Asia’s richest to cling onto wealth for longer

Asia’s ultra-high-net-worth-individuals (UHNWIs) are expected to hang onto their wealth for longer, as succession planning becomes an increasingly pertinent issue among this investor demographic elsewhere in the world.

According to a new report by consultancy Wealth-X, around US$16 trillion of global UHNWI wealth is expected to be handed over to the next generation within 30 years. Of this sum, North America is the largest contributor, with $6.35 trillion, or 62% of the region’s overall UHNWI wealth, anticipated to change hands within the next three decades. By comparison, in Asia just $3.01 trillion, or 43% of total UHNWI wealth, is expected to be passed down the family in the next 30 years.

Wealth-X attributed the relatively lower rate of wealth transfer to UHNWI demographics in Asia. “In the next 20 years, Asia’s UHNWI population and wealth are expected to grow to become the largest in the world. This indicates how much younger Asia’s UHNWI population is, and consequently the region will see a wealth transfer of less than half that of North America in the next 20 years,” the report read.

Despite this, Asia is home to three of the top five countries with the highest proportion of wealth transfer during this timeframe. In Malaysia, 77% of UHNWIs are expected to transfer their wealth to the next generation over the coming 30 years, followed by Taiwan at 73%, and Japan at 68%. Wealth-X said this was due to the high proportion of UHNWIs in these countries that were in their 70s and 80s.

In terms of those countries with the lowest forecast rate of wealth transfer; China came third, at just 27%. This is despite China currently having no form of inheritance tax.

The latest Wealth-X findings come as international asset managers have increasingly bulked up on their wealth management and private banking capabilities in Asia. Nomura, BNY Mellon, and Lombard Odier are among those that have increased senior personnel or enhanced product suites in order to serve this market in the region in recent months.

“The growth in number and size of ultra-rich is significant and fastest in Asia. This has led non-traditional players, including asset management firms, to think about their wealth strategy,” Pathik Gupta, director and head of wealth management at consultant McLagan, told Asia Asset Management. He added that traditional fund managers were increasingly offering HNWI clients separately-managed accounts, with performance fee-based funds also becoming more common.

The introduction of the US Foreign Account Tax Compliance Act (FATCA) has also played a role in encouraging international wealth managers to seek more business from Asian family offices and HNWIs. “For most wealth management firms in Asia, they have decided not to be FATCA compliant because the cost is higher than the value generated. This also indicates that private banks are willing to forgo revenue, which in their opinion is very low,” Mr. Gupta added.