Wealth management products flourish in China

Rising incomes and limited investment channels have boosted the popularity of wealth management products in China. But the lack of transparency on these high-yield vehicles is an increasing headache for regulators and banks.

What do you do with your cash when you have plenty of it? Manage it wisely.

The number of nouveaux riches in China seems to be multiplying by the minute. At the same time, wealth management products tailored exclusively for the high net worth individuals are mushrooming.

At Swiss banking giant UBS, which runs one of the largest wealth management divisions of any bank in the world, the needs of its affluent clientele are well-catered for.

Tan Kueh, CEO Wealth Management of UBS Securities, said, "As wealth matures, as people become more established in their wealth, they take a more reasoned view of the balance between risk and return, they are more likely to entrust the guardianship of their wealth to professional investors or caretakers as they focus on their own business of lifestyle."

The UBS clients are mainly high-end, typically upper to ultra high net worth individuals.

They seek capital preservation, succession of family wealth, and cash management.

So what exactly does the profile of such an ultra high net worth individual in China look like?

He said, "Typically he is a he, between 45 and 55 years old. He is entering a phase of preservation and stability and diversification."

The industry is booming. According to data, total wealth management products outstanding reached 7.4 trillion yuan, or $1.2 trillion by late January, up from 7.1 trillion yuan at the end of 2012 and only 500 billion yuan in 2007.

He said, "The products that we offer to clients really are along these lines. They tend to focus on preserving wealth, and provide some diversification by spreading risk, by venturing into some new asset classes, or alternative asset classes."

But the rapid growth also has negative ramifications. Regulators and bankers I spoke to in Beijing's financial district have expressed concern about the lack of transparency of the underlying assets of wealth management products.

Some voices have warned of a shadow banking system, while others say that the risks are similar to the ones faced by subprime mortgage investors in the United States in 2007.

In a recent interview with CCTV, the country's top industry regulator, the China Banking and Regulatory Commission, said that it will strengthen its cooperation and coordination with other regulators to enhance the risk monitoring of wealth management products.