Wealth management, an industry that has upheld traditions for centuries, is undergoing rapid transformation. At the heart of today’s changes are the evolving needs of clients. These are being shaped by the enormous amount of wealth that is increasingly held by Generation X and Millennials. The younger generation is not solely concerned with financial gains: It is equally motivated to help overcome environmental and social issues such as climate action, water security and poverty reduction.
A further consideration is the growing proportion of wealth held by women, which today stands at about 30%. This is significant, as research has shown that while women typically make less aggressive investment decisions, they create an inclusive environment that promotes cohesiveness and well-being among staff and the wider community.
“In about five years’ time, one-third of Asia’s wealth will have moved from the older generation to the next,” explains Michelle Lau, Head of Private Wealth Solutions, Southeast Asia, HSBC Private Banking. “That’s about US$40 trillion of the region’s estimated US$115 trillion of wealth.”
The amount of new wealth generated by Asian entrepreneurs and business owners is also noteworthy. Currently, more than 40% of new wealth globally resides in the region, split equally between mature markets such as Singapore and Hong Kong, and emerging markets such as China and India.
“Although interest in sustainable investments is booming, viable opportunities that support environmental and social causes while delivering financial returns remain limited,” cautions Lau. “Identifying these requires specialist investment managers who understand both the rewards and risks these types of investments present.”
Against the Odds
Managing wealth in today’s era of change is greatly challenging for entrepreneurs and business owners. Not only must their businesses stay on top of a myriad of macro issues—including trade tensions, digital disruption and increased demand for greater personalisation by customers—they must also manage investment portfolios that are exposed to heightened volatility across a wide range of asset classes and markets.
For entrepreneurs and business owners seeking to pass their business to the younger generation, they too face difficulties. Typically, this is due to two reasons: Either there is no successor or there are too many, where rivalry and conflict among siblings flourish. Secondly, the younger generation is often unprepared for leadership, lacking the skills, knowledge and expertise required for the new role.
“By creating a holistic plan that outlines a business’s goals and objectives, and considers generational preferences, equal opportunities and the need to continually innovate, entrepreneurs and business owners will have built a platform that allows them to prosper for many generations to come.”
– Philip Kunz, Head Of Global Private Banking, Southeast Asia, HSBC Private Banking
“Studies find that only 30% of wealth is successfully passed to the second generation, with 12% passed to the third,” says Philip Kunz, Head of Global Private Banking, Southeast Asia, HSBC Private Banking. “Just 1% of wealth reaches the sixth generation.” This trend, attests Kunz, shows no sign of abating. Against these odds, how can entrepreneurs and business owners thrive?
Robust Planning Required
Planning can overcome most issues that entrepreneurs and business owners encounter.
“As a starting point, they must establish a shared sense of purpose and a clear vision for the future,” says Lau. “This involves the agreeing of goals and objectives, and the creation of a governance framework.”
The drafting of values is equally as decisive. Not only do they unite business owners and staff internally, they can also be a business’s unique proposition. Having a distinct set of values not only attracts top talent, research finds, it also appeals to customers and can act as a differentiator to rival businesses.
Complementing these measures, the establishment of a family office can enable greater oversight of business and personal interests. These range from investments to tax, estate management and philanthropic activities. The family office can ensure greater alignment between all activities, and shield each interest against the risks associated with internal and external changes.
The family office usually includes its own team of wealth professionals, who understand the investment preferences of entrepreneurs and business owners, and can allocate their wealth to viable, performing investments. For investors concerned about climate change, for example, these might include green bonds, which fund carbon-neutral projects while delivering healthy returns.
As the private banking hub of Southeast Asia, a US$3-trillion-dollar economy that is growing annually by more than 5%, Singapore is well positioned to assist regional entrepreneurs and business owners with their wealth needs.
“Singapore’s safety and security, pro-business environment, transparent legal framework and regional interconnectivity make the city-state the premier location within Southeast Asia from which to manage wealth,” says Kunz. “Equally, Singapore’s wide pool of highly skilled wealth management professionals rival those of any other city globally.”
Embracing Change, One Generation to the Next
The family office is commonly used to support the ambitions of the next generation.
“The family office allows the younger generation to explore new opportunities and help grow the business in novel and innovative ways,” says Lau. “Not only can the younger generation draw on the know how of other family members, it can capitalise on the wisdom of specialist advisors from a wide variety of fields.”
For second-and third-generation family business owners, this is crucial, as typically they are more risk-averse than the founding generation but need to continue innovating to keep up with market changes. Fear of failure, Lau asserts, must be replaced by the entrepreneurial spirit that drove the founding generation. Otherwise, the longevity of the business will be challenged.
“By creating a holistic plan that outlines a business’s goals and objectives, and considers generational preferences, equal opportunities and the need to continually innovate, entrepreneurs and business owners will have built a platform that allows them to prosper for many generations to come,” says Kunz. “Having served Asia’s business community since the bank’s formation in 1865, HSBC has a rich history of realising the wealth preferences of clients, and ensuring that their companies and investments thrive during times of great change.”
This article is issued by The Hongkong and Shanghai Banking Corporation Limited and its wholly owned subsidiary, HS BC Trustee (Singapore) Limited.