Why Asian families are failing to address succession and governance

Asian family offices prioritise wealth management over succession planning and governance, says the managing partner of a Hong Kong-based private multifamily office.

Speaking to CampdenFB, Jaydee Lin, chief operations officer and managing partner of Raffles Family Office, said since much of Asia’s family wealth had been created in the last few decades, the idea of a family office—an institutionalised and formalised model that is dedicated to the financial, corporate and personal needs of wealthy families—was still a foreign concept to many of those eager to establish one.

“In the last five to 10 years there have been many family offices formed in this region and slowly the concept of a family office is becoming more mainstream, but these families still don’t really understand everything a family office can do in terms of governance, next generation participation, succession and philanthropy—they haven’t reached that level,” Lin said.

“They understand the money management side of things, but in Asia, where most are only in their first and only some in their second generations, things like succession and governance are relatively new concepts.”

More than three new billionaires were minted weekly in Asia-Pacific, accounting for more than half of new billionaires worldwide, according to the latest UBS’ Billionaires Insights report released in conjunction with PwC. The region’s 814 billionaires grew their net worth by a third to $2.7 trillion.

As a result, the Raffles Family Office, founded by former private banker Chi Man Kwan two years ago—who was managing his parents’ wealth before expanding to other families—has opened offices in Singapore and Taipei. The family offices now have 35 staff, $2 billion in assets and more than 70 clients.

But even with the region’s wealth management industry primed to help, according to The Global Family Office Report 2018, only 39% of the Asian family offices surveyed said they had a succession plan in place—the lowest proportion of any region.

Far from being disinterested in preserving their legacy, Lin said Asian families instead saw navigating different regional financial laws as a more immediate priority.

“Most of our clients are from Mainland China, from Taiwan and a few from Hong Kong and South-East Asia and they belong to a group of explosive growth and they have made their fortune within the last 20 years so in terms of money-making, they do very well,” Lin said.

“However, in terms of managing the money, they need a lot of help because in mainland China, where a lot of wealth is made, there is a different legal system, different business practices and it can be hard to navigate so in order be protected and be able to pursue asset management, offshore investments and direct investments overseas, they need someone to represent them instead of going to a fund house or going to a bank because there will be a conflict of interest.

“This is where they see the value of setting up a family office and getting in external help, but it will take time for them to get more educated on the governance side.”

Lin said once families feel more confident with the money managing side of family office services, legacy planning will become more of a focus. At that point, bringing in expertise into the process will be advisable for some families, especially if the concepts are new to them.

“Succession planning is a very broad topic so for families to do it internally, they might not have the experience and expertise to navigate these waters because they’ve never had to do it before,” he said.

“At this point it is advisable if they engage someone from the outside to secure their wealth for them, to make sure they are legally protected and in terms of tax planning.

“On the other ‘softer’ side, we tell families the first key is communication—they have to communicate with each other for any legacy to be carried on or for family members to work together harmoniously.

“Sometimes families communicate well amongst each other and it works out, but for others, external professionals can represent neutrality among different family members and ensure messages are being passed around and everyone is more or less happy with arrangements.

“It really depends on the family itself whether they need an external party, but if they are unsure about anything, it is preferable to play it safe and to engage someone who can help.”