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Wealth transfer may pose business risk for Asia advisers
Industry must facilitate frank discussions among family members on best approach to manage inheritance
18 Mar 2021 | Mark Christal

In the next two decades, an estimated US$2 trillion of wealth is expected to move between generations in Asia. While this enormous transfer of wealth should represent an opportunity for wealth managers, they may in fact see their hard-earned assets under advice evaporate if they fail to engage enough with the beneficiaries of their current clients.

According to some estimates, 66% of children fire their parents’ financial adviser or wealth manager after they inherit their parent’s wealth. This should come as no surprise as GlobalData research reveals that 80% of advisers do not have a relationship with their current client’s beneficiaries. With no personal rapport or knowledge about the value an adviser can deliver, it’s understandable that inheritors decide to go their own way.

Wealth managers and financial advisers must therefore start taking the intergenerational wealth transfer opportunity seriously or potentially jeopardize their business.

Research by Quilter International into the thoughts and behaviours of high net worth individuals (HNWIs) in Hong Kong and Singapore shows that, on average, HNWIs have two or three active relationships with wealth managers. Yet, despite this, only 30% of HNWIs said they had received an explanation about why a wealth transfer plan matters and is important to them and their family, illustrating that the topic is not brought up enough.

Similarly, the research finds that the top five sources where HNWIs learnt about the concept of wealth transfer are: family members (43%); financial advisers (39%); relationship managers in banks (24%); friends (21%), and insurance agents (13%).

Advisers need to make sure they are front and centre of this conversation so they can not only assist with the wealth transfer plan, but also help the next generation of clients manage their wealth, thus creating a sustainable long-term business for themselves. Historically, adviser and client relationships have often been transactional in nature, but this is gradually evolving into a holistic service focusing on the needs of the clients and their family.

The baby boomer generation, typically born between the mid-1940s and the mid-60s, will be naturally starting to think carefully about how their wealth will be distributed as they near their later life. However, in some circumstances, there continues to be cultural barriers which inhibit open and honest conversations between family members about wealth transfer and advisers can play a critical role in enabling this sensitive conversation. While some advisers understandably might feel a sense of trepidation raising this personal subject with their clients, ultimately enquiring about their family shows that you care, creating a deeper and more trusting relationship, which in turn can open the door to future meetings with their family.

Research shows that just 20% of HNWIs are made aware of the financial products available to them in relation to the creation of a wealth transfer plan. This is a clear call-to-action for advisers to make sure that their client’s wealth is not only passed on efficiently but also in the intended way. It’s important to educate clients about all the various effective wealth transfer instruments or structures as the global nature of a HNWI’s wealth could lead to unintended tax implications and consequences, impacting the family and their inheritance.

While intergenerational wealth transfer presents risks for wealth managers and financial advisers, there is a huge opportunity on the horizon. If the industry helps its clients align their objectives, facilitates frank discussions with family members, and educates clients and their future beneficiaries about the best approach to wealth transfer, then it can significantly reduce the business risk it poses and instead create positive outcomes for advisers and their clients. 

Mark Christal is Hong Kong CEO and head of NE Asia region at Quilter International.

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