The golden age of Asian wealth creation is firmly upon us. The APAC region alone is home to 38% of the world’s billionaires, with China adding two more individuals to the list with every passing week, whilst their Indian neighbours were listed with 102 high-net-worth individuals at the end of 2020.
A considerable portion of this wealth is held firmly by first-generation entrepreneurs, with many experiencing almost overnight financial success as a result of their endeavours. As a real-time example of this rapid wealth accumulation, the decade closed with £78 billion being created off of the back of IPOs in Asia alone; a figure that saw a 27% increase since 2018.
With such financial success being garnered within an extremely quick timeframe, one of the main priorities for high net worth individuals in Asia is to see the successful and uninterrupted passing of wealth to the next generation. Over the next five to seven years, private banks are expecting to see 35% of Asian wealth to be transferred to the next generation of the family.
However, one of the primary blockades that seem to be preventing this smooth transition is the infancy of Asia’s wealth management market. In a period where considerable levels of capital have flooded the pockets of high-income earners within a relatively short – and somewhat unprecedented – timeframe, this lack of infrastructure and the inability to transfer wealth comes as little surprise.
The latest figures released by RBC Wealth Management reveal how only 31% of people in Asia have a full wealth transfer plan in place. “Families simply aren’t used to thinking about wealth transfer. The first generation has never had the experience of inheriting, so they had no inclination to do this planning before,” said Iggy Chong, Managing Director and Head of Private Wealth of RBC Wealth Management.
However, as Asia’s wealth creators begin to age with the natural passing of time, there seems to be an increasing dialogue emerging across the region around the realms of wealth succession; a previously held conversational taboo for a culture that isn’t naturally open to discussing death and the passing of a loved one. However, it is within the realisation of the importance, both financial and personal, of such conversations that could create more efficiency and transparency within Asia’s juvenile wealth management market.
According to the APAC Wealth Transfer report, 67% of individuals who have been included in conversations regarding inheritance say these discussions have boosted their understanding of wealth succession.
Increased dialogue however is just one small piece of a much wider solution to Asia’s wealth management problems. The main issue that faces many APAC families is the sheer complexity of their assets, alongside increasingly complex family dynamics. The offspring of wealthy Asian individuals are becoming ever-more global, so protecting one’s assets against the cross-border regulations present within the markets of the US and Europe has become of paramount importance.
Secondly, the acceptance of transfer strategies alongside sometimes complex and cold family dynamics could also prove problematic to inheritance success. Luckily, however, there is a range of accounts to be utilised by families and individuals to see the smooth transition through.
The Availability of Products
Individual accounts are perhaps the simplest and appear very much like a regular run-of-the-mill bank account. They cost nothing to establish, yet upon the death of the account holder, assets will likely be frozen and be subject to probate; meaning that they cannot be influenced by an outside member until the probate is completed.
The second alternative, and by far the most popular method of transfer among Asian families, is the formation of a joint holding account. When the primary account holder passes, assets are due to be transferred to an allocated account holder. The main difficulty experienced with this alternative is that if disagreements arise, which isn’t at all uncommon, the distribution of assets will experience increased turmoil.
The establishing of corporations to manage family wealth, whilst being an available option, could also prove difficult in the long term, as assets are subject to handling and corruption from outside, and often unrelated, company stakeholders and directors. A report published by UBS highlighted the 86 family offices currently present in the APAC region, each leveraging an average family wealth of $908 million.
One solution that offers suitable and workable remedies to the aforementioned problems experienced by their counterparts is the formation of family trusts. The main benefit of these is the power they grant to the parent by way of dictating the direction and use of their wealth upon passing. Family trusts are riddled with conditions and clauses that actively prevent the influence of family turmoil.
According to the APAC Wealth Transfer report, this approach of establishing terms for the next generation’s wealth is not uncommon within the Asian inheritance landscape. RBC uncovered how 64% of beneficiaries in Asia had conditions attached to their inheritance, compared to 26% of inheritors in the West.
The Increasing Importance of Wills for the Millennial Demographic
In a period when Asia is experiencing an unprecedented death rate, the use and adoption of suitable tech solutions to establish the likes of wills and life insurance is experiencing a correlated rise. For example, only 73 Chinese nationals in their 30s had registered their wills with the Chinese Will Registration Centre. This figure increased to 503 registrations by 2020, taking the total number of wills applied by the age group to 1,004. For those born during the end of the millennium, the number jumped from the 55 recorded in 2017, to the 209 recorded in 2020. The importance of understanding wealth management and inheritance has never been greater, especially amongst the millennial demographic.
And the details of what this younger demographic is including in their wills is also experiencing a shift. 97% of wills written by APAC residents in their 30’s and 40’s mention the management of real estate, whilst 13% mention company shares, and 15% detail securities and funds – a proportion far higher than any other age group. This is likely to be a direct response of a more educated, more socially aware age group.
Commenting on how institutions can increase will participation amongst a younger demographic, James Buckley-Thorp, CEO and Founder of the will, life insurance, and family planning service Bequest states “The market believes that marketing to millennials is a mystery or an impossible task. Whereas, the biggest thing to do is strip back the bureaucracy, deliver what the customer wants, delight them with an education that they can act on, inform them of their protection, and let them control it all.”
“Either it was via institutions that have had either little presence or trust amongst millennials, the terminology was complex and out of date, or the product was too ‘off-the-shelf’, rather than tailored for the end user. Not to mention the big barriers, such as having to do a medical exam and answer a load of answers to questions which frankly is more invasive than informative.”
“Millennials, like myself,” he continues, “just want a clear, easy-to-understand product, and if it’s good, we should be able to do it on our own, in our own time. We should be able to control the product without having to make an appointment or call a telephone number. So Bequest’s policy is exactly that. We’ve packed it full of awesome premium perks, included online help and support, bereavement support, a will that you can update on the go, and importantly, a life insurance policy you can control on any device, anywhere in the world, without the jargon.”