The Importance of Planning in Wealth Succession - The View From Asia
Business and wealth transfer and succession issues are a big deal in Asia and this article provides specific lessons and strategies for it.
The passing of time for what is still a rapidly-expanding economic region means that Asia’s high net worth individuals increasingly have to wrestle with next-generation wealth and business transfer. A high percentage of business is family-owned (a reason why the region is rich soil for family offices, by the way.) This article, by Fan Choi, head of North Asian Wealth Planning at Union Bancaire Privée, examines the terrain. (Fan Choi is based in Hong Kong.)
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Wealth, and its movement inter-generationally is possibly the most controversial topic that a family needs to address. Old bonds and relationships are exhumed, lines of loyalty may be re-examined or shattered. The reasons for conflict may be as innocent as differing visions for the family’s legacy, or as selfish as a family member seeking to assert control for personal gain.
Wealth succession doesn’t have to be contentious and hostile, though. At the core of any succession process are underlying family dynamics. These are, for better or worse, irrevocably linked to the succession process. Family history has a tendency to rear its head when financial circumstances shift – and this is a story as old as time.
While we like to believe that wealth succession will go smoothly because of existing relationships, these don’t always ensure an efficient transfer, and in fact can be an obstacle.
A holistic perspective on family wealth is needed – a common understanding by family members that the dynamics which bind the family together are its strongest asset; both an ancestral conduit and a guiding star for the future. Unfortunately, this perspective is seldom adopted.
Wealth succession can be plagued with problems from the start. The starting point is usually a lack of planning. Family heads (or wealth givers) are hesitant to plan, and often put off wealth succession because of one or several factors: they may be in relatively good health, and still feel as though they can ‘do the job’; they may think that the next generation is too inexperienced to assume the mantle of responsibility; they are still busy expanding the business and accumulating wealth; or they assume that the family should already know intuitively how to share and pass the wealth on, framing the necessity of planning as frivolous or unpleasant.
Of course, it’s easy to speak about these things in the abstract. In reality, there have been a number of high-profile cases demonstrating the necessity of succession planning. Perhaps the most notable would be that of the brothers Mukesh and Anil Ambani.
Mukesh and Anil, in 2001, faced the sudden and unexpected death of their father, the Indian business magnate Dhirubhai Ambani. With no will or wealth succession plan in place, Mukesh, the elder, was made CEO of Reliance Industries, while Anil was made vice chairman.
The two quarrelled bitterly over the future of the company. At the time, one allegation stated that Mukesh attempted to oust Anil entirely. It was only with the intervention of their mother, who brokered a de-merger in 2005, that the matter of succession was settled.
Since then, their fortunes have diverged – dramatically. Mukesh’s stands at $40 billion, making him one of Asia’s richest men alongside the likes of Pony Ma and Jack Ma; Anil’s has dwindled to $1.5 billion, down from $10.8 billion in 2014. Both brothers have shot public accusations of varying severity at one another in the years since.
The feud continues – and yet it was probably avoidable.
Had the family, in the years preceding, sat down with their father and developed a cohesive succession plan, things might have gone differently. The brothers could have parted ways amicably or moved forward together. They would have had the framework necessary to forge ahead with their own decisions rather than fight over the empire their father left behind.
There are a few things to remember when planning for responsible succession:
1) Have a vision and purpose
The wealth giver should have a clear view of who they want to pass wealth on to, when and how this should be done, and in what proportions.
2) Start the conversation early
Open discussions should be conducted with mutual respect. Family members all need to be aligned on what the family stands for and how its heritage and values should be passed on.
3) Build a track record
Inheriting wealth should never be taken for granted. The next generation will need to build acumen and demonstrate that the family assets will be in safe hands – both now and into the future.
4) Be flexible and accommodate change
Consider an evolving wealth transition blueprint that is documented at each stage. Revisit the succession plan based on present circumstances and keep an eye on potential fresh ways of generating growth of the family’s wealth.
5) Build a network for the future
The next generation shouldn’t have to do it alone. It is important to have a network of trusted advisors that understand the intricacies of both hereditary wealth and the source of that wealth – whether that be in industry expertise, wealth management, governance, or philanthropy, etc.
These are crucial elements to remember in wealth succession but are only general points. Most important is for the family to have a bespoke and comprehensive plan that reflects the family’s shared vision and is clearly mapped out so that future generations are not left in the dark.