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Navigating the Maze of Inter-Generational Wealth Transfer in Asia-Pacific

A couple of weeks ago I had the good opportunity to host a MasterClass with our friends at the Institute of Banking and Finance (the IBF for short, and part of the Monetary Authority of Singapore) in Singapore. The broader agenda is here (IBF Next-Gen MasterClass Agenda).

The problem statement set for me was simple but daunting:

  1. Share my and Capgemini point of view on the current situation, challenges, and path (including forward leading practices) for the Asian wealth management industry when faced with the need to help clients prepare for and manage next-generation wealth transfer
  2. Facilitate a workshop with ~30 highly seasoned private bankers, team leads, and CEOs of regional wealth and asset managers, in order to identify solutions to move the industry forward

The location was the Capgemini “Accelerated Solutions Environment” (or ASE for short) in Singapore, which you can (partially) see from the main image accompanying this post.

To kick things off, I shared my point of view on inter-generational wealth transfer in Asia. My abridged message was as follows:

  • To begin with, the STAKES are enormous. In a relatively simple analysis as seen below (taking total HNWI wealth for 2016 as calculated by Capgemini, then adjusting for the amount of HNWI wealth still held by the first generation and differences and applying inheritance taxes across different markets), we calculated that ~US$8 trillion of wealth will be “in motion” over the next decade in Asia-Pacific.

  • The PROBLEM is that there is an ongoing perception that HNWIs are unprepared for transfer and long-term wealth preservation. Anyone active in Asian wealth management has heard famous sayings along the lines of, “70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third” and, “The first generation makes money, the second generation spends it, and the third generation blows it”. When I asked the audience the extent to which they felt these sayings were true, about 90% confirmed them as based on the current reality they see in their businesses.

 

  • HNWI DEMAND for services related to wealth transfer exists, as they realize they are not prepared. In our 2015 survey of over 5000 HNWIs globally, we identified that fully 56% of Asian HNWIs were concerned that the next-generation was not ready to manage inherited wealth, compared to only 41% of HNWIs in the rest of the world. As such, there is a very receptive client base for next-gen services, whether these are events, education seminars, or specific services such as trusts and estate planning.

  • Low levels of HNWI satisfaction with wealth transfer and estate-planning services is the primary ISSUE that firms and wealth managers face. Satisfaction lags that of HNWIs in the rest of the world, and is especially acute for female HNWIs (who will inherit wealth first in most cases in Asia) and older HNWIs (who are the ones needing to arrange now to ultimately pass on the wealth in an effective manner).

  • However, it is not easy for firms to deliver effective solutions, as they face numerous CHALLENGES when faced with inter-generational wealth transfer. These span many areas, such as:
    1. Cultural… such as the taboo around even talking about death in many of the region’s markets.
    2. Talent gap… the type of talent needed to serve highly complex wealth needs is not a freely available commodity – outside of the top firms and outside of Singapore/Hong Kong (which also struggle), it is very hard to come by.
    3. Financial education… in many markets the next-generation are not financially savvy or interested in the markets, hence the real risk that when they come into significant wealth it is frittered away.
    4. KPIs… The challenge of short-term KPIs for wealth managers often being misaligned with the long-term nature of wealth transfer planning.
    5. Conflicts… comes out in regional nuances such as in China the expectation that the eldest son should take over and who may not want to… as well as universal elements such as sibling rivalry.
    6. Communication gap… For example, in relative comfort levels across the generations in discussing financial matters.
    7. Engagement… There are often completely different engagement preferences e.g. a wealthy first-generation patriarch may want to discuss everything in person and formally document all paperwork, whereas the siblings may want a more informal and digital manner of discussing – sometimes preventing material progress.
    8. Multi-jurisdictional wealth… a by-product of business ownership as well as personal lives spread across a very large but diverse region. Makes legal, tax, regulatory business advice critical within a wealth transfer discussion.
    9. Values… The younger generation may simply not be interested in taking over family business ownership, and may want to take a completely different approach to their lives than their parents who created the wealth.
    10. Spousal engagement… Arguably the most important element, given I feel there is too much discussion on the children which forgets that women tend to live longer and will first inherit the wealth. If they do not have a relationship with the wealth manager, the wealth will go elsewhere!

After I shared some leading practice observed in the region, we then moved to designing solutions needed in Singapore around inter-generational wealth transfer.

I naturally cannot show the details of our solutions (nor the snazzy photos we took of the group breakouts). However below is a fun example of our ice-breaking – where we used “design thinking” to have participants picture their “typical” current client, and their “potential” future clients across NAME, AGE, COUNTRY OF RESIDENCE, SOURCE OF WEALTH, LIFE CONCERNS, WEALTH MANAGEMENT NEEDS, and CURRENT/FUTURE INTERACTION CHANNELS. We also had them draw as you can see below (just one group’s output)!

In summary, we had a fantastic session with the senior bankers in Singapore, and our partner the IBF. The event was capped off with a panel discussion between Lydia Wee (IBF CEO), Kong Eng Huat (Chief Executive Officer of EFG Bank in Singapore), and Paul Chua (Head of Wealth Planning, UBS AG Wealth Management).

David

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