Rethink assumptions about next-generation wealth

THE transfer of wealth to a new generation is a pivotal moment for any family. After a series of high-profile succession dramas – both in real life and on the small screen – it’s only natural to worry that inheritance may be a trigger for disruption.

We tend to assume that the heirs to a family fortune are itching to change direction, either to assert their independence or to pursue different goals. Succession dramas are never far from the headlines in Asia, and the generational divide is often exaggerated in popular culture. Just think of the selfish, squabbling siblings in HBO’s Succession, or the entitled offspring in The White Lotus.

These depictions are clearly unfamiliar to the vast majority of wealthy families. In Asia, most of our next-generation clients would make for an uninspiring movie plot: we know them as conscientious, disciplined investors with a strong understanding of their contribution to society.

But there are lessons from these stereotypes. All families would do well to think about the importance of long-term planning, their approach to wealth preservation and the need to empower the younger generation.

Much at stake

For many wealthy families, a public succession drama is the worst-case scenario – especially when it involves a business empire that has been built up over decades.

In the coming 20 to 30 years, an estimated US$100 trillion will be passed on to the next generation globally, in what has been dubbed “the great wealth transfer”.

Nowhere is this more evident than in Asia, where rapid economic development in recent decades has created more billionaires than in any other region.

As at 2022, Asia-Pacific accounted for US$71.2 trillion of a global total of US$254.6 trillion in financial assets. Fortunes in the region are increasing more quickly than elsewhere: annual growth in Asia’s affluent and mass-affluent segments is estimated at 11 per cent and 13 per cent respectively.

Asia also stands out from other key regions – notably Europe and the US – in the relative newness of its wealth, with many fortunes having been amassed in the last 20 or 30 years.

For families with sizeable fortunes at stake, it is never too early to think about succession planning.

Seeking stability

Will the next generation in China, India or South-east Asia think about wealth differently from their parents?

Younger family members are likely to have a different outlook on the world. They are more likely than their parents to have a university education, and more likely to have lived overseas. They will typically be more familiar with technology too.

But the next generation also faces a complex set of challenges. A sizeable inheritance can be both a blessing and a curse: as well as worrying about family dynamics, many heirs stand to inherit a business empire that requires careful management in a changing world.

The speed of wealth creation in Asia also creates different dynamics. Families that have accrued their wealth in a short period of time are acutely aware that their fortunes can change just as quickly.

When it comes to wealth management, our next-generation clients feel a strong sense of duty to preserve the wealth their parents have created.

While many are concerned about stepping out of their parents’ shadow and establishing their own credentials as an investor or business owner, they also recognise that smart choices deserve respect.

Furthermore, after the collapse of cryptocurrency exchange FTX and other scandals, next-gen investors may think twice about ditching tried-and-tested portfolio strategies and piling into “new-economy” investments and models.

Empower the young

Preparing Asia’s next generation for these responsibilities takes more than an overseas education or an introduction to a trusted adviser. An essential ingredient is empowerment. Younger family members want to feel that their voices are heard and their decisions valued – both in business as well as within family circles.

Bringing sons and daughters into the family business at the right time is a tried-and-tested succession planning tactic, but it is important that these young leaders are set up for success and given real responsibilities rather than a symbolic title.

Does the new role suit their skill set? Will a leadership position at the family’s philanthropic foundation provide the experience necessary to run a commercial enterprise in the future?

It’s a similar case in wealth management. To have the best chance of a successful investment journey, younger family members need to gain experience in managing capital and cultivate the ability to tell good advice from bad.

Empowering next-generation investors could mean, for instance, providing access to individual lines of credit from an established private bank, or the freedom to explore alternative investments.

Advice remains important, too. While younger generations expect a smooth digital interface and are more open to using new tools in their investments, they still expect a high degree of personal service from their wealth managers.

High-profile succession dramas will always be closely watched, wherever they play out. But with the right approach, Asia’s great wealth transfer need not be a period of great turmoil.

The writer is Asia-Pacific chief executive officer at BNP Paribas Wealth Management.