Don't Forget The Kids: Gearing Up For Asia's Big Wealth Transfer

Shayne Nelson

Standard Chartered Private Bank

11 July 2012

Across Asia in the next few decades, billions of dollars of newly minted wealth is set to be handed down to the next generation. A wealth transfer on this scale is unprecedented – raising the question of whether wealthy Asians are equipped to handle it and, more importantly, whether private bankers are offering the right support, says Shayne Nelson, global head of high value client coverage and CEO ofStandard Chartered Private Bank.

There is no denying the size of the challenge. According to some estimates, as much as 80 per cent of Asia’s wealth is set to pass to the next generation in the next 15 years.

Yet, research suggests bankers and advisors are failing to help clients and their children through this significant life event – losing an estimated 49 per cent of assets under management during generational wealth transfer, according to the Capgemini and Merrill Lynch 2011 World Wealth Report.

Why does this happen? And how can private banks better support their Asian clients to ensure a successful wealth transfer?

First of all, banks need to recognise that Asia is different. Much of Asia’s wealth is owned by first generation entrepreneurs, making wealth transfer a potentially complex and emotionally charged issue.

Rich Asians are arguably not as experienced, nor as comfortable, as their counterparts in the West when it comes to wealth transfer. They may feel protective about their hard-earned cash and many lack confidence that the next generation will be able to successfully manage their inherited wealth.

For business owners, such concerns could be well-founded, with research suggesting that, generally, only 30 per cent of family businesses survive into the second generation and a mere 10 per cent into the third. Cultural sensitivities can also delay preparations, with many Asian families and family-controlled companies being wary of openly discussing topics like death, succession and handover.

Often, the disconnect in wealth transfer can be attributed to a generational gap in outlook and expectation – a gap which has grown wider in recent years. With increasing numbers educated in the West, next generation wealthy Asians often have very different ideas and perspectives to their parents, challenging traditional Asian ways of doing things, in both business and the family.

Private banks, when they do their job well, can bridge this gap and help clients and their children navigate through the complexities of wealth transfer.

So what should private banks do?

Firstof all, assuming that relationships are passed down automatically to the next generation would be a big mistake. Engagement must start early and involve the whole family. Hosting events or activities around common topics such as education is a great way of getting to know both clients and their children. Engaging the next generation through their interests or hobbies is another good option. The point is to get a conversation flowing. What does the client and his or her children want to achieve in their lives? What are their main concerns and issues?

Second,engagement has to be proactive and forward-looking, with the topic of wealth transfer being introduced into everyday conversations with clients. These should never just focus on the here-and-now, but on the longer term needs of the family and future generations.

Third, private banks need to consider the future needs of their clients and offer services that are comprehensive enough to cater for each significant life event, such as wills, trust, fiduciary and estate planning.

Understanding what makes future clients ‘tick’ is also crucial to keep up with evolving customer demand and stay relevant. Technology is a good example.

Because the next generation grew up with digital communication, their behaviours and expectations of banking are likely to be substantially different to those of their parents. Private banking has often been argued to be a predominantly personal business relaying on face-to-face meetings. However, as the next generation come of age and into wealth, private banks would do well to review their digital strategy, including social media and mobile, to ensure they remain in touch with their clients’ service preferences.

Philanthropy is another area in which attitudes are changing radically. Already, the interest in charitable giving appears to be on the rise as Asia’s wealth booms,something banks are beginning to reflect in the services they offer. At Standard Chartered Private Bank we are witnessing at first hand the interest in giving back to society. A programme we offer to allow 19-25 year-old children of our clients to volunteer for our charitable initiatives has become highly sought after, with Seeing is Believing – Standard Chartered Bank’s global campaign aimed at tackling avoidable blindness – attracting a particularly high number of young volunteers.

As trusted advisors, private banks can share not just products and services, but also knowledge and skills. Several private banks, including ourselves, run courses for the next generation, helping them to prepare for managing large sums of personal wealth.

At Standard Chartered, we offer a six-week Strategy Masterclass where young adults work closely with our senior teams for hands-on business strategy training.This is overwhelmingly popular with clients who are planning to pass on a business to their children.

For banks, such courses run two ways: apart from addressing an obvious need and helping clients to prepare for wealth transfer, they also offer a great opportunity to get up close and personal with the next generation to understand their specific needs, concerns and aspirations.

With billions of dollars set to be handed down, now is the time to reach out to Asia’s next generation. The big wealth transfer now underway offers a huge opportunity for private banks to deepen relationships with their clients and fulfil their social promise as engines of economic prosperity – not just growing their clients’ wealth, but preserving it for future generations. Failure to engage early and comprehensibly means missing the opportunity to help clients and their children prepare for what could be one of the most important events of their lives.