Next-gen challenge for the wealthy: How to raise good stewards of wealth and values

IT’S tempting to think that ultra-wealthy families have it made. Certainly, their resources afford them a lifestyle most can only dream of. Yet, there are more complex – and perhaps far more intractable – challenges too, as illustrated by two recent wealth reports.

The UBS Billionaires Ambitions Report 2023 found that inheritance has outstripped entrepreneurship for the first time as the path to wealth among new billionaires. This, the report said, is a trend that is set to accelerate.

What I found interesting was this: For more than half of billionaires (58 per cent), one of their greatest challenges was “instilling in their heirs the necessary values, education and experience to take over”.

The report projected that over the next two to three decades, more than 1,000 of today’s billionaires will transfer over US$5.2 trillion to their heirs. This makes it critical for families to instil leadership capabilities in their heirs.

A second report on Asia-Pacific (Apac) family offices was published last week by Campden Wealth and Raffles Family Office (RFO). The report was mostly about investment strategies and alternative assets, but it also had insights on succession.

The majority (58 per cent) of Apac respondents said their families’ next-generation members were “inadequately qualified” to take over control. Among a similar proportion of those polled, the matriarch or patriarch was reluctant to relinquish control.

Age isn’t the reason that the younger generation is perceived to be insufficiently qualified. In Apac, only 8 per cent felt their heirs were too young. The areas of perceived inadequacy are also unclear. Are technical skills in question, or is it something more intangible such as ambition, work ethic or character? In any case, more than a third are uncomfortable discussing sensitive matters with family leadership.

To top it off, as many as 51 per cent of Asian families did not have a succession plan, even though 47 per cent expected a generational shift to occur within the next five years.

There is of course no shortage of external help for heirs. Virtually all banks host next-generation events and boot camps to engage younger scions in topics such as entrepreneurship, impact and succession – and in the process, make banking relationships stickier.

Yet, the scions’ values are already ingrained by the time they become young adults and attend such workshops. Ultimately, the task of nurturing younger family leaders can’t be outsourced; it must start and be sustained within the family.

Family as a priority

For Tiger 21, a peer community of wealthy individuals, family issues are a “massive” priority. Tiger 21 was founded in 1999 in the US, as an avenue for wealth owners to learn from each other and improve themselves in areas such as investing acumen and legacy planning. For the first time in Asia, three Tiger 21 groups are being established in Singapore. Each member has investible assets of at least US$20 million.

Kanu Gupta, who is leading a group in Singapore, says family issues are a major concern. “There isn’t really a template for family issues. A member may say I struggle with telling my kids how much money I have. That’s a common question and we discuss this. The learning doesn’t stop.”

Parents have to do the hard work to raise principled and responsible heirs, who are good stewards of capital; this holds regardless of the level of wealth. Good stewardship by family leaders goes a long way, not just towards preserving wealth for generations, but also to cement a legacy. What exactly does it take to raise such leaders?

RFO founder Chi-man Kwan believes three elements are key. One is to impart core family values. This, he says, enhances family ties, and is “particularly important to drive long-term success which goes beyond generations and despite adversities”.

Second is to teach hard skills, such as financial literacy, and soft skills, including leadership, good communication skills and the ability to adapt and be open-minded. Third is to give young heirs the opportunities to practice such skills.

Kwan says in times of conflicts or disagreements, families need a good communicator at the helm with an open mind. “This juncture is also an opportune moment for the family to revisit their fundamental values.”

Purpose and parenting

Annie Koh, emeritus professor (practice) of finance at the Singapore Management University’s Lee Kong Chian School of Business, put forth two “P” words: purpose and parenting. Koh is also senior adviser of the Business Families Institute.

On purpose, she says: “Families need to spend time and come together to align what matters most to them. Interestingly, many next-gen members are asking their families – sometimes with outside advisers – for help to define what the family would like to be known for… They’re asking the right questions on what the guiding lights for all the wealth they’ll inherit should be.”

Parenting includes imparting the discipline of managing money. Koh cites a matriarch of a single family office whose father taught her to manage a budget when she was studying overseas. At the beginning of the year, a sum was remitted into her account. At the end of the year, she retained any excess cash, including dividends from shares owned. “When she graduated, she had built a nice nest egg because of her prudence.”

Christopher Tan, chief executive of wealth advisory firm Providend, says he often meets ultra-wealthy individuals who grapple with the challenge of teaching children the right money values. “It’s tough because most heirs grow up in an environment of great abundance, without ever needing to work.”

He suggests families make their children work or expend effort before any money is given. Parents should also lead by example, and constantly seek opportunities for children to be exposed to the realities around them, such as hardships and poverty.

Lee Woon Shiu, DBS group head of wealth planning, family office and insurance solutions, believes families should embrace an expanded definition of family capital.

“Once they see that the significant financial capital they have amassed is premised on the quality of the human and social capital… nurturing principled heirs becomes a case of instilling in the heirs the conviction that the human and social capital are equally, if not more important, than the financial capital they have accumulated.”

Shirley Chua, founder of multi-family office Golden Equator Wealth, says she has a “soft spot” for the next generation.

“We care about how young people are nurtured,” she says. “If you’re willing to listen and understand what’s needed across generations, it will drive the right kind of business ideas and focus.”

The group has an investing arm, Golden Equator Capital, which invests in entrepreneurs; the group also identifies next-generation learning as a key focus.