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Hong Kong Rising Affluent Focus On Portfolio Diversification But Planning Gaps Exist

Charles Schwab Study found that two-thirds of rising affluent in Hong Kong felt financially unprepared and less than four percent have a modern financial plan

Charles Schwab, Hong Kong, Ltd. today announced the findings from its “Hong Kong Rising Affluent Financial Well-being Index 2020”. This year’s survey found that rising affluent in the city felt financially unprepared and have lowered their expectations of being financially comfortable following the outbreak of COVID-19. Under this circumstance, it also revealed that rising affluent in Hong Kong have a stronger sense of risk management, while they feel more urgency to diversify  their investment portfolio globally. However, they are still in need of developing a modern approach to financial planning that includes a financial roadmap based on their age, assets, risk tolerance, life goals and timeframe as well as appropriate advice from financial advisors to help them meet their financial goals.

Now in  its second year, the study engaged 1,032 of Hong Kong’s rising affluent who aged between 18 and 65 with a monthly income of HK$ 20,000 to HK$80,000. From November 10 to November 20, the survey interviewed Hong Kong Rising Affluent on their perception towards their financial well-being, resulting in an overall financial well-being score at 55.25 out of 100, a 1.43-point increase from last year’s results.

Calculated by Structural Equation Model (SEM), 19 indicators were designed to formulate the financial well-being index which consist of four sub-indexes, including:

  • Confidence sub-index (52.15, same as 2019) studies investors’ satisfaction towards their personal financial status and their confidence level in personal financial growth prospects
  • Planning sub-index (26.97, -0.87 vs. 2019) reveals whether investors have and regularly review financial plan, setting timelines for financial goals, and have a sense of possibility on achieving financial goals
  • Management sub-index (74.33, +0.80 vs. 2019) demonstrates investors’ sense of risk, attitude towards portfolio management, and sensitivity towards fees
  • Engagement sub-index (59.44, +3.53 vs. 2019) determines investors’ usage of financial services, trust towards professional financial advisers and digital financial advisory platforms

Key findings of this year’s survey include:

  • Around two-thirds of Hong Kong Rising Affluent felt financially unprepared for their financial concerns, an increase of 1.4% from 2019
  • Six out of 10 Hong Kong Rising Affluent are concerned about the impact of COVID-19 for now and in the next 1-2 years, with 19.5% decrease in the required level of liquid asset to be financially comfortable
  • Nearly half of Hong Kong Rising Affluent are eager to know what investment products others have on social media, an increase of 8.1% from  2019
  • 97.8% have a sense of risk consideration with more rising affluent shifting their risk appetite from aggressive [1] (15.1%) and progressive[2] (21.1%) to steady[3] (42.8%) and conservative[4] (18.7%) under the influence of COVID-19
  • 46.9% of those surveyed are willing to diversity their assets in global markets in 2-5 years, increased by nearly 20% compared with 2019
  • Less than one-third  claimed that they have a formal financial plan, while about six out of 10 Hong Kong Rising Affluent tend to be self-reliant when  developing financial plans
  • 43% of rising affluent in Hong Kong would like to seek advice from financial advisors before investing in global markets

Michael Fong, Managing Director, Charles Schwab Hong Kong, said, “Hong Kong’s rising affluent are concerned about the impacts of COVID-19 and shifted their risk appetite towards more steady and conservative investment. We saw a high percentage of respondents reassessing their financial goals in light of external risks that arose  last year. At the same time, the rising affluent in Hong Kong aren’t planning sufficiently but financial advisors can help close the gap.

Charles Schwab, Hong Kong, Ltd. today launched its “Hong Kong Rising Affluent Financial Well-being Index 2020”. Michael Fong, Managing Director at Charles Schwab Hong Kong, said it is very encouraging to see the increase in trust towards professional financial advisory.

Social media plays an important role in effecting how the rising affluent interprets the impacts of COVID-19

Social media influence continues to grow among the rising affluent when it comes to their financial behavior. The survey revealed some 87% agreed that COVID-19-related stories on social media influenced their views on financial well-being topics, with more than  half of them felt that the influence was strong. Interestingly, a majority of respondents reported that these social media stories have negative impact on their financial outlook (37.%), financial confidence (37.5%), and their management of investment risk (27.5%).

Compared to savings, monthly income and international leisure travel updates, investment products went up from the third  place in 2019 to become the number one topic that rising affluent want to know from their family members or friends. In 2020, more Hong Kong Rising Affluent are having other source of income (49%, +9.3% vs. 2019), practicing regular saving (70.6%, +9.8% vs. 2019) and investing on a monthly basis (48.1% +3.5% vs. 2019). Compared to 2019, more rising affluent (41.6%, +7% vs. 2019) consider “health” as an important type of wealth, yet stable income and large amount of money remain as top priorities.

Stronger willingness to diversify globally

As a result of the pandemic impact, an increasing number of rising affluent are looking to diversity their investment in global markets and more proactively manage their portfolios to avoid risk.

The survey found that 46.9% of rising affluent are willing to diversity their assets in global markets in the next two-to-five 2 to 5 years, an increase of  19.9% from 27% last year. 26.1% of those surveyed claimed that their financial portfolios are diversified, an increase of  7.6% compared to 2019. Although factors driving the decision varied, most of them hope to diversify the risk of assets being over-concentrated in Hong Kong, capture opportunities in the global market with higher returns and prefer to invest in developed markets. 

Enlarged gap in modern financial planning prevents rising affluent from achieving goals

According to this year’s survey, only 48% of rising affluent in Hong Kong claimed that they have a financial plan currently, while less than one-third of respondents claimed that they have a formal, written financial plan. Respondents with investment outside of Hong Kong are more likely to have a formal plan that guides their investment decisions, with more than 70% of them claiming that they have a financial plan. On the other hand, only 40% of domestic investors claimed the same.

“Having a formal, written financial plan is essential to investment confidence,” said Fong. “This, in combination with global diversification, can help rising affluent remain well-prepared in the face of external shocks. It also explains why those who invest in the global markets are more optimistic about their financial future following the outbreak of COVID-19.”

Additionally, the survey found that less than one-third of rising affluent in Hong Kong have clear goals in their financial plan, with majority of them only focusing on short-term and mid-term goals. This further affects the possibility to achieve their goals post-pandemic.

Higher levels of openness and trust in financial advisory

The survey saw an increase in trust towards financial advisors, institutions, platforms and tools in 2020. Nearly one in two of the rising affluent who invest in global markets think financial advisory is “helpful” or “very helpful”. Moreover, over half of those who invest in global markets trust financial advisors are institutions. However, the overall engagement and trust level with financial advisors remains low, with less than 8% considering financial advisors/ institutions highly trustworthy.

Digital advisory channels also saw an increasing interest among Hong Kong Rising Affluent under the pandemic, with 55% becoming more accustomed to using digital network platforms to make personal or family financial investment decisions.

“It is very encouraging to see the increase in trust towards professional financial advisory,” concluded Fong. “Though the COVID-19 outbreak has undoubtedly caused a shock to the global economies and investors, it urges Hong Kong’s rising affluent to actively respond to changes with an increasing interest in global diversification. Financial advisors need to provide more professional advice for rising affluent before they make investment decisions in global markets. Meanwhile, assisting rising affluent to have a better understanding of modern financial planning can help them better achieve their financial goals and provide them with a more complete, holistic approach to their financial future.”

[1]  An aggressive risk taker is described as “Invest in products with large fluctuations in price and high risk in order to gain the highest returns possible”
[2]  A progressive risk taker is described as “Diversified investment products, able to take on greater risk when market fluctuates in order to obtain higher returns”
[3] A steady risk taker is described as “Focus on asset security with expectation of stable returns and controllable risk”
[4] A conservative risk taker is described as “Principal-protection is the main purpose of investment, do not want to take risks”

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