Families should manage wealth like a business

ASEAN'S meteoric economic rise over the past two decades has seen the emergence of an entire class of successful family businesses across South-east Asia.

From humble beginnings on a factory floor or shop front, these (now) mid-sized firms are the bedrocks of every South-east Asian economy employing hundreds if not thousands of people. It's estimated that 55 per cent of business in Asia are still family-owned, accounting for over a third of GDP.

But the continued and prolonged lockdowns, consumer confidence remaining low, and buying opportunities aplenty means these businesses, and the connected personal wealth, are at serious cross-roads.

Hard questions are being asked: do we go after business and wealth opportunities or do we bunker down to protect what we've built and keep our business and wealth insulated from each other?

Alongside these immediate challenges come the more structural trends including the fact that nearly US$1.9 trillion of wealth in Asia will be passed on to the next generation.

These multi-generational families are getting bigger, more sophisticated and global, with assets and family members spanning the world. They are increasingly looking for a formalised structure to preserve, manage and pass on their wealth to the next generation.

From a wealth management perspective, there are cues to be taken in managing your wealth in the same way you've managed your business.

Enter the family office

A family office is a formal in-house team that can include family members and investment professionals who manage a family's wealth. The purpose and design of each is bespoke to meet their collective ambition and can include providing a steer on investment due diligence, accounting, trust and estate planning, direct investments, venture capital investing to philanthropic giving and succession planning.

Whatever might be the collective ambition, just like how every business is driven by a mission that's underpinned by a strategy, framework to execute with agility and governance structure to manage risk, a family office takes the same principles and applies them to your wealth management.

Purpose, goals and values: Once a family can agree to this trifecta - why the firm exists, what it wants to achieve and how it will do it - can bind family members more closely together with a shared ambition that will guide their decision-making. Much like a company's mission statement.

Clearly defined roles: Just like how a company has an executive team to deliver a business plan, family firms need to appoint people from within the family and look externally to professional managers with the right expertise to lead with a high degree of accountability and transparency.

Risk appetite: Families will need to revisit and adjust this regularly according to their priorities. Those intent on wealth creation will opt for a more proactive investment agenda than families undergoing a generational transition, for instance.

Growth aspiration: As a firm grows, it gains the opportunity to diversify its interests and explore new avenues. Some businesses will stay within their industry; others will work across sectors. This is where your purpose, goals and values come into play as a "North Star". They can inform portfolio decisions: whether it's to drive up prospective returns on assets under management, or invest in the next great unicorn which can take years to realise a return.

Having the right team: Putting in place the right structure and team is central to its success and requires the most effort up front. What it can achieve is helping families manage wealth like a business - clarity of purpose with a strong management team to execute.

Is a family office right for you?

Family offices can come with many benefits.

Beyond managing investments, a professionally run and structured family office can bring investible scale to a family.

It can also support family legacy planning and philanthropy fostering a shared ambition so wealth can endure for many generations.

Family offices will play a critical role in achieving continuity from generation to generation, and in responding to changing regulatory or tax regimes.

But you need to make sure this is the right vehicle for you and your circumstances because establishing an in-house team and working with external advisers can all add up.

It is also common for different generations to clash over future business directions, investments, philanthropy, and management styles.

So careful planning and engaging the right advisers takes time and patience and, once established, needs regular review and professionalised operations to advance the family's goals.

Indeed, even mature family offices that have had the same structure and procedures in place for many years may find they need to change and adapt.

Bringing it together

Family businesses' decades of success have derived from being able to respond and meet the challenges and circumstances of the times.

The current challenges and opportunities, brought about by Covid-19, and the emerging shift in intergenerational wealth succession are no different.

So taking the same principles of managing your wealth like a business can give structure, clarity of purpose and, most importantly, sustainable prosperity.

• Philip Kunz is Head of Global Private Banking, Southeast Asia, HSBC Private Banking. Li Lian Ng is Head of Business Banking, HSBC Singapore