By Oliver Rui

China is now home to one million high-net-worth individuals (HNWIs), twice as many as in 2010, according to a report by Bain & Company and China Merchants Bank. These are people whose total average assets are at least RMB 10 million a day, over a one-month period. The question is, with the lavish lifestyles of many second generation rich and the tendency to shy away from getting outside help on wealth management, will they be able to hang onto their fortunes?

There has been much buzz on social media lately over an article in The New Yorker magazine about an online reality show called “Ultra Rich Asian Girls of Vancouver”.  The article purports to profile China’s “Golden Generation” – the children of the country’s super-rich, who are known in Chinese as fuerdai (rich second generation). The Paris Hilton of the group is a 20-something named Weymi who was born in China and moved to Vancouver in her teens. The article gives the impression that she and her expat friends have nothing better to do than seek out the latest luxuries before they become popular with everyone else. Weymi says she wants to start a bilingual luxury lifestyle magazine with $500,000 in seed money her parents have promised her – though she doesn’t expect it to really be a money spinner. Another girl remarks that her father would rather she just collect a monthly allowance and let a professional take the reins of his business. They all seem to take it for granted that they will have a limitless fortune, thanks to their parents’ hard work.

This is all happening at a time when China’s first generation of successful entrepreneurs is grappling with the important challenge of deciding how their businesses can continue to thrive and support their family for future generations. It is less clear how many of them also realize that having a sound wealth management strategy is just as important as their business succession plan.

Private bankers and asset managers have long had thriving practices meeting the investment needs of millionaires in developed countries. But China’s high-net-worth individuals have much less experience with professional wealth management than their foreign counterparts.

There are many reasons for this; some are cultural. China is a low trust society and so it is logical that Chinese with money to invest would be reluctant to turn it over to a third party to manage for them. Safer, perhaps, just to keep cash stashed under the mattress or invest it in property, which has long been viewed by Chinese as one of the safest places to park your money.

There is also the issue of China’s still relatively young and immature stock market. Many of those who have jumped into the market did so with the same irrational exuberance that led to the quick rise and fall of Chinese stocks. Lacking professional advice or investment education, they have unreasonable expectations about potential returns and may be overconfident about their own investment knowledge. Their asset portfolio may be under-diversified, leaving them vulnerable to downward trends. Lack of investment knowledge also results in the common mistake of following the herd to buy high and sell low.

A report published in 2014 by the Swiss private banking group Julius Baer and the Bank of China based on a survey of the Bank of China’s (BOC) HNWI private banking clients, showed that these clients viewed their overall portfolio as smaller, compartmentalized blocks. They saw their BOC relationship manager as a source of investment expertise. Therefore they were not looking to the bank to provide advice for their overall wealth management needs. When asked what they wanted to achieve with their investments through BOC, 81% of respondents said their goal was maintaining their standard of living, while 76% said their end game was preparing for their child’s future.

But as with many things in China, the wealth management market is changing quickly and we are starting to see a boom in the market here. In its Interim Report 2015, China Merchants Bank – the leading commercial bank in the country – noted that in the first half of 2015 its private banking business saw a 33.94% increase in private banking customers defined as HNWIs. The report, jointly published by the bank and Bain & Company, also found that the country’s total private wealth market grew by 16% annually between 2012 and 2014 to reach RMB 112 trillion in 2014. Guangdong is the first province in the country to have more than 100,000 HNWIs and Sichuan is the first inland province to have more than 50,000 HNWIs. Shanghai, Beijing, Jiangsu, Zhejiang and Shandong also have more than 50,000 HNWIs, according to the report. Will their wealth last?

First generation business owners are at the forefront of this emerging trend of wealthy Chinese seeking professional wealth management advice. According to the Julius Baer-Bank of China survey, 57% of the BOC’s HNWI clients are entrepreneurs, and 43% of their HNWI clients are between 41-50 years old. Those that have moved successfully beyond the first or second succession will often set up what is called a family office to manage the wealth generated by the business that accrues to family members. Usually US$150 million is the minimum threshold for establishing a family office. Popular in developed countries, they are only beginning to catch on in China and Asia. Last year Alibaba Executive Vice-Chairman Joseph Tsai announced he was setting up a family office to invest his US$6 billion fortune.

Despite the headwinds facing China’s economy, its population of HNWIs is projected to continue its fast growth trajectory. This means big opportunities await responsible enterprises in the country’s under-developed wealth management market. It will be their job to convince Chinese investors of their credibility, help educate them on sound, holistic portfolio management, and develop approaches to money management suited to the unique style and needs of China’s millionaires.

Oliver Rui is Professor of Finance and Accounting, Zhongkun Group Chair in Finance, and Co-Director of CEIBS Centre for Family Heritage.