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Succession Planning 2019: Converting Challenges into Actions (Executive Summary Part 3)

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In Asian Private Banker’s fourth year of research partnership with Transamerica Life (Bermuda) Ltd. (TLB), APB has been following the financial protection consumption trends, and investigating the market challenges and gaps HNWIs/UHNWIs face in meeting their financial security goals.

This report focuses in particular on the factors which are preventing Asian HNWIs/UHNWIs (primarily in Hong Kong and Singapore) from taking action towards their succession planning. It also examines Asia’s life insurance market and the role that life insurance plays in supporting the financial health and succession planning of Asian HNWIs and UHNWIs, including their successors.

Download your complimentary copy of the executive summary of the Succession Planning 2019: Converting Challenges into Actions today to read exclusive findings.

The Way Forward — Converting Challenges into Actions

In spite of rising geopolitical tensions, trade disputes, and growth deceleration in the economies of important trading partners over the past year, Asia-Pacific remains the world’s fastest growing major region, contributing more than two-thirds of global growth. In fact, Asia’s economy is expected to have grown at 5% in 2019 and 5.1% in 2020.7 On top of that, due to social and demographic factors, Asia-Pacific continues to be the world leader in the growth of the HNW population and their wealth.8

While UHNWIs’ and HNWIs’ rising interest in succession planning has grown over the last few years, we have not seen an equivalent rise of activity in wealth transfer and succession planning. Within this discrepancy between the need for a succession plan versus its actual development, there is a real opportunity for financial advisers, wealth managers and life insurance providers to 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 arise when working with their clients on their long-term financial planning.

While discussions between RMs and clients on the topic of life insurance have increased compared to the previous years, there is an obvious need for further education to the end-clients on the risks/dangers of waiting to obtain a life insurance policy. While it is understandable that people tend to avoid thinking about their death or what would happen to their loved ones, not planning ahead could leave their family with serious financial strain.

Due to the nature and inherent structure of life insurance products, the older a person gets, the more expensive life insurance becomes. Another important factor affecting the eligibility for (and amount of) financial coverage offered in a life insurance policy is the general health of the policy applicant. Life insurance companies almost always require applicants to undergo a health examination and will likely request recent medical records. For most people, with age come more health complications and those factors can increase life insurance rates and affect whether or not we can obtain coverage.

By advising clients to purchase the life insurance that they will eventually need, financial advisers and RMs can help their clients to lock in more favourable terms for that coverage now. And last but not least, while clients may not perceive the need for life insurance today — because they are healthy and feel they have not reached the age that requires it — it doesn’t take away the possibility of an early and unforeseen death. Indeed, the client can rest assured that their succession plans will be carried out if something were to happen where the need for life insurance was merited.

Lack of communication
Although it may be hard to start the conversation about wealth transfer and succession plans, it is important to have an open line of communication between the successors, inheritors, and wealth managers. Disputes amongst family members over the inheritance are common and in some cases, unavoidable.

However, this does not justify avoidance of the process entirely, as communication is critical for the successful implementation and execution of succession plans. RMs can play a role in encouraging HNWIs to prioritise conversing openly with their intended successor(s) and family members about (the design of) the succession plan, so that all parties are able to address whatever concerns or issues. By doing so, RMs have an opportunity to cultivate their relationships with the heirs or next generation HNWIs which could help maintain the RMs’ involvement in the family businesses in the long run.

Succession planning is a dynamic process that will have to be revisited every few years as HNWIs go through the stages of life. Communication and trust will be pivotal in helping guide HNWIs and their heir(s) through the different aspects in the complex process of planning and implementing their legacy.

Complexity of the process
Encouraging open communications and transparency with the clients and their family members will help RMs understand what and where their clients’ priorities are, and allow them to oversee the process in a holistic manner. In order to do so, however, RMs themselves need to work on improving their understanding of the succession planning process through additional education and training.

In areas that need specialised technical expertise, 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, 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 a successful wealth transfer plan as it can provide a solid financial foundation and can serve as a versatile tool to protect business assets, family, partners and key employees against the consequences of the unexpected death of a key person. Despite the myriad benefits of life insurance and its ability to help mitigate jurisdictional, compliance, legal and tax issues, the lack of knowledge and misconceptions about life insurance point to a growth opportunity for life insurance providers and brokers. The discussion between RMs and end-clients about life insurance products is far from optimal and, despite higher penetration rates in the last few years, there is considerable room for improvement for the life insurance distribution model in private banking.

Indeed, life insurance providers and brokers need to up their game and better communicate to RMs and financial advisers the specific features of life insurance and how those can be applied to help out on key issues in succession planning, such as estate liquidity, portfolio diversification, estate equalisation, business debt and loan protection, and buy-sell agreement planning.

Moreover, the trying economic environment and rapidly changing regulatory environment present new areas of concerns and challenges for HNWIs. In light of this, a “one size fits all” approach to life insurance in doomed to fail. Complex needs and demands require more flexibility and dexterity in order to address them. As such, life insurance providers need to constantly evaluate their product offerings and become more agile as well as diversify their product suite in response to changing market demands and trends.

For business owners that are at or near retirement, the issue of succession cannot be ignored. Succession planning is vitally important for ensuring the continued success of any business, in identifying the people which will fill critical roles in the future or in times of crisis, and provide a clear process for the successful transfer of wealth to the family and next generation. The ongoing greatest wealth transfer in the Asia-Pacific region will continue to provide a solid foundation for the succession planning market. Capitalising on this potential growth requires the key stakeholders — RMs, financial advisers, life insurance providers and brokers — to change their mindset about the challenge and view it as a distinct opportunity. By taking the initiative and changing their approach to addressing this complex process in a more holistic way, these players will not only ensure the financial health and legacy of their clients today, but will also be able to nurture a longer, more productive partnership with the next generation of HNWIs.

Read Part 1 of the report, Succession Planning 2019: Converting Challenges into Actions published in January 2020.

Read Part 2 of the report, Succession Planning 2019: Converting Challenges into Actions published in January 2020.

Download your complimentary copy of the executive summary of the Succession Planning 2019: Converting Challenges into Actions executive summary today to read exclusive findings.

7 International Monetary Fund, Asia and Pacific Regional economic outlook: Caught in Prolonged Uncertainty, October 2019
8 Brent Beardsley et al. “Global Wealth 2018: Seizing the Analytics Advantage”, Boston Consulting Group, 2018: 9

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