2024 Wealth Management Market Insights: Securing the Bottom Line, Transforming Structures, and Fueling Resilient Growth

Wealth management is inextricably tied to the global political-economic stage, with escalating geopolitical tensions and a looming threat of further conflict. Amplified by persistent economic uncertainty, these dynamics have significantly heightened public concern and reshaped the wealth management landscape.

China’s high net worth individuals and wealthy families (collectively referred to as the “wealthy group”) have set enduring trends in wealth management:

• shifting focus from local to global asset allocation;
• demanding comprehensive solutions across multiple life scenarios based on key considerations;
• a growing attention to the equilibrium between family, corporate, and societal values;
• exploring and leveraging diverse family office functions and benefits; and
• ongoing innovation and improvements in wealth management instruments.

Notably, in 2024, several prominent shifts require special attention.

Heightened emphasis on ownership structures among the wealthy group

Based on the functional values of ownership management, flow direction management, flow volume management, and security management offered by structural tools, there is a widespread consensus among the wealthy group that these structural tools could more effectively facilitate wealth management objectives related to protection, administration and inheritance.

The most dynamic wealth management pattern in practice among the wealthy group is the transitioning from a natural person ownership structure, where assets are held directly by individuals, to a legal person ownership structure where assets are held by companies and other entities, and further evolving towards a trust ownership structure where assets are held by family trusts.

Previously, the focus of the wealthy group was primarily on the ownership structure of operational assets. However, with the ongoing rise of non-operational assets, predominantly financial in nature, greater attention is now directed towards their ownership structures. This shift underscores the widespread adoption of wealth management vehicles, such as family trusts, among the wealthy group.

With a deepening understanding of the functional value of family trusts, the ongoing optimisation and restructuring of both domestic and overseas established family trusts have become a focal point among the wealthy group. This encompasses considerations regarding compliance with regulations and introspections on past practices, as well as thoughtful exploration and anticipation for effectively achieving the intended purposes of family trusts.

In the mainland of China, family trusts are transitioning from a singular asset-type ownership structure to multiple asset-type ownership structure. The wealthy group has come to recognise the pivotal role and value of family trusts as a top-level structure, marking a new phase in the application of family trusts.

Meanwhile, it has become a consensus to broaden the application scenarios of family trusts out of specific objectives. Establishing various types of family trusts both domestically and abroad, tailored to different goals, has grown into a prevalent practice among families.

Ongoing transformation of wealth management service models

In tandem with the wealthy group’s sustained focus on holistic wealth management solutions and the ongoing shift among institutions toward a “buyer’s investment adviser” mindset, the organisational and service models of wealth management institutions are continually evolving.

Across wealth management institutions, internal departments and functions are undergoing realignment to better adapt to and fulfil evolving client needs. This is a universal phenomenon, observed in securities companies, banks, trust companies, and legal service providers.

Most notably, the prevalent establishment and operation of family office departments within wealth management institutions have transformed the concept of family office services into a tangible service model and organisational structure; a shift with profound implications.

Certainly, complementing varying service capabilities and better aligning with the wealth management demands of the wealthy group, the integration of different types of wealth management institutions into co-operative ecosystems has gained unprecedented attention. Wealth management is no longer merely a competition among institutions but a contest between ecosystems.

Of note, accompanying the transformation in wealth management service models, operational modes are also undergoing profound changes. All types of ecosystems and institutions are actively engaged in exploratory efforts and trials, indicating a prolonged process of adaptation and evolution.

Maturation and establishment of long-term wealth management strategies

Securing the fruits of success through baseline safety measures, achieving value equilibrium grounded in comprehensive compliance, and facilitating systemic inheritance through sustained growth – these constitute the three core pathways for the wealthy group in contemporary wealth management.

Amid growing unease over increased uncertainty, the wealthy group has become increasingly clear in their requirement for bottom-line security. This objective has evolved from simple safeguarding measures to a systematic approach aimed at preserving wealth.

The wealthy group not only prioritises the secure value of full compliance but also recognises the fundamental safety value in balancing family, corporate, and social values. This realisation would fundamentally alter their wealth management behaviour patterns.

Ensuring the sustained growth and resilience of family wealth and enterprises paves the way for a systematic inheritance of wealth, leadership succession, and cultural continuity within families, harmoniously unifying development with succession.

The maturation and establishment of these wealth management pathways will significantly influence the overarching approach to wealth management among the wealthy group, posing new demands on wealth management institutions, technologies, and tools.

Four key points of consensus and practices in contemporary wealth management

Optimisation and restructuring of family enterprise ownership structures

The revised Company Law of the People’s Republic of China, which was set to take effect on 1 July 2024, introduces significant alterations to various systems, including capital regimes, corporate governance, responsibilities of directors, supervisors, and senior executives, as well as shareholder obligations.

Prompted by revisions to the Company Law, along with the heightened focus of the wealthy on ownership structures and the practical demands for comprehensive compliance and risk management, a large number of family enterprises are currently undergoing optimisation and restructuring of their ownership frameworks.

The optimisation and restructuring of corporate ownership structures aim to systematically address protection, control, and succession from three dimensions, while also considering family dynamics, business entities, and internal organisational layers. This process involves a holistic rearrangement of ownership, control, management rights, and profit entitlements within the enterprise.

In-depth exploration and experimentation with equity-based family trusts, the widespread adoption of family holding companies and household-controlled companies, the conglomeratisation of private enterprises, and the establishment of cross-border ownership structures will be pivotal avenues for optimising and restructuring the ownership structures of family businesses.

Construction of structural security assurance platforms

With a focus on securing the fruits of their success from a baseline safety perspective, the wealthy group is increasingly emphasising the establishment of larger-scale security platforms to achieve systematic wealth protection. Structural security assurance platforms primarily serve to uphold the value of “preservation”.

The construction of structural security assurance platforms encompasses both domestic and offshore setups, differing from previous safety pools in terms of enlarged asset scales, diversified asset types, and shifted protection objectives.

Family trusts emerge as the preferred instrument for constructing such structural security assurance platforms. As the scale, assets, and objectives evolve, the wealthy group will demand higher standards in family trust governance, focusing not only on achieving trust objectives but also increasingly emphasising trust compliance.

Construction of sustainable development platforms for structural growth

With assets accumulated from traditional business sectors increasingly converted into non-operating assets, the challenge of how to utilise or leverage these assets for sustained growth becomes a prevalent concern among the wealthy group.

Against the backdrop of divesting from traditional sectors, consolidating diverse assets, fostering innovation and entrepreneurship, and accommodating diverse investment needs, constructing structural platforms for sustained growth should integrate the multifaceted values of preservation, management, and succession held by the wealthy group. Such platforms primarily serve to advance the value of “expansion”.

Utilising family trusts to construct structural platforms for sustained growth, thereby forming a pinnacle structure for ongoing development, constitutes a pressing need for many of the affluent. Implementing this strategy through establishing family trusts offshore poses no significant obstacles.

If structured domestically using family trusts, the setup inevitably entails the trusteeship and operation of trusts with diverse asset classes, necessitating alignment with compliance requirements for domestic trustees. This involves institutional trustees transitioning from commercial trust compliance logic to civil trust compliance logic, alongside enhancing their compliance capabilities.

Systematic planning and implementation of family (enterprise) philanthropic endeavours

The wealthy group is increasingly recognising the importance and necessity of balancing family, corporate, and social values. Their awareness and attention to family philanthropy are unprecedented, making it a focal point in wealth management.

On 13 June 2024, philanthropic insurance, jointly promoted by multiple domestic insurance institutions, foundations, and legal service providers, officially launched in China, thereby adding another structured tool for charitable endeavours within the country. Evidently, the driving forces behind the advancement of philanthropy are multifaceted.

With the revised Charity Law of the People’s Republic of China coming into effect on 5 September 2024, the enthusiasm for family philanthropy is set to rise steadily. Accompanied by enhancements in charity systems, ideas, tools, and capabilities, a wave of development in family philanthropy is anticipated.

Under the impetus of these varied forces, the wealthy group are increasingly focusing on the top-level design of family philanthropy, initiating attempts to plan and implement family (enterprise) philanthropy across multiple tiers, including charity policies, strategies, organisations, governance, project inception and management, etc.

In summary, the five foundational scenarios concerning baseline security, comprehensive compliance, value equilibrium, sustained development, and systematic inheritance, as prioritised by the wealthy group, are firmly established and are unlikely to change over an extended period post-2024. These constitute the fundamental trends in wealth management.

The demands in the wealth management market are genuine and vibrant, yet competition within the wealth management sector is escalating. Wealth management institutions are universally encountering difficulties in conducting business, suggesting that they might not be adequately addressing the needs of the affluent. This implies a necessity for ongoing transformation to better align with the client’s expectations.