Before the outbreak reaches pandemic level early this year, Asia has been one of the most robust regions when it comes to wealth creation. From China to India to Singapore, Indonesia and beyond, the number of wealthy individuals in Asia, and the corresponding sizes of their wealth, is nothing less than astonishing. As soon as the pandemic hit, almost everything ground to a halt. Expansion plans were put on hold, internationalisation strategies were redrawn, and Asia’s wealthy families had to recalibrate their long- and short-term plans.
In a recent report entitled Banking, Entrepreneurialism, and the Next Generation of Wealth Holders 2020 by BNP Paribas Wealth Management in Asia in collaboration with Campden Research, relevant data points were gathered to understand the key drivers and motivating factors at play with the ultra-high net worth Next Generation (NextGen) in Asia. One of the most important insights that has been gleaned in this comprehensive study is that the NextGen Ultra-Rich are an emerging generation of Entrepreneurs with great clarity of purpose and direction.
In recent years, families have had to start considering whether the next generation will get involved in family businesses – and, if so, how and to what extent – and how prepared the NextGen is to lead family wealth management.
In this context, there are two broad areas that call for examination: the degree of harmony that will likely be seen between the generations as they work more closely together, and how family engagement with financial service providers will likely evolve,” the report says.
In recent years, families have had to start considering whether the next generation will get involved in family businesses – and, if so, how and to what extent – and how prepared the NextGen is to lead family wealth management.
Indeed, the theme about harmony is an important one to tackle and issues around succession planning takes a primal importance. But of particular interest also is how the NextGen will engage with banks and financial institutions as their needs, educational and professional experience are quite different from their parents’. It is foreseeable that relationship-based banking that their parents have been used to will be replaced by transaction-oriented banking. Moreover, demand for greater digital services and access to more granular reporting would be required.
Next Generation Wealth Management
In uncovering insights from ultra-high net worth NextGen, over 100 individuals were surveyed and 10 were interviewed. This remarkably diverse group of NextGen, whose average age is 38 years, has an average family net wealth standing at US$640 million.
They are highly educated and come with a considerable amount of prior work experience; majority of them are already successful business owners in their own right with diversified interests in Finance & Technology. They are native to Asia but can best be considered as global citizens of the world.
A particularly striking theme that continues to emerge in the research is that while many of the NextGen have significant experience, they still value learning from their parents and on the job. “There is a palpable admiration amongst the NextGen for their parents’ operational know-how and business achievements, and a clear desire for and awareness of the complementarity of the knowledge / skills between the generations,” the report reveals. Some of the most notable findings of the report are the following:
NextGen believe technical and operational skills hold strategic importance
NextGen have a strong entrepreneurial drive and decisions are made with direct application in mind. Among the NextGen surveyed, 48% are educated beyond Bachelor’s level and a third, in finance-related subjects. Some 48% have also obtained work experience in finance. Against this backdrop, many of them see a job in finance as a stepping-stone to launch to a stronger entrepreneurial venture. What appears to be a natural progression for them is to join the family business to work under the tutelage of the previous generation wealth creators. Given the technical skills that the NextGen possess, matched with the operational skillset that they will obtain running the family business, a potent advantage can clearly be established.
NextGen are usually involved in both the family business and wealth management
NextGen value the hardwork and expertise of their parents in running the business, hence, they are very open to learning from them. Among the respondents who were surveyed, 45% are involved in both their family business and investing their family wealth while 14% are involved only with the business. On the other hand, those that are involved only with investing stands at 31%.
A noticeable difference between sons and daughters of wealth holders is that sons are more likely to be involved with both the family business and investing the family wealth (50% versus 33%). A similar pattern has been observed for firstborn NextGen as against subsequently born (51% versus 33%) and the under 40 compared to the 40+ (52% versus 38%).
NextGen prefer evolution, not revolution
It is also particularly telling that for NextGen, the knowledge of financial markets between generations are seen as different and complementary. They don’t necessarily believe that one generation knows ‘more’ or ‘less’ compared to the other. As such, there is more harmony instead of tension between generations as the NextGen display an evident admiration for their parents’ business accomplishments. Moving forward, given NextGen’s educational and professional experience, and the relatively early stage at which families in Asia-Pacific stand in terms of wealth management, there is a palpable drive to push for greater professionalism. It is also predicted that investment focus will shift from public markets to private markets.
Of particular interest also is that the NextGen are likely to come with more technical expertise in finance and technology, a more global outlook and wider networks in the start-up community. Giving a more well-rounded view, the NextGen participants in the study also shared their views on the relative shortcomings of the older generation in financial matters, which is mainly around implementing a governance framework. This is followed by an observation that the older generation did not adequately diversify. For a third of the participants, they noted that their family would have benefited from professionalising financial management and further diversification.
NextGen see the value of digitalisation but human interaction in banking is still needed
It is clear that human interaction still holds great importance among the NextGen. Only a small fraction prefers digital over direct human interaction with bankers to the extent that they are satisfied with never physically going to a bank or meeting with a banker (5%). A vast majority of them said that while digital is preferred, some direct interaction is still wanted (72%). A smaller percentage (23%) indicated a preference for traditional, direct approaches to banking. Diving deeper into the data, it was also revealed that 9% of participants under the age of 40 were content with eliminating direct human interaction with bankers totally but none of the 40+ participants agreed with this. One NextGen interviewee shared this view: “Some things cannot be fulfilled digitally, including discussions about strategy and solutions. We will still require human interaction. Digital is more relevant to execution, trading.”
A particularly striking theme that continues to emerge in the research is that, while many of the NextGen have significant experience, they still value learning from their parents and on the job.
NextGen are interested in a range of banking services
It is easy to assume that because the NextGen’s educational background and technical expertise is more advanced, that there will be a very low interest in a range of banking services. The study revealed that this is not exactly the case as many of them indicated an interest in a range of banking services although, their opinions on which services they are willing to pay are quite varied.
About 81% of the NextGen said that they are interested in banks anticipating the need for and providing relevant forecasts. For example, some advice on foreign exchange markets that will affect the family’s business and investments. Roughly the same proportion (80%) said that they are interested in being viewed as an institutional client and being offered the associated services, including alerts and quarterly reporting. However, on both services, only 42% of those interested are willing to pay.
The biggest gap between interest and willingness to pay corresponds to the provision of more frequent granular reporting – in which 78% expressed interest, but only 25% of which expressed willingness to pay. On the other hand, 68% expressed interest in banks integrating technology into investment management – e.g., algorithmic trading – and 45% of them expressed willingness to pay.
“Some things cannot be fulfilled digitally, including discussions about strategy and solutions. We will still require human interaction. Digital is more relevant to execution, trading.”
NextGen see a shift in focus from public to private markets with banks playing a role
Looking into the horizon, it is apparent that the next generation of wealth holders is moving away from public markets. In terms of investment focus, the study highlights a growing interest amongst the NextGen in private equity and venture capital, and in direct investments, in particular.
The participants were asked about the role of banks in generating private market deal flow and, for the great majority, banks play some role (82%). This includes 52 people who said that banks play a limited role – i.e., that banks are and will remain one of many providers, but that the family still prefers third-party / sector specialist sources; 24 people who said that banks play an important role – i.e., because families find it hard to identify and structure deals themselves. Finally, it includes 6 people who said that banks play an imperative role – i.e., reflecting the bank’s fiduciary duty and the alignment of interests.
The Next Chapter
The next chapter of wealth management in Asia will be an evolution of how wealth is created in the previous generation. The next generation ultra-high net worth individuals must be meaningfully involved in ventures they are taking part in. Armed with technical knowledge of finance, expertise in family business activities, and global networks on the one hand, and an entrepreneurial drive and eagerness to pick up operational know-how, on the other, the NextGen can prove to be an invaluable asset for family businesses and family offices.
As such, it also goes without saying that banks must step up and ensure greater internal stability. The NextGen places greater emphasis on long-term relationship with the banks however, such relationships must go beyond a traditional banking social event calendar and move into a more professional aspect of banking relations. These include overall bank stability, including financial, structural, and operational stability. The NextGen want less movement of personnel within and between banks, including relationship managers and senior management, and consolidation of roles, so that clients interact with fewer bankers.
In addition, what’s clear from the study is that banks need to provide a holistic service offering technical expertise, consultation and tailored services. The NextGen want their point of contact to draw on and coordinate between different bank departments and regional offices. Ultimately, banks must greatly improve their capabilities. As one of the NextGen interviewee aptly puts it, “Banks have to take more time to understand their clients in terms of what their motivations and long-term visions are. The ones who do this will actually be supporting the business and will see more success.”
To download a full copy of Banking, Entrepreneurialism, and the Next Generation of Wealth Holders 2020 by BNP Paribas Wealth Management, pls visit https://bnpp.lk/nextgen
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