More than two-thirds of wealth families watch their riches dwindle by the second generation spurring the demand for building family offices to prolong survival, according to DBS which recently launched a report in collaboration with EY to identify the key issues business families need to address and how to do so through single family offices.
The report titled, «The Asian Family Office Key to Intergenerational Planning», highlights several key issues families face and are likely to drive further acceleration of new family offices in Asia.
Regarding external factors, macro environment, across economic, financial and political risks, is a key driver. Also, the fourth industrial revolution has led family members to reconsider how to re-tool their own businesses, portfolios and perhaps even forge a new business path for the next generation.
On internal factors, wealth transferal is leading to more hands-off second generation owners who would rather institutionalize and professionalize the management of their wealth. Finally, families are increasingly shifting focus away from capital growth into other areas traditionally suited for more mature wealth such as philanthropy and or the pursuit of specific social causes or special interests.
What To Do?
In light of the various drivers, the report recommends families consider the four following moves: review family activities and align to wealth planning structure; accept transparency as the new norm, especially regarding Common Reporting Standard (CRS); have holistic management of data sharing; and consider the multi-generation sustainability of the structure.
In response to such a «complex, multi-faceted process», DBS established a dedicated family office unit that provides tailored advice and solutions to address their needs led by Lee Woon Shiu, regional head of wealth planning, family office and insurance solutions at DBS’ private banking arm.
According to the report, 70 percent of families lose their wealth by the second generation and the figure rises to 90 percent by the third generation.
«With great wealth comes great privilege. And with great ability comes great responsibility. However, it also presents a unique set of challenges that many may be unprepared for,» said Sim Lim, group head of consumer banking and wealth management at DBS. «One such challenge we are increasingly finding at DBS Private Bank relates to the significant inter-generational transfer of wealth which the world will see in coming years.»
