The family business: Planning ahead to pass down the family wealth
Despite the pandemic, the number of billionaires in the Asia-Pacific continued to grow in 2021. With family businesses playing a big part in the region’s wealth creation, Money Mind looks at how early planning is key to passing down this family wealth.
SINGAPORE: Globally, around US$15.4 trillion in family wealth is expected to be passed down from one generation to the next by 2030. Of this, about 12 per cent or US$1.9 trillion will be transferred to Asian heirs, according to research firm Wealth-X.
According to Forbes, there were a record 2,755 billionaires across 70 countries around the world in 2021. Of those, more than 40 per cent, or 1,149 billionaires, were from the Asia-Pacific region.
At the heart of the wealth creation in the region are the family businesses in Southeast Asia.
While many newly minted billionaires derive their wealth from relatively young businesses, a number of Asian founders are hitting retirement age.
Hence, the growing need for wealth transfer planning.
Professor Mandy Tham is academic director of the Master of Science in Wealth Management, at the Lee Kong Chian School of Business, Singapore Management University.
She warns of the consequences of not having a formal structure for succession and wealth transfer: “Whatever could go wrong, would go wrong. Because it's a family business, we can have the family destroying the business or the business destroying the family. We want none of this.”
One such structure that is growing in popularity is the family office. These privately held wealth management firms cater to ultra-rich families and help set up frameworks for succession and wealth transfer planning.
They allow family members to separate family wealth from the family business, thus ring-fencing some of this wealth.
As at end-2020, there were about 400 single family offices operating in Singapore.
Business families typically set up wills, trusts or holding companies as part of wealth transfer planning.
But family offices can serve specific purposes such as asset management, philanthropy, or tax advisory.
Such offices can be staffed with professionals, if the family feels comfortable outsourcing such decisions.
Others may prefer to retain more direct family control.
“A lot of the next generation do want to try their hand and directly be involved in leading or running the family office," said Mr Brian San, executive director, Wealth Management Institute.
"They want to be able to directly lead a lot of their family investment strategy, which leads into their legacy, which leads into their philanthropy,” he added.
The Kwee Family Office was set up in 2020. It is run independently from the family’s luxury real estate and hotel business.
Impact and sustainable investing are among its priorities. From the start, the family office created a framework for socially responsible investing.
“The first thing we always ask ourselves is, how does this investment fit in with our values? And if it doesn’t align then, it’s just something we will never consider under any circumstances," said Mr Kwee Ker Fong, principal, Kwee Family office.
"So for us, we have certain industries like coal, gaming, tobacco that we just absolutely will not touch.”
Although family offices have seen tremendous growth in Asia, many families still have informal structures for asset management.
Ms Eva Law, the founder and chairman of the Association of Family Offices in Asia, estimates that the family capital under asset management should be at least US$50 million, in order to justify the set-up costs of a family office.
As Asia’s demand for wealth planning grows, financial institutions are enhancing their capabilities in the region.
HSBC, for example, is investing US$3.5 billion in wealth management over the next five years. The bank also plans to hire more than 5,000 customer-facing staff.
For the first half of this year, HSBC’s wealth balances in Asia reached US$810 billion – accounting for nearly half of the global total.
To better serve sophisticated clients, the bank has rolled out mobile and digital solutions
But according to Mr Anurag Mathur, head of wealth and personal banking at HSBC Singapore, it is not just about technology.
“The human interactions, the empathy is always going to be important, particularly at the most sophisticated ends of needs. And particularly when we talk about family businesses where a lot of it is about understanding their family needs.”
As families look to manage their own assets, business networks that impart best practices could play a bigger role.
One such entity is the recently established Global-Asia Family Office Circle. It is a new network platform for bringing the family office community together.
The platform will conduct research and create practical tools to help family office professionals and advisors grow from their current stage.
In the past year, the Wealth Management Institute saw over 500 enrolments in its family office and trusts certification programmes. It expects to scale this up to 3,000 over the next three years as Singapore’s family office sector grows.
"Succession is not just about the money. It’s about a lot of other capital. For example, the intellectual capital, it’s more about the family spirit, how they manage their business," said Ms Law.