This article was first published in The Business Times Singapore.
Do younger generations really want to break with the financial traditions that made their parents rich?
The transfer of wealth to a new generation is a pivotal moment for any family. After a series of high-profile succession dramas – both in real life and on the small screen – it’s only natural to worry that inheritance may be a trigger for disruption.
We tend to assume that the heirs to a family fortune are itching to change direction, either to assert their independence or to pursue different goals.
Succession dramas are never far from the headlines in Asia, and the generational divide is often exaggerated in popular culture: just think of the selfish, squabbling siblings in HBO’s Succession, or the entitled offspring in The White Lotus (a third season of which is now in production in Thailand [1]).
These depictions are clearly unfamiliar to the vast majority of wealthy families. In Asia, most of our next-generation clients would make for an uninspiring movie plot: we know them as conscientious, disciplined investors with a strong understanding of their contribution to society.
But there are lessons from these stereotypes. All families would do well to think about the importance of long-term planning, their approach to wealth preservation and the need to empower the younger generation.
Much at Stake
For many wealthy families, a public succession drama is the worst-case scenario – especially when it involves a business empire that has been built up over many decades.
An estimated USD100 trillion [2] will be passed on to the next generation globally in the coming 20-30 years, in what has been dubbed “the great wealth transfer”. Nowhere is this more evident than in Asia, where rapid economic development in recent decades has created more billionaires than in any other region. [3]
As of 2022, Asia Pacific accounted for USD71.2 trillion of USD254.6 trillion of financial assets globally, and fortunes in the region are increasing more quickly than elsewhere. [4] Annual growth in Asia’s affluent and mass-affluent segments is estimated at 11 percent and 13 percent, respectively. [5]
And in Singapore, a recent survey found the city state has Asia’s most assiduous savers, with 36 percent squirreling away more than a quarter of their incomes each month and a strong focus on long-term investing. [6]
Asia also stands out from other key regions – notably Europe and the US – through the relative newness of its wealth, with many fortunes having been amassed there in the last 20 or 30 years.
For families with sizeable fortunes at stake, it is never too early to think about succession planning.
Does this mean that the next generation in China, India or Southeast Asia will think about wealth differently than their parents?
Younger family members are likely to have a different outlook on the world. They are more likely to have a university education than their parents’ generation, and more likely to have lived overseas. They will typically be more familiar with technology too.
But the next generation also faces a complex set of challenges. A sizeable inheritance can be both a blessing and a curse: as well as worrying about family dynamics, many heirs stand to inherit a business empire that requires careful management in a changing world.
The speed of wealth creation in Asia also provides different dynamics. Families that have accrued their wealth in a short period of time are also acutely aware that their fortunes can change just as quickly.
When it comes to wealth management, our next-generation clients feel a strong sense of duty to preserve the wealth their parents have created. While many are concerned about stepping out of their parents’ shadow and establishing their own credentials as an investor or business owner, they also recognise that smart choices deserve respect.
What’s more, some next-gen investors may think twice about ditching tried-and-tested portfolio strategies and piling into ‘new economy’ investments and models following the collapse [7] of cryptocurrency exchange FTX and other scandals.
Empower the Young
These dynamics make it essential for families to plan ahead.
Preparing Asia’s next generation for these responsibilities takes more than an overseas education or an introduction to a trusted adviser. We think there is an essential ingredient in many family situations: empowerment.
Younger family members want to feel that their voices are heard and their decisions valued – both in business as well as within family circles. Bringing sons and daughters into the family business at the right time is a tried-and-tested succession planning tactic, but it is important that these young leaders are set up for success and given real responsibilities rather than a symbolic title. Does the new role suit their skillset? Will a leadership position at the family’s philanthropic foundation provide the experience necessary to run a commercial enterprise in the future?
It's a similar case in wealth management. To have the best chance of a successful investment journey, younger family members need to gain experience in managing capital and the ability to tell good advice from bad.
Empowering next-generation investors could mean access to individual lines of credit from an established private bank, or the freedom to explore alternative investments.
Advice remains important, too.
While younger generations expect a smooth digital interface and are more open to using new tools in their investments, they still expect a high degree of personal service from their wealth managers.
Indeed, wealthy individuals increasingly see value in the services provided by their wealth managers. According to a recent McKinsey survey, 87 percent of investors in developed Asia markets and 64 percent in developing markets say they may be willing to pay advisory fees.[8]
High-profile succession dramas will always be closely watched – wherever they play out. Disruption, however, need not be the default setting. With the right approach, Asia’s great wealth transfer need not be a period of great turmoil.
[1] https://edition.cnn.com/travel/season-3-white-lotus-thailand-intl-hnk/index.html
[2] https://www.ft.com/content/63027e28-724a-40bc-a929-7dec5125926c
[3] https://asia.nikkei.com/Spotlight/Datawatch/Asia-has-over-950-billionaires-outnumbering-all-other-regions
[4] https://www.ft.com/content/417bed50-361c-4ef4-8aeb-31a11eef8228
[6] https://sbr.com.sg/financial-services/news/singaporeans-biggest-savers-in-southeast-asia-survey
[7] https://www.nytimes.com/2022/11/10/technology/ftx-binance-crypto-explained.html
[8] https://www.mckinsey.com/industries/financial-services/our-insights/digital-and-ai-enabled-wealth-management-the-big-potential-in-asia