With the impending transfer of wealth in the next decade, many high-net-worth families around the world have turned their attention towards the critical issue of succession and legacy planning. The so-called “great wealth transfer” is particularly relevant to Asia, one of the world’s fastest growing regions.
“Wealthy families in the region are dealing with many of the same issues as their counterparts in the West in transferring wealth from one generation to the next, and ensuring that their needs are met across multiple stakeholders with different motivations,” says Steven Weekes, Head of Trust and Fiduciary Services for Southeast Asia at HSBC Global Private Banking. “The key question we help clients answer is: How can we ensure that the family’s wealth and legacy is preserved, to last for generations to come?”
According to recent research by Wealth-X, by the year 2030, it is expected that more than US$15 trillion of wealth will be handed down to the next generation—with much of this wealth expected to change hands within the next five years.
Transition in a family-owned business can be a challenging, multi-faceted process. Families should begin conversations about succession early, encompassing everything from handing over the business, investment goals to values and purpose, Weekes says.
He adds that external advisors may need to be involved in these discussions as independent parties to help address differences of opinions, as well as seemingly divergent concerns and preferences.
The Role of Family Offices
Clients are also increasingly establishing family offices to ensure a smooth transfer of wealth as the task of creating meaningful legacies for affluent families becomes more complex and challenging.
The family office deals with the organisation, administration, management and maintenance of the family wealth and affairs. More importantly, it provides a platform for the family to professionalise their long-term wealth management and increase family member engagement.
“Establishing a family office is a big undertaking,” Weekes says. “Ultimately, a family office is and will always be as distinctive as the families that set them up.”
Family offices also face a unique set of challenges when it comes to succession planning, as family dynamics can complicate matters. Succession planning for both the family office and the family enterprise must be planned in a holistic manner, in line with the family’s long-term objectives, to ensure effective transition.
“Often, the family enterprise may lack the governance structures to manage these complex situations,” says Philip Kunz, Head of Global Private Banking for South Asia at HSBC.
A properly structured family office and succession plan is thus crucial to overcome these obstacles and establish an orderly transfer of the management and ownership of the family enterprise.
“We always encourage our clients to start planning and preparation early. Families can embark on the journey by communicating openly, building trust, and work towards balancing the needs of the business whilst satisfying family members’ expectations,” Kunz adds.
Aligning Next Generation Priorities
Against the backdrop of these challenges to the transfer of wealth is a new and rising generation preparing to take the reins of their family legacy. Research by HSBC has shown that this unique group of individuals are increasingly driven to influence the world and exert a positive social impact compared to their parents.
“Our goal is to give these next generation of family members and entrepreneurs the support they need to plan strategically for the wealth that they will manage and the businesses they will operate or influence,” says Kunz.
Over the years, HSBC has actively engaged its next generation of clients through various initiatives—including the Next Generation Conference and Next Generation Sustainability Leadership Programme—to facilitate networking and provide a platform to discuss their challenges and ideas. “We have even brought our next gen clients to the jungles of Borneo so that they can see first-hand what impact our behavior has on nature and sustainability,” Kunz says.
Driving Sustainable Outcomes
Indeed, leveraging their wealth to achieve sustainable outcomes is a top priority for many of the next generation clients. To support these aspirations, HSBC launched the Sustainable Investment Academy, a collaborative effort with the group’s asset management, wealth management and private banking arms.
“We have handpicked the most relevant in-house and external content to facilitate effective conversations with clients about sustainable investments—supporting them as they choose to make a positive change to the world,” says Kunz. “Whereas in the past private banking clients were more focused on ethical exclusions from their investments, we are now seeing that clients are generally interested in ESG (environmental, social, and governance) from multi-asset approach, and want to include ESG criteria in their portfolio, without incurring additional risk.”
On the other hand, clients who are keen on impact investing—and intentionally seek to create a direct social or environmental impact—may be prepared to get personally involved.
Serving More Complex Needs
Technological, environmental, generational and social changes are defining the future of wealth and legacy planning. While the needs of families and individuals with significant wealth are becoming more complex, these clients also recognise that their wealth is not measured purely by its monetary value but by the positive change it can bring.
Likewise, HSBC understands that the bank’s role goes beyond simply managing their wealth, but more importantly to ensuring future sustainability and growth.
With Asia being at the center of this global wealth shift, Kunz believes that HSBC is well-positioned to provide its regional clients with holistic and comprehensive solutions that meet their increasingly global needs.
This spans across a client’s basic retail and transactional needs, to constructing a long-term investment strategy and portfolio, to considering generational planning needs, and perhaps even embarking on their philanthropic ambitions.
“It has been a privilege for us to have worked with many of our clients for over 75 years in Asia, from one generation to the next,” Kunz says. “We will continue to build these bridges, forging stronger bonds with Asia’s entrepreneurs and families in helping them achieve their long-term ambitions.”
The information contained in this article has not been reviewed in the light of your individual circumstances and is for information purposes only. It does not purport to provide legal, taxation or other advice and should not be taken as such. No client or other reader should act or refrain from acting on the basis of the content of this article without seeking specific professional advice. Issued by The Hongkong and Shanghai Banking Corporation Limited.