China's Wealth Management Legal Service Market: Changes and Developments in 2022

A number of factors, such as the escalation of the Russia-Ukraine conflict, the continuation of the COVID-19 pandemic, anxiety over the economic crisis, breaches of international rules, the potential for a larger global conflict, as well as forecasts regarding these factors' long-term effects, have already and continue to fundamentally alter wealth management practices.

The psychology of wealthy people around the world has been greatly impacted by uncertainty in the general environment and the ongoing impact of this has caused substantial changes in their wealth management activities.

Changes are also occurring in China's wealth management market. The basic logic of wealth management is being reformed, the realisation path is being adjusted, technical capabilities are being enhanced, and wealth management instruments are being enriched.

Changes in wealth management logic

The basic logic of wealth management is the crucial element that defines wealth management practices, and it deserves attention. Change does not occur immediately; it is an ongoing process.

Changes to the fundamental model

Parallel governance of the family and the family business has long been a focus of family-wealth management, and efforts have been made to strike a balance between the two in practice. The relationship between family governance, wealth management, family business governance and the application of this has gained increased attention as wealth management has grown. Theoretical research has also discovered the significant value of structural tools for wealth management, such as the family trust, the family holding corporation, and the family limited partnership.

Balance of values

It is not sufficient to just mention family values, nor is it sufficient to mention social values. Rich families and wealthy people have started to prioritise finding a balance between the two values, marking a significant development in the area of wealth management. For instance, many families are now more concerned with philanthropy.

The repositioning of wealth management

Families' views on wealth management have shifted over time. They initially perceived it as private wealth management, which developed into family (family business) wealth management, followed by family (family business) value management. Chinese families are now paying more attention to family governance and family culture.

Adjustment of wealth management's path

Wealth management's path has fundamentally changed. The path taken by the wealthy indicates that they handle their wealth from a wider and more thorough perspective. 

Interest in family governance

Family governance has received unparalleled attention. Recognising its significance, families are eager to engage in extensive and multi-round discussions about family governance-related issues and to begin work on establishing internal family institutions like family committees, and formulating the family constitution, family statement and family policy.

Interest in the structure of property rights

Wealthy Chinese families have all turned their attention away from the framework of natural person property towards the structure of legal person property rights. Among them, a few leading families have begun to focus on establishing their trust property rights, both domestically and internationally, which is motivational.

Interest in family offices

Family offices are largely welcomed by Chinese families, despite the fact that their knowledge of them is still in its infancy. A greater number of families are making an effort to start their own family offices, or have already done so. For some of them, the ultimate goal is to create a multi-family office based on single-family offices, which can help other families in addition to serving their own interests.

Interest in scenarios

Families’ interest in specific wealth-management scenarios has increased. Or, maybe more importantly, families are more focused on how to develop a comprehensive or partial solution for a specific scenario. Their focus has switched from particular wealth management tools to the capacity to manage wealth from a methodical, comprehensive angle. They are looking for tailored solutions for specific scenarios and demands. 

Upgrade of wealth management technology capabilities

On the one hand, wealth management technology is used to make sure wealth management arrangements are compliant with the rules and meet the requirements for favourable treatment. On the other hand, wealth management technology prevents people from being ruled by particular systems. All of this suggests that the technology is constantly evolving and adjusting.

Overall planning services become popular

Standardised services appear to be insufficient to meet market expectations, given the rising number of wealth management scenarios and family requirements for complete wealth management services. Lawyers cannot solely rely on their legal knowledge to function in such circumstances. Instead, they need to build broad skills to deal with issues from a holistic standpoint and offer integrated solutions to various scenarios.

In these situations, the market favours professional organisations and people who are capable of creating an overall wealth management strategy. This has led to the emergence of a new wealth management ecosystem where the different sectors are better able to work together and where there is respect for the capacity and value of wealth management solutions' customisation.

The enhancement of technology

Market demands have fuelled technological advancement, as wealth management organisations strive to strengthen their systematic technical capabilities, while wealth management professionals strive to improve their professional skills.

Using trusts as an example, the discussion and emphasis on the fundamental legal concerns surrounding trusts have significantly aided the development of trust technology. While some innovate based on the realities of China's wealth management market, others go back to the essence of trusts. Trust activities with Chinese features are thus developing over time.

Regarding charities, efforts have been made to facilitate the co-operative growth of charitable trusts and philanthrophic foundations, which fuel advances in the governing capacity of charitable trusts. In this process, new systems and tools for charity are also being developed, such as charity insurance.

Utilisation of all available tools

It is clear that no single instrument has been adequate to address the needs of wealthy families. Families and wealth management organisations are more concerned with how to use technology efficiently to help various wealth management tools perform their roles to the fullest extent possible, and to let various tools work in concert to better serve the market.

In this regard, the Singapore family office initiative sets a good example. By using all available tools, it assists clients in achieving a variety of goals, including identity planning, asset protection, wealth management, and cross-border wealth allocation, achieving the ultimate objective of technical improvement in wealth management.

The advancement of wealth management tools

Insurance trusts

Insurance trusts have been populating at an extraordinary speed, demonstrating that the value of insurance and trusts in wealth protection is being fully realised. Despite the fact that there are still many controversies in the insurance trust system, insurance trusts have become an important wealth management tool for China's wealthy, particularly the middle class.

Of course, the market influence of financial organisations like banks and insurance companies determines whether this technology can live up to its biggest role. The current insurance trust system, it should be observed, is far from perfect and still needs improvement in a number of areas.

Family trusts

The family trusts market has been expanding rapidly. As the size of the financial assets placed in family trusts has grown, the wealthy have become more concerned with governance arrangements and trust technology. They are concerned not just with the security of their wealth, but also with the effectiveness of wealth management and whether their long-term objectives can be met.

Equity trusts

Equity trusts have drawn a lot of interest and are becoming more appealing to wealthy families. They are willing to try novel arrangements when establishing a family trust with equity as trust property, and are willing to put more assets, even their most valuable ones, into family trusts.

This indicates that the Chinese wealth management industry, which had previously expressed scepticism towards family trusts, now has a greater level of confidence in them. In addition, it is anticipated that family trusts will take centrestage and play an even bigger part in wealth management.

Charitable trusts

Since its inception in China seven years ago, the charitable trust business has grown at a much slower rate than expected. There are not many charitable trusts on the market, and those that exist are mostly small, meaning they have minimal market influence in China. However, there are significant cases, such as the "Lu Guanqiu Sannong Fuzhi Fund", which is the best-known charitable trust in China.

Since 2022, however, society's increased focus on common prosperity has encouraged wealthy families to participate in philanthropic efforts, and there has been growing interest in charitable trusts. The average size of charitable trusts has expanded dramatically, and more effort has been made in the field of equity charitable trusts, which represents a significant advancement in the industry.

Special needs trust

Although the market's interest in special needs trusts has grown, it is still in its infancy, despite certain trust institutions' comparative research and localisation efforts.

Those endeavours are meaningful, since they will enrich the scenarios of trust application and provide people with a better knowledge of trusts, which is crucial in developing China's trust system.

Family constitution

The family constitution has been a dynamic wealth management tool during the last two years. Various advances have been made, such as the development of the family declaration, the family business ownership deed, and the family policy, and there is a lot of potential in promoting and implementing the family constitution. This is just the beginning, but smooth progress is being made.

More importantly, the family constitution will encourage the family to create a better family blueprint so they can manage the family wealth in a more dependable and efficient way.

This article was written in the highly unique year of 2022. Even though COVID-19 is now effectively under control, its effects are still being felt. Regional conflicts have intensified, and economic uncertainty is rising globally. The challenge for the wealth management industry is tremendous.