WEALTH THROUGH GENERATIONS
With Asia on the verge of the largest intergenerational wealth transfer in history, wealthy families are encouraged to take measures to preserve their assets.
In the next few decades, the world will be witnessing the largest ever passing down of wealth from one generation to the next, a phenomenon happening across the globe valued in the trillions of dollars. Specifically in Asia, this is happening for the first time and on a massive scale. According to UBS, around 85% of Asia’s billionaires are first-generation.
Wealth does not pass three generations unless it is well-structured and planned for. According to The Family Firm Institute, only about a third of family businesses and wealth survive into the second generation, while only 3% of all family businesses evolve into the fourth generation and beyond. Hence, there is rising concern on wealth preservation and succession planning for family businesses, and wealthy families are turning to Multi-Family Offices (MFOs) to navigate the complex process of safeguarding wealth and legacy.
Administering Family Governance
In succession planning, it is important to achieve an effective intergenerational transfer of wealth while reducing family disputes. High-profile disputes such as the Ambani brothers’ feud have been an eye opener for wealthy families. After the death of their father, both Mukesh and Anil Ambani were embroiled in a bitter feud resulting in the split of the Indian conglomerate Reliance Group – the repercussions of not having a concrete succession plan to help ensure a smooth transition of wealth being handed from one generation to the next.
There are various starting points that High Net Worth Individuals (HNWIs) and wealthy families can take. It is often important to determine the core values and objectives of the family as the foundation of how family assets and businesses will grow and keep pace. This process can be formalized through setting up family governance structures through a MFO. In its simplest form, family governance lays out roles, rights, and responsibilities for family members as well as regulate how family members act towards the businesses and to one another.
By consolidating investments under one roof instead of having them spread across different advisors, it may be possible to achieve higher returns with lower risks. HNWIs typically consolidate their different accounts with their trusted MFO. A MFO and its team of wealth managers are able to provide unbiased advice customized to each family’s unique investment strategy and objectives. The consolidation of investments also enables stronger alignment between HNWIs and their wealth manager who serves as the single point of contact for all their needs. This ensures that they would not be getting fragmented advice from an assortment of advisors.
Safeguarding a legacy requires expertise in fields as diverse as business consultancy, legal structures, lifestyle management, and generational transfer. MFOs help their clients integrate and coordinate all these services, maximizing opportunities for not just wealth creation but also preservation.
Misconceptions Of MFOs
One of the biggest misconceptions often encountered is the perception that a MFO is only for complicated family and business structures, but that should not be the case. For instance, regardless of family and business structures, if a retiring HNWI hopes to pass on his wealth, buying comprehensive and long-term care insurance might make sense as rising costs of health and long-term care can easily put a dent into the estate’s value.
Without a systematic and institutionalized method of transferring wealth to the next generations, a family can be easily daunted by complexities in managing wide-ranging assets that can be further exacerbated by personal disputes between family members. With the right infrastructure to responsibly manage and preserve wealth, including grooming and assisting the next generation to pursue their passion, succession can last generations.
That is why as an industry, family offices are encouraging discussion and education on intergenerational wealth transfer, a fast-approaching reality given Asia’s greying population. This will better prepare wealthy families and individuals as they begin to navigate succession and legacy for their businesses, while maintaining harmony between family members.
About The Writer
Shirley Crystal Chua is Founder and CEO of Golden Equator Group that comprises five independently managed companies covering fund management, business consultancy, a multi-family office, a fintech solution platform and a curated technology and innovation business club. Shirley has been a trusted advisor for ultra-high-net-worth individuals (UHWIs) and families for more than a decade, having held senior positions at Citibank and American Express International. She also currently oversees Golden Equator’s wealth management arm – Golden Equator Wealth, a full-service multi-family office. Golden Equator Wealth offers UNHWIs services including advisory and portfolio strategies, discretionary portfolio management, wealth transfer and succession planning that includes grooming the next generation.
This article was first published in the MillionaireAsia Issue 48 - June 2018