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Legacy planning in the millennial age
IN most of Asia's young economies where over 85 per cent of billionaires are first-generation business owners, these individuals will soon be engaging in the first handover of wealth to their offspring.
These entrepreneurs, who have succeeded in growing their business and personal wealth, now face an added complexity of balancing the delicate relationship between the family, business and the billions of wealth that are set to change hands.
Ensuring the smooth transfer of wealth is a top-of-mind concern among many of the region's wealthy - and rightfully so. Some fail to recognise the difference in skills needed to run a business versus managing the family's shared wealth, until tensions arise among family members. Oftentimes, too, families may find it difficult to broach the topic of succession planning since they view it as a taboo conversation.
The repercussions of not getting this wealth transfer right go beyond just the family: these self-made entrepreneurs account for close to half of Singapore's high net worth individuals, and have proven to be strong economic catalysts for the country.
Establishing an effective plan, and communicating it early and comprehensively, is thus of critical importance.
To further add to the already challenging process, the founding family must also grapple with the reality that they can no longer assume the next generation will one day take over the family business.
According to an EY survey, only 4.9 per cent of the university students whose parents have a family firm intend to become a successor five years after graduation. What this means is that beyond just safeguarding the future of the business, the focus has now shifted to ensuring the success of the family, and conversations must evolve from succession to legacy planning.
A robust legacy plan should ideally consider the instilling and preservation of family values and emotional ties - the very essence that makes every family unique. Increasingly, many high net worth families are preparing their next generation for the impending wealth transfer by engaging them in marrying the family's investment strategy with their desire to give back to the society.
The idea of sustainable investing has, as a result, been gaining traction among many of the first-generation entrepreneurs, who are intrigued by and interested in the idea of driving exponential impact while also seeking financial returns through investing in sustainable businesses.
In fact, our recent study on sustainable investing in Asia revealed that investors in Singapore are the most knowledgeable about sustainable investments among those in the region who are currently engaged in it, with the majority in the Generation X age group.
Sustainable investing is also an effective way for the first-generation wealthy to engage the next generation in legacy planning; the latter being an increasingly socially-conscious group of millennials looking for ways to invest that will both bring a positive social impact as well as meet their financial aspirations. As anyone who has spent time in some of the developing Asian countries can attest, there is no shortage of projects in this region where sustainable investment funding could have a dramatic impact on the livelihoods of its citizens.
Although it sounds like a good combination of needs, means and opportunity in theory, the truth is that sustainable investing in Singapore, and the broader Asian region, is still nascent. With more than 40 per cent of Singapore's population below the age of 35, more can be done to tap the country's uniquely advantageous position to not just support the first-generation wealthy in planning for their legacy, but also move this niche investment into a mainstream strategy.
Each stakeholder in the sustainable investing ecosystem has a role to play. Willing and interested investors must do their research. Conduits, like us, need to educate the current and next generation of investors on the opportunities out there which align with their family's personal values and beliefs, such as those in the environment, healthcare and education fields.
Bridging this disconnect can go a long way to increase the momentum of sustainable investing among both the matured and millennial investors in Singapore who already understand the power of good businesses which build social outcomes into business models to deliver both financial and social returns.
More importantly, it can also be a conducive way through which first-generation business owners can involve their successors in responding to and furthering a family legacy that can withstand the test of time.
- The writer is regional head, private banking, Asean and South Asia; and global head, Global South Asia Community, Standard Chartered Private Bank