HSBC Global Private Banking has released its Global Entrepreneurial Wealth Report this week, which explores the views of entrepreneurs and those who have exited their businesses about the transfer of wealth through generations.
Globally, more than a third of entrepreneurs are considering exiting their business within the next five years, with more Asian entrepreneurs, on average, planning to stop managing their business, according to a new report by HSBC Global Private Banking
Business transfer to family members, is top of mind for entrepreneurs in Asia but many are underprepared, the HSBC Global Entrepreneurial Wealth Report finds. On the other hand, when Asian entrepreneurs exit by a share disposal, they are less likely to sell their entire stake in their business, providing the possibility of retaining their influence in it.
The report gathered data from 973 current and former HNW entrepreneurs across nine different markets: France, Hong Kong, India, mainland China, Singapore, Switzerland, the UAE, the UK and the US.
It shows that more than half of the Asian entrepreneurs want their wealth used for charitable or philanthropic causes or sustainable/impact investing. They would also prefer having their wealth used to invest in future businesses – either their own or others.
The report underscores the importance of advice around business and wealth transfer – a fact highlighted earlier this week from UBS and its annual study showing that those inheriting wealth overtook creators in terms of the sums involved. Such findings demonstrate why banks have developed teams to advise business owners on transfers, sometimes in the context of helping business owners to create family offices and other structures.
Asian families, while ahead in planning their wealth, lag behind in the discussion with their heirs, the survey reveals.
When it is time for them to exit, Asian respondents show a greater preference for transfering their business to the next generation of immediate family instead of selling the business. Sixty-one per cent of entrepreneurs in mainland China and 53 per cent in Hong Kong want to transfer their business to the next generation of their immediate family or to another family member; in France, the figure is much lower at just 36 per cent, HSBC said.
However, the study shows that the majority of these entrepreneurs in Asia, with about 70 per cent in Singapore, Hong Kong and mainland China, have not yet started the wealth transfer conversation with their families. The findings also show that 8 per cent of entrepreneurs globally have never intended to discuss their wealth transfer plans.
“Our findings indicate that many entrepreneurs are aware of the importance to prepare their wealth for succession but not as many have started to prepare their heirs," Henry Lam, regional head of wealth planning and advisory, Asia Pacific at HSBC Global Private Banking, said.
“Deciding how to deploy family wealth or who will drive the family business in the future is a time that can lead to stress, high emotions and uncertainty. In fact, almost one in two former entrepreneurs we surveyed globally say they would have consulted more with their family if given the chance to exit differently and almost half of next-generation entrepreneurs recommend that others seek more formal advice about wealth transfer based on their own experience of coming into the family business,” he added.
Exiting a business may not be easy
Across geographies, the key enabler for entrepreneurs planning to pass on their business is when the next generation is ready to take over. Of those planning to exit through a sale, the majority focus on finding a suitable buyer, the survey shows.
Entrepreneurs around the world are also equally family-oriented, the firm added, with over 70 per cent wanting to preserve their wealth for the next generation or distribute it to them. While two out of five entrepreneurs in India, Singapore and Hong Kong are more likely to invest in future businesses, echoing the report’s findings that, post-exit, many plan to continue business-related activities.
Using the proceeds for charitable causes or sustainable/ impact investing is a notably popular choice for entrepreneurs in India (70 per cent) and mainland China (58 per cent), while this is much less likely in the UK or the US (37 per cent each), the survey reveals.
Other key findings from the report show that entrepreneurs often have a global outlook, with nearly half living in more than one country or territory and three quarters trading with overseas markets. They are not just in search of business opportunities abroad: international investments and real estate are personal drivers.
More than half of entrepreneurs in Hong Kong and mainland China also look internationally for their children’s education.