Succession planning is at the heart of wealth planning, but often little is understood about it.
Succession planning is a strategy aimed at passing on leadership roles and sometimes ownership of a company in the event a leader at a company dies, retires or moves on.
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It also involves ensuring that wealth passes on smoothly from generation to generation.
Succession planning is often also called “replacement planning”.
Mark McMullen, partner and CEO of family office Stonehage Flemming, said: “It is often repeated that families go from “clogs to clogs in three generations”, namely that wealth earned in one generation seldom lasts through to the third generation.”
Succession planning is an important tool used for long-term risk management.
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By GlobalDataSuccession planning does not necessarily guarantee the preservation of wealth through generations, but it increases the chances that the wealth will last.
Next Generation
Several private banks and wealth managers are actively involved in succession planning strategies, Private Banker International (PBI) has found.
Wealth managers are focusing on engaging future successors through hosting a number of networking events, financial education classes and investment seminars.
A lot of the programmes are aimed at the children of super wealthy ultra-high-net-worth individuals.
Why is succession planning important?
Each family has its own set of culture made up of values, visions, opinions, beliefs ideas.
Business strategies are often shaped by this unique family culture.
The future transfer of wealth often depends on the family’s business strategy.
Neil Moles, managing director at Progeny Group, commented: “UHNW individuals are expected to transfer around $4tn over the next decade. With a substantial proportion of this wealth being self-made, many will be dealing with complex succession planning matters for the first time without any established protocols in place.
The Global Wealth Report by the Credit Suisse Research Institute (CSRI) shows that total global wealth reached $280trn by the end of 2017, 27% higher than a decade ago. In 2016 and 2017, 2.3m people became new dollar millionaires, bringing the total figure to 36m. The report predicts total global wealth will reach $341trn and 44 new dollar millionaires will be created by 2022.
Succession planning in Asia
The issue of succession planning is even more prominent in Asia compared to other parts of the world.
This is because Asia, particularly China, has the highest amount of billionaires compared to any other region.
Most of the wealth in Asia is still held by the first generation, which means succession planning is important to ensure that the successors of family businesses inherit, manage and grow the wealth effectively.
A spokesperson for Credit Suisse said: “In Asia, much of the wealth and most of its significant family businesses were created in the second half of the 20th century and are therefore just beginning to experience the multi-generational issues that European or American industrial families had to contend with one or two generations ago. Over 80% of Asian family businesses are in first and second generation ownership, compared with around 50% in Europe and the US.”
David Shick, head of private banking Greater China at Julius Baer bank, said: “A key challenge is whether the second generation sees relationship managers as their own relationship managers. How do we make our millennial programmes as they go from first generation to second generation.”
So succession planning is becoming more important as wealth is growing much more than it has ever before!
