The great wealth transfer
With an estimated US$2 trillion in wealth to be transferred to Asia Pacific’s next generation (Next Gen) by 2030, it’s a hot topic. And as Asia’s wealth managers strive to maximise the opportunity, the region’s 15 million HNW individuals are grappling with how best to prepare the next generation. The Hubbis roundtable discussions connected a handpicked panel of experts to delve into the complex challenges and forces at play.
A broad demographic
Paul Knox, Managing Director of JP Morgan Private Banking, kicked the conversations off with the sentiment that the Next Gen is complex and hard to define. Often regarded as a young demographic, he explained that wealth managers might be dealing with individuals in their university years or those in the 30 to 45 age range – or even older.
“You have to tailor your approach to each of those very differently,” he explained. “You have to ensure the current generation has the right estate plans in place and that the generation due to inherit the wealth are equipped and ready to take on the burden and responsibilities that come with that, so it’s also about knowing their own aspirations with regards to wealth.”
He added that it is not always a foregone conclusion that the Next Gen will want to take a family business on. JP Morgan has witnessed first-hand the context for the wealth transfer become more multi-cultural and multi-jurisdictional as more Asian families choose to educate their children abroad. It’s a trend that has resulted in more young Asians settling in other countries longer term, adding an extra multi-cultural dimension into the equation as traditional Asian families meet more Western influence.
Challenge or Opportunity?
Host Michael Stanhope invited Lee Woon Shiu, Managing Director & Group Head of Wealth Planning, Family Office & Insurance Solutions for DBS Private Banking in Singapore, to comment on how he viewed the wealth transfer. In response, he described the wealth transfer as “a golden opportunity”, explaining that he and his team are always seeking to actively engage with the current generation to ensure the transition is as smooth as possible.
He described a day-to-day environment where many families believe their children should be “exposed to the subject of money” and involved in conversations about the family business or wealth as soon as possible. Supporting their clients during this process, he observed, “allows families to determine which family members have what strengths, how they can build on those strengths, which family member has the ability to provide the emotional fuel for the family to stick together and which has the propensity to spend more money.” This, he, expressed was vital in enabling the First Gen to “lay the rules for the Next Gen,” “to transition in a seamless way that is optimal for the entire family”.
China’s unique predicament
Hengka (Henry) Ji, Partner in Zhong Lun Law Firm in Beijing, explained that China has some unique characteristics given the nation’s wealth has grown rapidly in the last three decades, creating different attitudes toward family wealth management. He described older and younger generations as having very different perspectives in an environment where the older generation is still largely in power at a critical time in their wealth transition.
He expounded, “Their primary focus is to generate more wealth, though they usually do not trust third party asset management, preferring to rely on their own judgment.” The flaw in this, Hengka (Henry) Ji outlined, is that they often do not have sufficient time to plan for their family’s wealth transition adequately. This predicament has led to an observed trend in the younger generation seeking help and requesting a review of the tax implications and legalities associated with the family business. He described China’s Next Gen as having a more “realistic and holistic approach to their family’s wealth management, with a heavy focus on wealth preservation rather than wealth creation.”
Next Gen attitudes
Sustainability, philanthropy and ESG-centricity were all priorities identified by the panel of experts as important to the Next Gen, yet beyond this, how much do we really know about their attitudes? The roundtable discussions revealed that while many Asians are highly educated, conforming to the industry’s young, driven and entrepreneurially minded stereotype, this is not always the case. The wealth transfer can place a significant burden on families who fail to cultivate the right mindset.
Zac Lucas, Partner at International Private Wealth, Spencer West, referenced US research highlighting similarities between HNWIs and the long-term unemployed, including a diminished sense of self-worth and expectation and a tendency to keep interactions within a small, limited circle of similar individuals. He added, “The whole idea that they (the Next Gen) have it easy is just not the case.” He observed that a healthy engagement and family dynamic “comes from early engagement with wealth and growing up with professionals around them.”
Managing the risks
A 2020 Hubbis whitepaper indicated that 43% of Next Gens are unlikely ‘to stay with the private banks or IAMs favoured by the founder generation’, so how can wealth managers and Relationship Managers minimise the risks of attrition?
Paul Knox suggested that while digital was becoming increasingly important to younger clients, making the investment of time and resource into this area essential, the internet was also a source of growing misinformation for clients. Across the group, the discussions underlined the importance of human interactions in gaining a deeper understanding of the client and remaining relevant. Lee Woo Shiu advised that Relationship Managers must keep abreast of evolving trends and topics such as the metaverse, blockchain and cryptocurrencies. At the same time, Zac Lucas said it was particularly vital that advisors understand the different typologies of clients across Asia to manage the risks and “be more savvy about what you’re pointing into rather than being product or retail driven.”
How to maximise the opportunity
These issues and complexities demonstrate the importance of wealth managers and Relationship Managers finding ways to engage the Next Gen more effectively. Asia’s wealth management community must adapt their products, services, and means of interaction to meet the expectations of the Next Gen.
Gabriel Chan, Head of Asia Pacific for Wealth Dynamix, described it as a fantastic opportunity for firms. Describing the Next Gen as “digital natives, born on the web, seeking engagement on their own terms”, he put forward that many of the region’s banks are not yet fully equipped to engage with them. Indeed, many Asian banks are behind the transformation curve, with a heavy reliance on manual processes still evident across the client lifecycle.
It’s a context in which the optimal technology and tools will reap huge benefits, enabling the Next Gen to engage with their wealth, become more educated and access their finances on the go via self-service elements. Wealth Dynamix offers a single platform and client portal that can remove the friction from the relationship, drive cost-efficiencies and efficiency within the front office and enable firms to prioritise and anticipate more effectively through a 360-degree-view of the client.
Gabriel Chan commented, “At Wealth Dynamix, this is what we do; we provide a single platform to onboard and serve the customer. Using the data, we can plan across the lifecycle of the client. In addition, we offer a client portal to allow this mixture of prospects and clients to come on board to aid the client’s conversations with the RMs and gain an understanding of what they wish to achieve 24/7. This not only improves the customer experience but potentially can also maximise profits.”
He reinforced that whether wealth managers are servicing traditional clients or the Next Gen, wealth management is still a people business and that given the complexities represented by APAC’s Next Gen, technology can be an enabler: for better engagement, a more persistent and consistent client journey and a safer customer experience.
To listen to the full webinar on demand Maximising the Opportunities around NEXT GEN Wealth Management in Asia please click here