable representatives



With the emerging affluent rising expectations, offshore investing is an opportunity for diversification that can be taken

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1/3 of respondents who do not own assets abroad indicating they would consider offshore investing if the option were made available*



Key takeaways

China’s emerging affluent have rising investment expectations

New opportunities such as a more client-centric model and the integration of technology and human services may emerge

They can enjoy more options to fulfil their aspirations


Thank you!


Charles Schwab 2015 survey Charles Schwab conducted a survey of 450 emerging affluent in four Chinese cities, with annual after-tax income of RMB 125,000-RMB 1 million. All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between October 1 and December 31, 2015. Charles Schwab-Tsinghua University 2014 survey In 2014, students of Tsinghua University School of Economics and Management conducted the in-person survey for Charles Schwab. The survey is based on 714 interviews held between 30 June 2014 and 11 July 2014. Survey participants are involved in the decision making process for their personal investments, had a household annual income between approximately RMB 250,000 and RMB 5,000,000 (US$ 40,000 - US$ 800,000) and had less than US$ 1 million in investable assets. The white paper “China’s Emerging Affluent Investors: Addressing Rising Expectations” is produced by Charles Schwab & Co., Inc. and Shanghai Advanced Institute of Finance (SAIF). For more information about the results of the studies, refer to the white paper. About SAIF Shanghai Advanced Institute of Finance (SAIF) was established at Shanghai Jiao Tong University in April 2009, with strategic and financial support from the Shanghai Municipal Government. As a member of Shanghai's financial community, it strives to contribute to the development of Shanghai as a global financial center. SAIF's mission is to become a world class institution of research and advanced learning in finance and management. SAIF is committed to developing top talent and cutting-edge knowledge, with a focus on Chinese markets and their global connections. About Charles Schwab & Co., Inc. Charles Schwab & Co., Inc. (“Schwab”), member SIPC, is a US leading provider of investment services and products to individual investors around the world. Charles Schwab & Co., Inc., 211 Main Street, San Francisco, CA 94105, USA / +1 800-838-6569 © 2016 Charles Schwab & Co., Inc, All rights reserved. SAIF and Schwab are not affiliated to each other. Any verbal representations by one party are independent of the other. None of the information constitutes a recommendation by Schwab or a solicitation of an offer to buy or sell any securities. The information is not intended to provide tax, legal or investment advice. (0516-FW85)

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China’s Emerging Affluent Investors...Charles Schwab conducted a survey of 450 emerging affluent...

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