Richard Cayne, CEO of Asia Wealth Group Holdings believes that, “There are many challenges in transitioning wealth from post-World War Two entrepreneurs who created wealth and who are now in their 60’s, 70s, and 80’s. These wealth creators face significant challenges in effectively transitioning their wealth and ‘letting go’ to their successors.”
Demographics and unprecedented new wealth creation are chaining what used to be a natural evolution of the family business. As entrepreneur’s nuclear family has evolved into a sprawling, multigenerational family that makes collective decisions over shared ownership concerning complex multinational assets and business.
Richard explains the dilemma. “It’s difficult for any entrepreneur from any culture to ‘let go.’ As founders and wealth creators they are innately close to their business. Subsequent generations often have different backgrounds, skills and experiences. The issue is how to facilitate and effective transition and how to match potentially divergent values and expectations because one is needed at some point. Different outcomes are possible because some family members want to run the family business whilst others have less interest. And of course, as families become more international in nature, there are complicated international tax and legal considerations.”
Transition places strain on the Asian family because of their unique characteristics. Features like filial piety, hierarchal structure, loss of status and face all contribute to ‘not letting go’ Some members may be preoccupied with what ancestors think and regard it is taboo to speak about death and tempt fate. “But, those families who can find the right formula for transition end up with a collective and cooperative framework held together by shared values, A ‘family constitution’ is a tool we often use to help find, consolidate and communicate these values. But, it should be done during the lifetime of the wealth creator and whilst they are still actively involved in the family business.”
Much wealth planning fails because it cannot keep up with changing conditions. This includes managing wealth to transcend generations. Clients should start thinking now and about long term structures because the situation doesn’t improve over time. Surprisingly, Richard observes that the age of handover, if it occurs at all is about 75 years.
Even with a profitable start-up period of transition between generations is critical so it is important to start earlier rather than later, Universal challenges to continuity such as capital retention, global competition, governance, leadership and family dynamics and dysfunction cannot resolve themselves. “If there is a desire to keep the business in the family the owner needs to protect it with or without family-led management.”
How big of a business is needed to begin with formal process? Richard describes a customized process. “It’s difficult to attribute a dollar value to the amount of net worth that requires the array of family business succession services. Each family and business situation is different. However, a business worth in the region of USD5 million is often the starting point for making this a worthwhile process.”
Succession planning start with communication. “By discovering everyone’s life and business intentions we can utilize their personal strengths in different aspects of the family business. We want to avoid a situation of splitting the business shareholding into too many groups, which can weaken a business or estate buy causing indecision and uncertainty.”
Whatever form succession planning takes, it will probably be driven by customized, practical and innovative solutions that are needed in these challenging markets. “At Asia Wealth, we are very fortunate to have highly experienced, long serving trust and succession planning specialists and private bankers who have multi-generational relationships with wealthy families.
Richard Cayne is also Managing Director of the Meyer Group of companies that is part of Asia Wealth Group Holdings Ltd a London UK listed Financial Holding group. Asia Wealth Group Holdings Ltd is listed on the ISDX stock exchange.