Asia’s wealthiest individuals are putting their faith in blogs and social media as a source of investment information, a new survey reveals.
Chinese and Indonesian investors are the most willing to trust the internet for investment opportunities, but their financial knowledge is among the lowest.
The relative lack of demand for wealth managers has been highlighted by the survey results, which calls into question their future when faced by an array of apparently more compelling sources of investment advice.
M&G Investments commissioned the survey* of more than 1,000 high-net-worth and ultra-HNW investors from mainland China, Singapore, Indonesia and Hong Kong.
Interviewees were asked to simply say what happens to bond prices when yields go up, and only 29% answered correctly – that they go down. A surprising 44% of respondents said they believed that when yields rise, bond prices also rise.
In another indication of their lack of financial knowledge, when asked how a price-earnings ratio is calculated, only 34% answered correctly.
Despite their financial illiteracy, 74% of those interviewed rated their own financial knowledge as “good” or “very good”.
When asked what they thought their financial knowledge was like, and then assessed on that, the difference between perception and reality was stark. Indonesia and China’s investors had the worst investment knowledge, respectively scoring around 3.6 and 4.8 out of 10.
And the difference between their actual and perceived knowledge was also the greatest, recording the biggest gaps out of the four territories surveyed. Hong Kong and Singapore scored better on both counts.
Investors were asked how much value they placed, on a score of 1-10, on four different information sources – digital media, traditional media (such as newspapers, magazines), friends or family, and their primary wealth manager.
Hong Kong investors came out as the most cautious, with the highest score (5.7) given to their wealth manager. On the other hand, Indonesia’s wealthy were the most trusting on all fronts, with their highest scores (6.9) handed to digital media sources and friends/family.
There was an inverse correlation between investment knowledge and interviewees’ confidence in leveraging their digital networks for wealth creation.
Those with poor investment knowledge had the greatest confidence - an average of 6.86 out of 10. On a sliding scale, those with very good investment knowledge had the lowest confidence in their digital network – 5.87.
Breaking it down by country, Indonesia and China investors had the highest digital confidence – 65% of both Indonesians and Chinese had “high” or “somewhat high” confidence that they could harness the internet for wealth creation. And the wealthier they got, the more digital confidence they had – 7% of those with under $1 million in investable assets had high confidence, compared to a staggering 21% of those with in excess of $10 million.
Andrew Hendry, M&G’s Asia-Pacific managing director, said the survey highlighted the challenges facing wealth managers as they attempt to deal with the array of information sources now available to investors.
The issue, said Hendry, was winning “mind share”, a marketing term used to describe the process whereby a particular brand name is associated, in a consumer’s thinking, with a particular product or service – such as “googling” describing an online search.
“There are 14,000 fintech firms in the world coming in on this. The challenge for private banks is how can you be compelling, how can you win ‘mind share’ - and your true competition is not each other, it’s this [the internet and digital networks],” Hendry said.
Hendry cited a Swiss private bank’s recent creation of an internal social network for clients as one example of innovation in the industry.
Another possible glimpse of the future could be seen in Yu’E Bao (“leftover treasure"), which was launched by Tianhong Asset Management and e-commerce giant Alibaba in June 2013. Investors were able to access the money-market fund via a simple smartphone app. The response was phenomenal and Tianhong became the biggest fund house in China by AUM in one fell swoop.
Hendry cited the compound effect of new information sources which were trusted and used by investors who had the lowest financial knowledge – they were obtaining information and trading using low-cost or no-fee sources, which would make them even more reluctant to pay for the services of a wealth manager in the future.
Hendry explained the task facing wealth managers, especially when it came to marketing: “You have to be compelling and addictive – it is easy, you have to use brainpower.”
* The research was carried out by Scorpio Partnership in the second half of March. Interviews were conducted with 1,068 high-net-worth and UHNW investors from four locations in Asia – 315 from mainland China; 192 from Singapore; 369 from Indonesia; and 192 from Hong Kong. A total of 14% of interviewees had investable wealth of under $1 million; 55% had between $1 million - $10 million; and 31% had more than $10 million.