High stakes

A seismic shift in who holds Asia’s wealth is creating great opportunity for financial planners and wealth managers all around the world. But engaging Asian wealth holders is not without its challenges – and will require many to up their game

Asia, already thE top region for the world’s super-rich, saw its population of high-net-worth individuals increase by 8% last year, and is predicted to be home to one-third of the globe’s billionaires by 2023.

These projections, published in the Jersey Finance and Hubbis report Asia’s Great Wealth Transfer – Implications for the Wealth Management Community this December, come despite all the complications of the Covid-19 pandemic, international trade wars and geopolitical tensions that have hampered economic growth this year.

Asia appears to be unstoppable in amassing wealth, which means that the individuals fortunate enough to be part of it will need assistance in managing their financial affairs.

The report highlights successful legacy planning as an area where Asian families are in dire need of support.

It reveals the findings of a survey conducted across wealth management experts in Asia, showing significant gaps in the provision of financial planning. More than three-quarters (77%) of respondents indicated that less than half of their Asian private clients have properly organised succession planning in place.

Asia’s wealthy and super-rich families need to urgently advance their legacy and succession planning.

Mark Tucker, Head of Wealth Advisory at Barclays Private Bank, says: “While there is no shortage of desire across Asian families to establish succession plans, many lack the knowledge and experience to implement the planning.”

Yet Asia’s wealth industry is, according to the Jersey Finance report, totally unprepared for the predicted deluge of clients in need of support. Just 4% of those surveyed believe Asia’s wealth industry is prepared for the upcoming wealth transitions – predicted to be $5trn – to the second and younger generations. 

And while more than half (52%) of respondents believe the wealth industry is ‘gradually getting better organised’, opportunities abound for financial planners and wealth managers with experience on inheritance planning and wealth transfer. 

Indeed, 70% of respondents said that private clients in Asia are more willing than ever to professionalise their legacy and succession planning.

But the field is complex and there are many obstacles to overcome in ensuring Asian families receive the right guidance and advice.

The first is simple geography. Tucker says members of Asian families are often spread out, which makes it hard to deal with financial matters cohesively.

He says: “Wealthy Asian families have increasing touchpoints in a greater number of jurisdictions, which inevitably creates complexity. The wealth planning arena plays a key role in helping Asian families to take a holistic view of their affairs, taking into account multi-jurisdictional implications as well as the needs and aspirations of all generations within the family.”

To counter cross-border barriers, the use of virtual meeting platforms and other digital technology – perhaps a bugbear for the less tech savvy during the Covid-19 pandemic – will be imperative when dealing with the next generations. 

Almost nine out of 10 (87%) respondents to the Jersey Finance/Hubbis survey agreed that the digital technologies and connectivity on offer from banks and wealth management firms will be important or crucial to the second and third generations.

Gaining control

There are also cultural sensitivities to manage when planning wealth transfer for Asian families. 

Joe Moynihan, Chief Executive Officer at Jersey Finance, says persuading first-generation members to participate can be problematic. “The most daunting prospect [for financial planners] is encouraging the founder generation to share information and to gradually relinquish control,” he says.

This is further compounded, Moynihan says, by 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 necessary time to prepare properly. 

Moynihan says: “It is vital for the wealth management community to maintain and build relationships with the founder generation of Asia’s private wealth.”

The trick to improving this communication is, according to Joanna Caen, MD of PraxisIFM Nerine in Hong Kong, to ensure that all the family members are engaged with the process. 

She says: “There’s no point asking the first generation to involve the second generation in planning if the second generation is uninterested. Once you know who wants to be involved, you can work to include them as much as possible.”

According to Tucker, such a lack of planning often makes it difficult for advisers and managers to get to what is the most crucial and lucrative asset: the family business.

“In many instances, the family business represents the asset of greatest value and is often the most difficult asset to transition across generations despite many options to achieve integration and transfer,” he says.

Respondents to the survey reflected this experience: 61% said that less than a quarter of their family clients are successful in passing the business to the next generation; 87% said that less than half of such families achieve the right outcomes.

Tucker’s reference to the ‘many options’ look to be part of the problem. More than a quarter (29%) of respondents said that families had used the wrong or unnecessary structures when transferring the business. 

This led the authors of the report to conclude that whatever the skillset of financial planners and wealth managers, they should defer to experts – usually lawyers – to ensure the successful transition of wealth, be it a business or any other asset.

Moynihan says: “A trusted adviser can act as the focal point and catalyst for good solutions. The trusted adviser in Asia can identify many of the key legacy and succession-planning issues and help families move towards the right outcomes. 

“But to do so, they need to be open to working with and bringing in a wide range of skills and experts, and work across the generations – in other words, be inclusive.”

Work to do

As a trusted adviser, there is – according to Jersey Finance – work to do in improving education among Asian families if they are to embrace and successfully carry out wealth transition.

While 61% of respondents indicated that the Asian wealth management community is improving its efforts to educate the private client base on the merits of succession and legacy planning, only 4% said this is well in hand, and 35% indicated that ‘far more needs to be done’.

Tucker believes that the successful provision of education will be a key factor in deciding who will be successful – or otherwise – in capturing the wealthy Asian family market.

“Wealth managers who prioritise the holistic cross-border multi-jurisdictional needs of their clients will be those capable of building strong relationships with Asian families,” he says. 

“Wealth managers who support clients during the key moments in their lives, whether that be major business or family events, are better placed to fully serve client needs from a wealth management perspective.”

Additionally, it is time for providers to pare back the information they send to clients. Caen argues that many clients are overwhelmed by the reams of paper and documents sent by their advisers.

She says: “This does make some input less effective because it can be drowned out by other input and/or families can be turned off from engaging.”

Caen says advisers will better serve their clients if they start by asking fundamental questions as to their areas of interest, rather than selling them products from the get-go.

She adds: “Families need to understand in general terms only what options are available to them, so they can decide what, if anything, best suits their needs.”

Asia’s wealthy families offer genuine business potential for financial planners and wealth managers, yet if they are to capitalise on this opportunity, it is – in the words of Jersey Finance – time to “up their game”.

Firms need to foster trust with families, working with each generation to ensure they understand what is involved, and that they have robust governance in place before attempting to move forward.

The successful organisations will be sympathetic to the cultural nuances and be willing to take time to educate and improve communication. And for those that are patient and prepared, the spoils look substantial. 

• This article was published in Businesslife's special Asia Edition in December 2020