A report published today has shed light on a widespread lack of succession and retirement planning among high net worth individuals (HNWIs) in Asia, with less than half of those surveyed saying they had a plan for transferring their wealth to the next generation.
The study, Succession Planning 2019: Converting Challenges into Actions, was sponsored by Transamerica Life (TLB), a HNW life insurer based in Bermuda and conducted by Asian Private Banker (APB). The study was conducted between March and September 2019 and included the responses from more than 230 HNWIs and their relationship managers, with a particular focus on Hong Kong and Singapore.
This is the fourth year of collaboration between TLB and APB looking into opportunities and gaps in retirement and succession planning activities for this segment. The study examines the role that life insurance products can play in helping to meet the complex needs of these individuals and their successors in the succession planning process.
Asia and the rest of the world is seeing the largest wealth transfer in history, with an estimated value of nearly $16trn of UHNW wealth expected to transfer through generations in the next 30 years."
Asia and the rest of the world is seeing the largest wealth transfer in history, with an estimated value of nearly $16 trillion of UHNW wealth expected to transfer through generations in the next 30 years.
Though there is growing awareness and concern regarding the need for succession planning, Asian HNWIs still lag behind their western counterparts in their preparedness level with 57% admitting they have done nothing with regards to estate planning and wealth transfer, as compared to 32% in the West.
Key findings from the study include three main challenges/risks that contributed to the lack of preparation among HNWIs - procrastination, lack of communication, and complexity of the process:
- Procrastination: less than half (40%) of relationship manager clients have planned or are currently planning their succession plan. In addition, 25% of end-clients surveyed indicated that they didn't plan to begin their succession planning for another 10 years or more.
- Lack of communication: With the lack of intergenerational engagement within the family and the resistance to discuss cultural taboo subjects, only 15% of Relationship Managers (RMs) indicated that next-generation or their representatives participate in more than 60% of all related discussions, and two out of three end-clients surveyed have never discussed succession planning with their family.
- Complexity of the process: The perceived complexity of succession planning for HNWIs and RMs was a big impediment to taking action. Citing the challenges put forth by today's evolving regulatory framework across multiple jurisdictions, 63% of HNWIs felt that the implementation of their succession plan was "very difficult", and 29% of RMs deemed the process as "too complicated".
While HNWIs primarily focus on overcoming internal challenges in their succession planning, they increasingly seek alternatives that could ensure an unscathed wealth transfer to their successors in such a complicated market environment.
As complexities arise from the tightening regulations and increased transparency requirements in the region such as the Common Reporting Standards (CRS), HNWIs' interest in using life insurance as a critical wealth transfer tool has increased due to the benefits it can offer in helping to mitigate external risks such as regulatory complexity, tax-related compliance requirements, and geopolitical or market exposure as well as reducing jurisdictional and compliance issues that are associated with transferring family assets that are spread globally.
The ongoing greatest wealth transfer in East Asia will continue to provide a solid foundation for the succession planning market. Within this discrepancy between the need for versus the actual development of a succession plan, there is a real growth opportunity for financial advisers, wealth managers and life insurance providers to step up and close this gap.
Marc Lieberman, president and CEO of TLB, said: "As the HNW market in Asia continues to burgeon, many wealthy individuals are facing the prospects of preparing to transfer their wealth to the next generation.
Lieberman continued, "Through our partnership with APB, this study has helped to highlight the heightened urgency and desire that HNWIs have for effective succession management. With our singular focus on servicing the HNW sector, TLB is well placed to tap into the growth potential that exists for life insurance within the succession planning space."
"Our depth of expertise and continued drive for gaining valuable HNW consumer insights will help us to provide increasingly innovative insurance solutions as we work hand-in-hand with our distribution partners to safeguard our HNW customers' wealth legacies and preserve their hard-earned assets for generations to come."
The report defines HNWIs and UHNWIs with at least $1m and $30m in investable assets respectively, excluding primary residence, collectibles, consumables and consumer durables.