Investors in developed markets can invest money in stocks, real estate, bonds, and other derivatives but their Chinese counterparts lack such a wide array of choices and as a result, choose wealth management products (WMPs) issued by banks, the study stated.
The lack of a mature bond market, long-term products on the market and professional financial advisors were major challenges, the authors explained.
"While the incomes and expectations of China's emerging affluent have risen, China's financial services sector has not kept pace...Unlike upper-middle class investors abroad, most Chinese investors chart their financial futures without assistance from financial service professionals," the authors said.
As a result, Chinese often don't understand the content of their investments and the risks they carry, the study noted, pointing to WMPs as an example. Detailed information isn't always provided to customers and this lack of transparency is intentional since most WMPs are concentrated in China's increasingly troubled industrial sector, the study said.
Because advisors tend to generate the majority of their revenues through sales commissions, they often sell products without regard for their clients' needs, doing little to educate investors, according to the study.
"Although most Chinese investors are generally risk-averse, their risk appetite may be affected by policy. The government and media create a layer of guarantee, which leads investors to believe otherwise risky investments to be safe, [so] investors sometimes tend to act recklessly."