Unlocking Family Wealth
Family Office as a Building Block of Intergenerational Succession
In 2021, Deloitte will release a series of thought leadership papers to deeply explore the family office's challenges and appropriate approach in recent years, and how to effectively make the family business succession plan, with topics ranging from the role of the family office in intergenerational succession, the importance of family governance, family investment and next generation, and family business sustainability etc.
Its remarkable economic growth has prompted a swift expansion in the number of ultra-high-net-worth individuals in China as well as their demand for family wealth management and inheritance. Only if family succession is referred to can the family office not be separated from it. The "family office governance" report believes that the family office is a building block of intergenerational succession.
We have summarized a few key takeaways from the white paper for your reference and considerations. For more information, please refer to the white paper.
- Rapid Growth of Chinese Wealth
According to UBS, as of late July 2020, Asia-Pacific counts 831 billionaires (of over US$1 billion in net worth), more than any other region in the world, half of whom are from China. By country, China has the second largest group of billionaires in the world.
- Now is the perfect time to start family succession
On the post-pandemic changes in the wealth management market, William Chou, leader of Deloitte Global Family Enterprise, indicates that the pandemic outbreak is teaching family business many lessons, including crisis prevention, agility and adaptability.
It also underscores the importance of self-assessment - examination on which measures are working and are not, as well as what's missing in the discussions.
- The family structure tend to be complex
China’s one-child policy was in place for 35 years until 2016, rendering many family businesses now in face of a succession crisis. With the end of the one-child policy,
China’s wealthy families are likely to rear more children, therefore bringing about family structures that are more complex and diverse.
- Ensure the future prospects of the family
Entrepreneurs pay more attention to how to pass on wealth and family values from generation to generation and lift the curse of "rags to riches and back again in three generations ". Ms. Chen Ying, director of Deloitte Asia Pacific Family Business Consulting / family office, said that the family founder has to think about the top designs of his or her family, the optimization and dynamic management within this design, in order to realize internationalization of the family enterprise and to prosper in the changing global environment.
- The problem of the gap between generations
First generation entrepreneurs are often dissatisfied with their successors, believing them to be immature and always taking everything for granted, while successors view their elders as old-fashioned. The gap between parents and children can profoundly influence the transfer of family wealth. The research cases shown in the report show that communication is the most effective solution to reduce the family generation gap. With the help of trusted advisory, family communication will be effectively improved.
- Concerns about the "next generation"
Wealth created by the first generation is often “hard-earned money” that has been accumulated over time. The first generation are now in their 60s and have substantial wealth, but maintain a frugal lifestyle. The nouveaux riches, however, are often criticized for spending money too quickly. Therefore, it is also very important to cultivate the successor's recognition of family values and find external professionals who really understand the needs of the family and build trust to grow together.
- Taking Precautions and Ensuring Strong Risk Management
To address potential risks, family offices need to take precautions, plan in advance and establish risk prevention measures—rendering financial matters fair and transparent to minimize the risk of disputes arising that could damage family cohesion.
- Advantages of having a family offices
In terms of its role in mediating an intergenerational succession, a family office can customize solutions, foster family communication, and help pass on family connections, values and assets. It can also manage potential risks, and through trust structuring and employment and entrepreneurship consulting prevent the abuse of connections, values and assets. With their knowledge of modern business approaches, a family office can bring in suitable talent and resources to a family enterprise, and effectively allocate and utilize business and family assets, ultimately ensuring long-lasting prosperity.
We hope this sharing of family office governance could be helpful to you and your family. The next few months, we will continue to launch a series of thought leadership papers with topics ranging from family governance, family investment and next generation, and family business sustainability etc. For more information, please follow Deloitte private.