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Chinese-American market remains untapped by advisors

Chinese-Americans are a highly underserved group when it comes to receiving financial advice, but not because of a lack of interest from advisors.

Quite the opposite. As a demographic, Chinese-Americans hold a great deal of appeal to financial advisors. Several barriers, however, have made it difficult for them to make any headway with this niche population.

But for those willing to take on these challenges, the Chinese-American market is brimming with opportunity.

People participate in the Chinese Lunar New Year Parade in Manhattan's Chinatown, New York on February 22, 2015.
Cem Ozdel | Anadolu Agency | Getty Images
People participate in the Chinese Lunar New Year Parade in Manhattan's Chinatown, New York on February 22, 2015.

The median household income for the group is more than 30 percent higher than for the overall U.S. population, more than half hold at least a bachelor's degree, and census data has shown significant growth in the number of Chinese-American-owned businesses. It is also a community that places a high premium on hard work, saving and creating a legacy.

And it's a demographic that looks set to keep on growing, notably at the upper end of the income scale. Studies have shown that increasing numbers of mainland Chinese millionaires are looking to move to—and invest in—the U.S. Some 60 percent of China-based millionaires have relocated abroad or intend to, with many stating a preference for the States, according to the Shanghai-based Hurun Report.

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In fact, the State Department has, for the second year in a row, stopped handing out EB-5 immigration visas—awarded to foreigners investing at least $500,000 in a U.S. business creating at least 10 jobs—for the rest of the year because the program is maxed out. An estimated 85 percent to 90 percent of 10,000 available EB-5 visas were awarded to Chinese last year, according to public and private sources.

By most accounts, Chinese-Americans—millionaires or not—would seem like a client base that advisor dreams are made of. Plus, there's the added benefit that focusing an advisory practice on any niche of the population has the potential to boost profitability.

A recent study by Cerulli Associates found that while just 15 percent of financial advisors in the U.S. focus on a particular client niche, those advisors account for 29 percent of overall advisor assets under management.

Barriers to business

But despite the obvious opportunities that exist within the Chinese-American market, tough barriers of entry into that community have made it difficult for many financial advisors to make meaningful headway. The biggest challenges include a lack of Chinese-speaking financial professionals, difficulty establishing trust and a general lack of knowledge within the Chinese-American community—particularly among first-generation new arrivals—about financial planning and products.

"The Chinese-American market is uncharted waters for a lot of financial firms," said Eden Poon, a financial professional with Prudential Financial. Poon, who is originally from Hong Kong, focuses about 60 percent of his business on Chinese-Americans.

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When it comes to attracting new clients from the demographic, "the language barrier is the major challenge," he said. There is a scarcity of financial services professionals who speak Chinese and those who do often only speak a certain dialect.

Poon, who speaks Mandarin, Cantonese and Fujianese, said that despite his office location in Manhattan's Chinatown—home to the largest concentration of Chinese in the Western Hemisphere—recruiting financial professionals of Chinese descent is challenging.

Establishing trust within the community is another obstacle advisors face. Once it's earned, however, it's a significant step in generating new business.

"In this market, the major focus is on referrals," explained Poon, who generates about 70 percent of his business that way.

"The Chinese-American market is very close-knit," said Donna Guglielmi, a managing director with Prudential who manages three sales offices in the New York area. "The community doesn't accept [solicitation] phone calls; you have to be referred by someone who has used your services before."

Establishing trust requires significant involvement in the local Chinese community, as well as a focus on service rather than sales.

Get community-minded

"We work with community leaders of different Chinese organizations, which gives us the ability to speak and reach out to different markets," said Guglielmi, who focuses on enhancing ethnic diversity in the communities she serves.

For his part, Poon said he tries to participate in the local community as much as possible. "It's our job to let them know that we're here," he said. "On a monthly basis, we hang out with local people."

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A lack of financial education has also made many Chinese-Americans reluctant to seek professional financial advice, although this seems to be changing, Poon explained.

The concept of financial planning wasn't a popular idea in past generations, he said, adding that first-generation Chinese-Americans didn't know about financial planning or insurance. As families were impacted by life events, however, people began to look into products that could protect them.

"The Chinese have a mind-set that we need to leave a legacy for our family, and insurance is one way to do that." -Eden Poon, financial professional with Prudential Financial

Life insurance has been a product of particular interest in the Chinese community, Poon explained.

"The Chinese have a mind-set that we need to leave a legacy for our family, and insurance is one way to do that," he said.

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In the past, it was more common for Chinese-Americans to buy property or plan to leave a business as their legacy, according to Poon. "But now that they're getting more financial education, they're using insurance products."

Due to the vast array of financial products on the market, Poon and his colleagues avoid being too product-oriented and instead focus on explaining the general idea behind insurance products.

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"We have to teach [clients] the basics, the fundamental things," he said.

Guglielmi agreed that the lack financial education is a challenge, but the situation has been improving, particularly as the overall education levels of next-generation Chinese-Americans have risen.

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"They're more open to learning about products and services," she said. "Years ago, it was different. It was harder to educate them."

Poon said he's seeing more financial professionals trying to penetrate the Chinese-American community he serves. However, the market remains largely untapped, though ripe with opportunity for financial advisors willing to take on the challenge.

—By Jennifer Woods, special to CNBC.com