Bespoke solutions, global vision beyond traditional private banking are key to manage ultra wealth across borders

IN Asia, a paradigm shift is occurring in the way the region’s wealthiest families manage their fortunes. As the number of wealthy people in Asia hits a record high in 2023, more of these families are directing their efforts towards institutionalising the management of their family wealth.

Alongside the traditional objectives of wealth accumulation and growth, clients are becoming increasingly focused on wealth preservation and resilience to ensure the long-term security and prosperity of their families.

Longer-term succession planning and how to build a sustainable legacy is taking centre stage.

Shifting paradigm towards professionalised management

Wealth in many Asian families has historically been closely managed within the family unit, often passing from generation to generation with minimal formal structures. This approach, however, is becoming increasingly untenable.

The systems theory framework showcases three interdependent and overlapping groups that comprise the family business system: family, business and ownership.

Ever-increasing Asian wealth and the gradual increase in age of the founding generation throw this decades-long overlapping of functions into the spotlight for further examination.

Continued substantial wealth creation in Asia comes with an increasing need for wealth management strategies that are more sophisticated. Equally, geopolitical tensions, economic volatility and the complexity of global investments demand a more robust and institutional approach.

Asian families have also shown tendencies to invest into areas of familiarity and related industries, which results in heightened concentration risks in their portfolios and drives the need for a professional approach to build their investment portfolios and improve risk-adjusted returns.

Family offices, trusts and other legal arrangements are commonly deployed to provide a formal framework for wealth management. Depending on the needs of ultra-high-net-worth (UHNW) clients, they can use a subset or all these strategies to achieve their goals.

Setting up a family office has become an increasingly common theme among UHNW families, encouraged in part by supportive government policies through various forms of residency and tax incentive schemes in regional wealth hubs such as Hong Kong and Singapore.

The number of single family offices in Singapore grew to 1,400 after 300 more were established in 2023. This has coincided with a trebling in the number of family offices set up globally since 2019 to professionalise the management of family wealth collectively managing US$6 trillion in assets.

A family office structure offers several key advantages. First, it introduces professional management and governance practices that can enhance the efficiency and effectiveness of wealth management.

By leveraging the expertise of seasoned financial professionals, families can better navigate the intricacies of asset allocation, risk management and investment strategy.

Moreover, this institutional approach helps mitigate risks associated with intra-family conflicts and succession disputes. Wealth often brings with it challenges related to family dynamics, particularly as it passes from one generation to the next.

Implementing robust governance mechanisms within the family and focusing on continuous professionalisation within the family office are crucial steps in preparing for proper succession.

This involves establishing clear roles, responsibilities and performance metrics for family members and non-family executives alike.

By aligning to existing corporate governance practices in their own family businesses, families should develop unique family governance mechanisms to enhance transparency, accountability and decision-making effectiveness.

Older generations who are accustomed to more traditional methods of wealth management may resist such changes. Building trust with external advisers and adapting to new governance structures requires a cultural shift within the family.

Preserving the family legacy while embracing innovation necessitates balancing tradition and change.

While honouring the values, traditions and heritage that have defined the family for generations, the family must also be willing to adapt to new realities and explore fresh opportunities while involving the family’s next-generation members.

This requires a willingness for the earlier generation to challenge conventional wisdom, take calculated risks and embrace a spirit of experimentation.

If done right, succession planning can be a celebration of the entrepreneurial spirit and hard work of the leading generation – which becomes the springboard from which the succeeding generations can reach greater heights.

Institutionalisation of private wealth in Asia to accelerate

The trend towards the institutionalisation of private wealth in Asia is likely to accelerate. The advantages of professional portfolio management with robust governance mechanisms to reduce family conflict are compelling.

As more families benefit from this approach, others will likely be encouraged to follow suit.

Institutionalisation of private wealth is emerging as a pivotal element in succession plans. It represents a modern solution to the age-old challenge of preserving wealth across generations, providing a structured professional framework that addresses both the financial and family complexities of managing substantial fortunes.

As Asia continues to evolve economically and socially, this trend will play a crucial role in shaping the region’s financial landscape and the legacies of its most affluent families.

A contribution piece by Mary Chan, Head of Wealth Planning and Advisory, South-east Asia and Ng Aik-Ping, Head of Family Office Advisory for Asia-Pacific. A version of this piece was first published in The Business Times on 21 August 2024.