The Wealth Report looks at succession planning and why passing wealth to the next generation is a major concern for wealthy individuals
The results of The Wealth Report Attitudes Survey consistently show that passing wealth to the next generation is a major concern for wealthy individuals. Fear that their children will fritter away their inheritance away, the worry that passing it on too soon will dampen their offspring’s entrepreneurial spirit, or simply concerns about how to treat siblings fairly all weigh on their minds.
To test the overall impact of these worries, we decided to ask the respondents in this year’s Attitudes Survey how many of their clients have a robust succession plan in place. Globally, the response was just 53%, with a high of 65% in North America and a low of 40% in Kenya.
This highlights the scale of the issue and helps to explain why private banks and wealth advisers are putting so much effort into helping their clients with succession planning.The Wealth Report asked three of them from various parts of the world to explain just why figuring out how to pass it on is so challenging.
Head of Products & Solutions, Sanctum Wealth Management
The past two decades have seen a dramatic increase in wealth for family-run businesses. According to a report from Credit Suisse, the top 36 Indian families own more than a quarter of India’s GDP. But the last decade in particular has also seen significant upheaval in domestic family structures.
Traditional family set-ups – with multiple generations living and working together, under the watchful eye of the patriarch – are being replaced by nuclear families, with the often Ivy League-educated younger generation keen to carve out their own paths.
This has only served to increase complexity in both the personal and professional lives of many HNWIs, who now find themselves having to consider – among other things – how to integrate professionals into the boards of family-run businesses, find roles for family members and manage inter-generational inheritance.
While being part of a successful family business offers huge advantages, managing change is never easy. An iconic founder may refuse to entertain new ways of doing business, while heirs may shudder at the prospect of succeeding incredibly successful parents.
While studies continue to highlight succession planning across Indian corporates as a low priority, there is no lack of examples of what can happen when it goes wrong – proof, if it were needed, that the whole process should be better planned and implemented.
Managing Director, Citi Private Bank
Succession transition is a high stakes game for family businesses and their owners. Getting it wrong ¬– by choosing the wrong successor, mistiming the handover, being under-prepared, or failing to get stakeholders’ buy-in to the succession plan – could mean severe repercussions, to the detriment of both the continued success of the business and family harmony. Furthermore, family businesses today are also facing competitive challenges as a result of rapid globalisation and new technologies that are disrupting the world of business. Set against this backdrop, a poorly executed transition is potentially a recipe for disaster. An increasing number of advisers have the expertise to help family business leaders develop governance frameworks to enable better decision-making, drive the family’s role in society and, of course, ease succession issues. However, we do see an initial reluctance by some families, particularly from certain cultures, to take external advice, mainly because such issues are seen as very personal.
Managing Director, RBC Wealth Management
Today’s wealthy families have unique needs and varying priorities, making succession planning a highly complex area of concern. What we do know is that succession planning is important for every family because of the desire to preserve wealth for future generations and to leave a lasting legacy.
With such a sensitive and important issue, there is no “one size fits all” solution. Some families want to preserve their dynasty, for example, while others want to ensure their philanthropic endeavours endure.It is said that many family fortunes fail to last for more than three generations.
Our research into wealth transfer found that many wealthy families are unprepared to pass their legacy and knowledge to the next generation. Just 26% have a full wealth transfer plan in place and the findings highlighted that the next generation is not being educated early enough about the management of wealth.
Given the complexity, UHNWIs would benefit from identifying clear objectives for the future and drawing up a well-defined succession plan. In a world where regulation is constantly evolving, it is essential that global families are aware of the key issues and start planning as early as possible with advisers who can help to make the process as smooth as possible.
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