Succession Planning:Converting Challenges into Actions

| 17 Mar 2020

Asia and the rest of the world is seeing the largest wealth transfer in history, with an estimated value of nearly US$16 trillion of Ultra High Net Worth (UHNW) wealth expected to transfer through generations in the next 30 years. Succession planning in this case, is critical to ensure the long-term economic security of their families, maintain their lifestyles post-retirement, and effectively transfer their wealth to the next generation.

Transamerica Life (Bermuda) Ltd. (TLB), a leading High Net Worth (HNW) life insurer, has sponsored and partnered with Asian Private Banker (APB) on its latest HNW research study called, “Succession Planning 2019: Converting Challenges into Actions”.

Mr Mike Goodall, Chief Commercial Officer, Transamerica Life Bermuda, shares some insights on the key findings from the report in this article. 

As highlighted in the study, though there is growing awareness and concern regarding the need for succession planning, Asian HNW individuals still lag behind their western counterparts in their preparedness level for securing their financial legacy, with 57% admitting they have done nothing with regards to estate planning and wealth transfer, as compared to 32% in the West.
 

Challenges/risks to succession planning

In addition, the study found that while interest in succession planning has grown, there hasn’t been an equivalent rise of activity in wealth transfer and succession planning.

The study uncovered 3 underlying causes for the neglect on succession planning, among HNW individuals, namely:

Procrastination

Over 25% of end-clients surveyed indicated that they did not plan to even begin their succession planning in the next ten years, and/or have no clear plan on when they would start the process. It is worth noting that a quarter of end-clients in the age range of 50 to 60 still believed it was too early for them to start the planning process.

Lack of communication

As far as Asian culture goes, talking about death and wealth transfer is still considered a taboo for many. The study pointed out a surprising lack of intergenerational communication amongst HNWIs and UHNWIs within the region. In fact, two out of three end-clients surveyed had never discussed succession planning within their family and almost two-thirds of Asian HNWIs/UHNWIs business owners had even yet to name a successor. 

Complexity of the process

Jurisdictional, compliance, legal and tax challenges are some of the key issues that HNWIs and UHNWIs commonly face in asset management and transference. However, it is not only HNWIs and UHNWIs who are struggling with succession planning – many Relationship Managers (RMs) in the region also lack familiarity with this matter. A majority, 63% of HNWIs felt that the implementation of their succession plan was “very difficult”, and 29% of RMs deemed the process as “too complicated”.

 

Closing the gaps for HNWIs

With this discrepancy between the need for versus the actual development of a succession plan, there is a real opportunity for RMs, financial advisers and life insurance providers to step up and close this gap.

To do so, they must tackle the key challenges of procrastination, lack of communication and complexity of the succession planning process that arises when working with their clients on their long-term financial planning.

Procrastination

Life insurance was found to be one of the key financial tools that HNWIs turned to in their financial planning due to the myriad benefits it offers beyond its traditional protection benefits.  However, life insurance gets increasingly expensive as one gets older and clients’ general health also affects their eligibility and financial coverage.  It is important for financial advisers and RMs to advise and highlight to their clients on the need to purchase life insurance earlier rather than later in order to lock in more favourable coverage terms.

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Some clients may consider themselves to be in good health and/or have not reached the age that requires life insurance, but that doesn’t take away the possibility of an early and unforeseen death. Also, by obtaining coverage, if something were to happen where the need for life insurance was merited, the client can rest assured that their succession plans will be carried out.

Lack of communication

The conversation about wealth transfer and succession planning may be a difficult one to start but having an open line of communication among all impacted stakeholders is pivotal for the successful implementation and execution of succession plans.

RMs can play a role in encouraging HNWIs to have an open conversation with their intended successor(s) and family members so that all parties can address any concerns or issues in the process. By doing so, RMs would also be able to cultivate relationship with their clients’ heirs – allowing them to broaden their opportunities and maintain involvement in family businesses in the long run.

Complexity of the process

Other than working on improving the understanding of succession planning process through education and training, RMs should consider a collaborative advisory approach by working with other professionals such as lawyers, tax and compliance specialists, life insurance providers and brokers amongst others. This will help to provide the necessary advice on regulatory, tax or compliance issues that may arise during the succession planning process and facilitate a smooth transition to the next generation.


Opportunity for Life Insurance in Succession Planning

Life insurance can play a critical role in any successful wealth transfer plan as it can provide a solid financial foundation and serves as a versatile tool to protect business assets, family, partners and key employees from an unexpected death.

At TLB, we provide comprehensive product toolkits and hold regular tailored training sessions for our partners in order to help them to up their game, and better understand the specific features of life insurance and how it can help their HNW clients. We have also recently launched a new programme of advanced marketing initiatives, called ‘Mastering High Net Worth’. This program is created to provide our partners with specialised insights, ideas and resources to help them better serve the needs of HNW customers with a wide range of training and HNW insights support.

Read also: Uncovering Millennials' Approach to Financial Planning

By taking the initiative and changing their approach to addressing this complex process in a more holistic way, RMs, financial advisers, life insurance providers will not only ensure the financial health and legacy of their clients today, but will also be able to nurture and maintain a longer, more productive partnership with the next generation of HNWIs.

 

Mr Mike Goodall, Chief Commercial Officer, Transamerica Life Bermuda.

Mike joined Transamerica Life (Bermuda) Ltd. (Transamerica life Bermuda) as the Chief Commercial Officer in April 2017. Mike is an industry veteran with 30 years of experience in Asia and Australia in bancassurance, distribution operations and strategic business development. Prior to joining Transamerica Life Bermuda, Mike served as Head of Insurance at Citibank Australia, where he was responsible for managing Citibank's life, credit and P&C insurance business. 

 

About the study

The “Succession Planning 2019: Converting Challenges into Actions” study was conducted between March and September 2019 and included the responses from more than 230 HNWIs and RMs, with a special focus on Hong Kong and Singapore.

 

P.S: Download The Best of Asia Advisers Network - Volume II