Asia’s Great Inheritance: A Lucrative Opportunity for Wealth Managers?

Asia is witnessing an extraordinary journey of wealth transition. Referred to as the “Great Inheritance”, we are in the early stages of the largest intergenerational wealth transfer in history as wealthy baby boomers pass on their wealth to the next and younger generations over the coming decade. ?By 2030, wealthy donors will pass a staggering US$18 trillion global wealth (equivalent to the annual GDP of China) to their inheritors; US$2.5 trillion of which will change hands across Asia [1].?

This Great Inheritance is creating a tidal wave in the wealth management industry.?

The Great Inheritance has begun in Asia

In recent decades, Asia has experienced rapid economic growth and development, leading to the creation of substantial wealth in the region.? While the ultra-high-net-worth (UHNW) [2] population is expected to increase across all world regions, Asia is forecasted to see the strongest growth in the coming years. By 2027, Asia’s share of global UHNW individuals is expected to reach 29%, compared with just 15% in 2004 [3].? India and China are expected to witness the fastest growth of UHNW individuals, thanks to ongoing economic reforms and market liberalization that have stimulated robust economic expansion and wealth accumulation.? As the first-generation business founders age, wealth preservation and succession planning become increasingly important.? Balancing the preservation of family wealth with the aspirations and needs of future generations poses significant complexities for the Asian wealthy families.? Wealth managers can play a crucial role in guiding families through the complexities and providing expert advice to facilitate the smooth transfer of wealth across multi-generations. ?The potential intergenerational wealth transfer leads to significant growth in assets under management (AUM) and an unprecedented volume of assets in motion.? Wealth managers must act swiftly to formulate the right strategy and operating model that caters to the distinctive needs and aspirations of Asian families. Failing to do so, they risk suffering a major outflow of assets.?

The 2024 EY Global Wealth Management Industry Report examines the “great inheritance” and its transformative impact on the global wealth management industry.? Our research highlights an urgent need for the UHNW families to strategize their legacy plans as 42% remain unprepared and do not have a comprehensive succession plan in place [4]. The report also identifies 10 global industry challenges facing wealth managers.? It proposes 20 key concepts for wealth managers to address the challenges, differentiate themselves from competitors, and achieve long-term success between now and 2030.

Understanding the unique characteristics of the Asia intergenerational wealth transfer market

Asia is a region characterized by diverse cultural norms, values and practices that influence how wealth is perceived, managed and transferred within families and generations. ?Understanding the unique characteristics of Asian cultures is an important first step for wealth managers navigating the intergenerational wealth transfer market.?

Cultural significance and family values

Intergenerational wealth transfer in Asia is deeply influenced by cultural values, particularly the importance of family and filial duty.? It emphasizes the importance of caring for parents in their old age and honouring their legacy.? Asian families often prioritize intergenerational wealth transfer as a means to fulfilling their filial duty, with a focus on maintaining family harmony and cohesion, preserving wealth, and providing financial security to ensure the well-beings of future generations.? Thus, intergenerational wealth transfer in Asia often involves collective decision-making where family members, especially the elders, have a significance influence in the wealth transfer process.? Asian families also have a long-term outlook when it comes to wealth management.? Building a lasting legacy often takes precedence over short-term gains.?

Family Businesses and the importance of succession planning

Asia has a long history of family-owned businesses and succession planning (the effective transfer of control and ownership) plays a vital role in intergenerational wealth transfer.? Asian families often take a meticulous approach to succession planning to ensure a smooth transition and maintain family harmony.? This process involves identifying capable successors, providing them with training and mentorship and establishing clear family governance structures to facilitate the transfer of power and decision-making authority.? ?

Multi-generational education

Asian families place great importance on educating the younger generation in financial literacy, business management and family values.? Having the right education equips the successors with the necessary knowledge, skills and values to effectively manage and preserve the intergenerational wealth.? Education also cultivates a sense of social responsibility and empowers the younger generation to align their wealth management practices with the values and long-term goals of their families.?? ?

Roadmap to success

Challenges and opportunities facing wealth managers

Despite the growth in AUM and increased assets in motion, around 57% of Asian investors plan to add a new wealth provider or switch completely to a new provider, with millennials more than twice as likely to move assets than the baby boomers [5].? The donors, who are older investors, generally have reduced client activity and have a lower propensity to change long-established relationship.?

The good news is that while both donors and the next generation of wealth holders, often referred to as “Next Gen”, require financial advisory and planning service, many are currently underserved by wealth managers [6]. Seventy percent of families in Asia are unprepared for the intergenerational wealth transfer and only 57% claimed that they have a formal succession plan in place [7].? To bridge this gap, wealth managers need to develop a tailored strategy and have the right products/services aimed specifically at the evolving needs, preferences, and challenges of both the donors and Next Gen.? Some of these approaches and methods are highlighted below. For more insights, check out recent EY article on “How to navigate the US$18t wealth management challenge“ [8].

Client-centric wealth advice and the importance of long-term relationship building

Asia’s intergenerational wealth transfer involves diverse perspectives across different generations.? It is important to adopt a multi-generational approach by considering the needs, values and aspirations of not only the immediate inheritors, but also the future generations. ?Establishing long-term relationship and cultivating trust are of utmost importance in the Asian context.? Wealth managers must invest time and resources to understand the unique dynamics of each family and keep the client conversations family-centered.? Wealth managers must also engage with the inheritors early and maintain ongoing dialogues to understand their evolving needs and values.? With this understanding and trust, wealth managers would be able to develop tailored and holistic wealth management solutions that address the specific preferences and requirements of both the donors and the inheritors, ultimately ensuring a smooth and harmonious transfer of wealth and increasing the likelihood of managing assets for families across multiple generations.?

Multi-generational education

There may be varying levels of financial literacy and awareness of wealth management concepts among family members, particularly the younger generation. ?Wealth managers can offer financial literacy programs and investment education tailored to the needs of both the donors and Next Gen.? By fostering a sense of shared responsibility and empowering the younger generation at an early age, wealth managers can contribute to the long-term success of the multi-generational wealth transfer process.? ?

Harnessing AI for wealth management

Next Gen are generally more tech-savvy and use technology/digital platforms to manage their investments [9].? Wealth managers who can provide innovation digital solutions, such as robo-advisors, mobile apps and AI-powered portfolio management tools, will be better equipped to meet the unique needs of this and future generation of inheritors.? By embracing innovative technologies, wealth managers not only enhance client experiences but also demonstrate a commitment to stay ahead in the rapidly evolving digital landscape. Despite the rising receptivity toward virtual solutions, in-person contact remains important for the Nex Gen.? Wealth managers should enhance multi-channel models, using innovative digital collaboration tools to combine in-person advice with virtual interactions and self-service capabilities.?

Sustainable investing

Next Gen tend to be more environmental and social conscious.?? They are increasingly interested in investing in companies that prioritize environment, social and governance (ESG) factors.? Wealth managers who demonstrate a deep understanding of sustainable investing and offer tailored investment solutions that align with these values will be well-positioned to attract and retain these younger generation investors.?

Conclusion

The intergenerational wealth market in Asia presents an abundance of opportunities for wealth managers. ?Success in this market requires cultural sensitivity, a deep understanding of the region’s dynamics, expertise in succession planning, and a flexible and client-centered approach.? As the region’s wealth continues to growth, wealth managers who have the right business and operating model will be well-positioned to stand out from the competition and act as trusted advisors to both the donors and inheritors in preserving and growing intergenerational wealth.?

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The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.

[1] EY Research & Preservation and Succession: Family Wealth Transfer 2021

[2] UHNW is defined as individual with at least US$30 million of investable assets.?

[3] Altrata’s World Ultra Wealth Report 2023

[4] UBS Family Office Report 2023

[5] EY Global Wealth Research Report 2023

[6] EY Insights

[7] DBS Private Bank Research

[8] The report can be accessed at: How to navigate the US$18t wealth management challenge | EY - Global

[9] EY 2023 Global Wealth Management Report