Difficulties faced by Chinese family offices

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According to the “2020 China Family Office White Paper” released by Forbes, the size of China’s private wealth market has grown fivefold in the past ten years, and the number of high-net-worth families has now reached 1.58 million. Stimulated by the huge demand, the family office industry is developing rapidly. At present, the total number of family offices in China is around 2000-3000. Although the number of family offices is large, they are still too green when compare with mature European and American markets. The services are far from perfect and they are facing many difficulties, including scarcity of talents, lack of industry standards, low customer trust, high cost and difficulty in profitability, etc.

 

1.Lack of talent

 

Compared with the number of high-net-worth individuals, the number of corresponding family office expert is far from enough. At present, family office experts are mainly concentrated in the field of wealth management, while family affairs management talents and “one specializes, multiple capabilities” integrated talents are extremely insufficient. With serious shortage of talents, it is difficult to truly meet the diversified and personalized needs of customers.

 

2.The industry lacks standards

 

The explosive growth of the private wealth market has attracted capital from all walks of life to entry and grab cakes. Some commercial banks set up family offices, some trust companies expand the business of family offices, and there are many family offices established by law firms. Behind the phenomenon, good and bad are intermingled. Nowadays, many so-called family offices in the market just change their gimmicks to sell their own financial products or services. Their service methods are sales-oriented and destined to be difficult to solve the real pain points of family customers. Unfortunately, there is currently no regulatory agency to regulate the market, and no uniform industry standard. Obviously, chaos is hindering the further development of the entire market.

 

3.Low customer trust

 

Family office services are based on trust. Only when both parties interact can last forever. High-net-worth individuals are often familiar with the laws of society and allow them to give their huge wealth to “strangers” for long-term care. Under the current legal conditions and social norms, there are indeed worried. As the lack of professional talents and industry standards have resulted in the relatively low overall service level of the family office. Without truly solving the deep-seated worries of the rich, it is difficult to gain the full trust from them. On the other hand, the establishment of trust requires sincere accumulation over time. Many family offices in China have not been established for a long time, which is also a factor of low trust.

 

4.High cost and difficult profitability

 

In the initial stage of establishing trust with customers, family offices often can only accept relatively simple services where they are in the period of high investment cost. Moreover, the investment cycle of family offices is generally very long, thus the payback period is also consuming one’s patience. We can see that family offices are in the early stage of establishment that a certain amount of capital is needed as support. In addition, mainland high-net-worth individuals have not developed the habit of paying consulting fees or consulting fees. Many family offices rely heavily on the sale of financial products in order to survive, which will lead to conflicts of interest with customers to a certain extent. High operating costs, slow returns, and difficulty in profitability are common problems faced by family offices. After entering the market, many family offices are overwhelmed and eventually exit the market.

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