Are You a HNWI? Don’t Neglect Succession Planning
Transamerica Life Bermuda (TLB), a leading High Net Worth life insurer, launched its latest research study, “Succession Planning 2019: Converting Challenges into Actions”, offering insights into Asian High Net Worth individuals’ (HNWIs) and Ultra High Net Worth individuals’ (UHNWIs) current approach regarding succession planning, with a focus on the factors that are preventing them from taking action.
This is the fourth year of collaboration between TLB and APB looking into opportunities and gaps in retirement and succession planning activities for this segment. The study examines the role that life insurance products can play in helping to meet the complex needs of these individuals and their successors in the succession planning process. The study is part of the company’s continuous efforts to deepen its understanding and gain additional key insights into the priorities and needs of HNW customers.
Asia and the rest of the world are seeing the largest wealth transfer in history, with an estimated value of nearly US$16 trillion of UHNW wealth expected to transfer through generations in the next 30 years. Though there are growing awareness and concern regarding the need for succession planning, Asian HNWIs still lag behind their western counterparts in their preparedness level with 57% admitting they have done nothing with regard to estate planning and wealth transfer, as compared to 32% in the West.
Key findings from the study include three main challenges/risks that contributed to the lack of preparation among HNWIs—procrastination, lack of communication, and complexity of the process:
Procrastination: less than half (40%) of Relationship Manager clients have planned or are currently planning their succession plan. In addition, 25% of end-clients surveyed indicated that they didn’t plan to begin their succession planning for another 10 years or more.
Lack of communication: With the lack of intergenerational engagement within the family and the resistance to discuss cultural taboo subjects, only 15% of Relationship Managers (RMs) indicated that next-generation or their representatives participate in more than 60% of all related discussions, and two out of three end-clients surveyed have never discussed succession planning with their family.
Complexity of the process: The perceived complexity of succession planning for HNWIs and RMs was a big impediment to taking action. Citing the challenges put forth by today’s evolving regulatory framework across multiple jurisdictions, 63% of HNWIs felt that the implementation of their succession plan was “very difficult”, and 29% of RMs deemed the process as “too complicated”.
While HNWIs primarily focus on overcoming internal challenges in their succession planning, they increasingly seek alternatives that could ensure an unscathed wealth transfer to their successors in such a complicated market environment. As complexities arise from the tightening regulations and increased transparency requirements in the region such as the Common Reporting Standards (CRS), HNWIs’ interest in using life insurance as a critical wealth transfer tool has increased due to the benefits it can offer in helping to mitigate external risks such as regulatory complexity, tax-related compliance requirements, and geopolitical or market exposure as well as reducing jurisdictional and compliance issues that are associated with transferring family assets that are spread globally.
The ongoing greatest wealth transfer in East Asia will continue to provide a solid foundation for the succession planning market. Within this discrepancy between the need for versus the actual development of a succession plan, there is a real growth opportunity for financial advisers, wealth managers and life insurance providers to step up and close this gap.