The great wealth transfer – Asia’s wealth management industry needs to prepare itself

Jersey Finance today has launched its latest white paper and survey of wealth management professionals and experts, revealing that Asia’s wealth management community is not yet ready to adapt its products, solutions and services to cater to the needs and expectations of the younger ultra-high-net-worth (UHNW) generation.

In Jersey Finance’s latest report ‘Asia’s Great Wealth Transfer – Implications for the Wealth Management Community’, produced in cooperation with Asian-focused financial publisher Hubbis, Jersey Finance found that perceptions about the wealth management community in many countries in Asia are that they need to prepare better for the vast transfer of wealth due to take place within the region.

Only 4% of respondents said the industry is genuinely ready

“Only 4% of respondents said the industry is genuinely ready for this development while, at the other end of the spectrum, 37% believe the industry is poorly prepared,” says Joe Moynihan, Chief Executive Officer, Jersey Finance.  “That said, there is broad-based optimism, as 61% of the wealth management professionals and experts surveyed indicated that their family clients are willing and working towards becoming better organised. Seven out of ten respondents stated that private clients in Asia are more willing than in the past to engage with the concept and practice of professionalising their legacy and succession planning.”

Wealth preservation and family harmony are key objectives

86% of respondents said that wealth preservation and the maintenance of family harmony (including peace of mind) are the two key objectives for wealthy families in organising more structured legacy and succession planning. This statistic could, in part, be explained by the volume of news coverage in recent years which has shone a light on family arguments about the transfer of wealth across generations.

Impediments to legacy planning

There are, however, many impediments to effective legacy planning, and in Asia, the most daunting prospects are encouraging the founder generation to share information and to gradually relinquish control. Closely connected to these issues is both poor communication among family members and across generations, as well as a perceived unwillingness for some founders to pay for professional advice or to commit the time necessary to prepare properly. 77% of respondents indicated that less than half of their Asian private clients have properly organised succession planning in place.

Historically, the patriarchs and matriarchs of Asia’s wealthy and uber-wealthy families have been perceived as rather controlling, often preferring to make decisions unilaterally. This can be difficult to handle, leading to the younger generations not feeling involved in the family businesses until they might suddenly be thrust into the limelight.  Younger generations have a major task in coaxing founder generation to grasp a multi-generational approach. From the survey, 73% of respondents believe the most effective outcomes for wealth management are achieved when multi-generations work together.

What can go wrong with estate/success planning?

Poor advice, lax preparation of asset inventories, and the adoption of the wrong structures which lead to family disputes, tax problems, or the ‘disappearance’ of family assets, whether intentionally, or perhaps unwittingly, were all factors mentioned when the wealth management community was asked what is most likely to go wrong with estate/succession planning for Asian clients.

Governance should be of greater importance

Only 13% of clients have come to grips with the issue of family and business governance and the inter-relation between them

The respondents stated that only 13% of the clients they work with or know of have come to grips with the issue of family and business governance and the inter-relation between them, while a resounding 87% said that progress to date in these areas is modest/poor.

Governance is high on the list of priorities for many of the world’s wealthy families and investors, but is perceived to be less ingrained in Asia. The research found anecdotal evidence that for those purely private enterprises, and possibly even for listed entities that remain firmly in the control of Asian families, far more could and should be achieved with regard to family and business governance.

Asia’s wealth needs to be ready for next-gen, Western-educated, digital natives

“We know that the younger generations of Asian wealthy families are very often Western-educated, digital natives, and open-minded on adopting a more professional structured approach to family wealth, frequently desiring to focus on either their new businesses, their lifestyles, or even social impact pursuits,” said Joe Moynihan.

“As a result, we know that Asia’s wealth management community and, indeed, the global wealth management ecosystem, must adapt their products, solutions and services to cater to the needs and expectations of these younger generations.”

43% of next-gen clients are unlikely to stay loyal to the banks and firms favoured by the founder generation

The findings suggest that incumbent banks and independent asset management firms need to urgently boost engagement with Asia’s next-gen clients, with 43% of next-gen unlikely to stay loyal to the banks and firms favoured by the founder generation.

Moynihan continued: “Progress is certainly being made, but there is still a huge amount to be done. It is up to the private banks, independent wealth management firms and, indeed, wealth jurisdictions around the globe to embrace this dramatic shift in Asia’s wealth. This equally applies to those who control Asia’s wealth, with  their own expectations and needs.

“Those who are fully engaged with these challenges, and with the immense and compelling opportunities that will unfurl, will be best placed to participate in and benefit from what is very likely to be the ongoing growth and dynamism across the length and breadth of Asia.”