A better understanding of wealth
Helping clients understand how to grow their wealth is a key element of Credit Suisse’s Asian private banking wealth planning service.
In the Asia Pacific region, wealth is still largely controlled by first- and second-generation entrepreneurs, although there is a growing realization of the need to transition to the next generation.
It is inaccurate to speak about Asia as if it were a single region, or to generalize about regional trends. However, Bernard Fung, head of wealth planning services, private banking Asia Pacific at Credit Suisse, identifies three main themes that have become important to many of the bank’s clients.
The first of these is sustaining long-term growth in an increasing global risk environment.
“Asian businesses have a much greater international exposure,” explains Fung. “Many have aspirations to be international players. This means clients are adopting a more global perspective of risk and return for both their businesses and financial assets.”
“Transplanting the same models of governance may not work as they do not take into account values unique to families in Asia”
An end to hands-on
No longer able to control the business solely by themselves, for various reasons, founder-leaders are also seeking ways to govern how the members of the next generation will interact among themselves and also with the family businesses, in order to minimize the risk of damaging factions developing.
All this is made more challenging as families also have to consider how to attract and retain the best non-family professional management and staff.
The next key theme is the adequacy of domestic regimes for long-term succession planning. Fung explains that many domestic legal systems in Asia Pacific do not yet recognize total freedom of testation or disposal of property.
“Such systems are largely unsuitable for the succession of control and ownership of complex business wealth,” he continues. “This has contributed to the proliferation of succession structures available in jurisdictions outside of Asia. In addition, the movement towards common reporting and disclosure has meant that such structures need to be fully reported.”
The third major theme concerns evolving views of investment and wealth management. Clients may be trying to reconcile different, and sometimes conflicting, needs – looking to preserve their wealth while also seeking to grow that wealth by taking opportunistic advantage of distressed markets and asset prices.
“We also see next-generation members taking an active interest in managing and increasing the family wealth, instead of managing the family business with which they may not have an emotional connection or interest,” adds Fung.
Banks as mediators
Families that find themselves unable or unwilling to talk about wealth and succession are increasingly looking to trusted third parties to help with this process. While families that have been traditionally opaque may have achieved privacy, this is often problematic when it comes to solving issues around generational transition of business and wealth.
At the same time, many Asian family businesses do not necessarily want to be like those in the west. “Transplanting the same models of governance may not work as they do not take into account values unique to families in Asia,” explains Fung.
“Our approach is to take the time to understand what our client’s objectives and concerns are in these areas and then to work through the complexity to advise on the simplest solution.”
Credit Suisse advocates that families can start with a simple framework and fact-finding exercise. The family should try to clearly understand its ‘total wealth map’, i.e. what it has by way of operating businesses, investments and immovable assets.
This is not always a simple task, given the dynamic nature of business expansion and because the older generation may not have clearly documented ownership arrangements. “With this map in place, the family should then discuss how the picture may change in the next generation,” suggests Fung.
The family should also try to consider how succession will be dictated by factors such as bloodline, seniority, gender, willingness and capability. The results of this process are the basis on which real conversations about succession planning can take place.
“Experience tells us that these questions, if carefully considered, can be translated into action,” says Fung. “Ideally they should be discussed before a succession event is triggered.”
As the trusted advisor to its business families, Credit Suisse works with the next generation to equip them with the necessary tools. “The best approach,” concludes Fung, “is to expose the family to the right tools at the right time, rather than indiscriminately offer what is widely available since this often leads to confusion or, worse still, indifference.”
|Key questions for family leaders
As part of the process of preparing the next generation for the professional and personal impact of coming into significant wealth, family leaders need to ask themselves:
• What do I want to leave behind?
• How can we share information as the family grows?
• How do I want to conduct business?
• What does wealth mean to me?
• How can I structure my legacy?