Butterfield reports that less than half of Asia's rich have succession plans
Despite being the largest hub for billionaires in the world and home to more first-generation high net worth individuals (HNWIs) than any other continent, less than half of Asia's rich have set the wheels in motion on succession planning.
This was revealed in the new ‘Navigating wealth transfer: Challenges and opportunities of succession planning in Asia 2019’ report by Butterfield Pte. Ltd (Butterfield), a global trust and fiduciary services provider based in Singapore. The paper was independently conducted by Asian Private Banker in collaboration with Butterfield, and examines the succession planning challenges and opportunities in Asia and the role of trusts and other wealth planning solutions.
Just over 40% of HNWI relationship managers surveyed said their clients have enacted a succession plan or are actively planning for succession. When asked why, 31% of respondents noted that clients "have different priorities," while 28% said they saw "no perceived need" for succession planning.
Brian Balleine, regional head of Asia at Butterfield, said, "The findings reflect the deep complexity of succession planning in Asia. Even as we stand on the cusp of what is possibly the largest wealth transfer in history, many high net worth Asian families regularly face conflicting priorities and interests, with estate planning often deeply intertwined with company succession. Whatever the reason, Asia's first-generation HNWIs need to start setting the wheels in motion for succession planning, especially given the current volatile market environment and the often international residence of family members."
The white paper noted that evolving regulatory environment and associated risk was seen as the biggest external challenge for Asian HNWIs by their relationship managers. Geopolitical risk was another concern.
Mr Balleine added, "With ever-evolving regulatory standards and the US-China trade deal still ongoing, coupled with the recent Coronavirus Disease 2019 (COVID-19) outbreak in the region, these external risks are likely to remain major influencing factors on succession planning through 2020."
In search for the right market solution
Encouragingly, more than 80% of respondents have seen an increase in requests for succession planning from clients in Asia over the last five years, the highest level ever reported. For clients looking to start engaging in succession planning discussions, ‘age’ was the top motive, followed by ‘wealth transfer and liquidity’ and ‘business succession’. Those who began succession planning usually start early, with more than 60% of clients exploring their options before the age of 50.
However, among the current suite of succession planning solutions, clients highlighted the lack of variety as the top challenge for them when choosing the right products and services. A key limitation is the focus on the financial aspects of the planning process, without considering the personal and human impact.
Trusts have proven to be a popular solution for many relationship managers, with more than half (57%) of them having more than 50% of clients who use trusts as part of their succession plan. A trust is seen as an effective solution as it can hold a wide range of assets and offer clients the necessary flexibility to protect them. While financial assets (98%) are the most common asset class held within trusts, according to those surveyed, clients also tend to include family and operating business (66%), real estate (55%), life insurance (34%) and luxury assets (28%) in their trust structures.
"Trusts present a multi-faceted solution to many challenges high net worth families in the region face. Crucially, they allow the management of family dynamics, often across borders, and preserve value for multiple generations to create a lasting legacy. With family-run businesses continuing to be the norm rather than the exception in Asia, understanding the strengths of a trust structure could prove to be paramount for relationship managers who wish to help clients on this stewardship journey," Mr Balleine continued.
More than 50 relationship managers and wealth managers in Hong Kong and Singapore participated in the survey for the white paper, including senior representatives from private banks, external asset managers and family offices. Additional interviews were conducted with various respondents from brokerages, private banks, family offices and law firms.
Re-disseminated by The Wealth and Society