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Golden Equator's Wealth Programme Explained

Tom Burroughes

10 May 2019

Singapore-based multi-family office has launched a next-generation programme to tap into the market of ultra-high net worth Millennials. The Golden Equator NextGen Programme, as it is called, “aims to mould next-generation members of business families into future leaders through a highly customised curriculum across finance, wealth management, entrepreneurship, and leadership development”.

Although officially launched at the start of this week, the programme has been working since May 2017 with its first participant being a next-gen member of a family office managed by Golden Equator Wealth. This publication caught up with Shirley Crystal Chua, founder and group chief executive of the organisation, about what the programme is about and what it aims to achieve. 

Please give an overview of what the publication’s main conclusion is about the market.
The economic and business landscape is rapidly changing and if clients are not equipped with the resources and solutions to address their business and wealth needs, they will be at a disadvantage. 

The family office concept has been around for a long time in the Western hemisphere but specifically in Asia, the understanding of a family office and what it can do is still lacking. This results in family offices that are often formed informally, with a small team involving NextGen, but without the proper structure, network, and resources to ensure its sustainability. 

Some 17 per cent of families in Asia have a succession plan versus the global average share of 57 per cent. While the shift in focus towards succession planning and wealth preservation in Asia is encouraging, there is a gap in the knowledge on how to plan ahead and what are the key considerations, which was why we wanted this publication to help deepen the understanding of the family office concept and what it can do for business families in the region. 

How do the authors of the paper characterise the Asia-Pacific family office landscape at the present time do they see it as still very much a young market with a lot to learn, or becoming more developed, etc?
The Asia-Pacific family office landscape is still a young market, with many business families still unaware of the concept. All in all, an underserved region. However, compared to a year ago, the industry has seen tremendous improvement – and the rise of independent asset management firms in Singapore is testament to that. There is also increasing client interest from around the region.

The learning in this region will be very fast as it will adopt some of the structures and stability observed from our Western counterparts, while combining these with Asian culture and nuances. All in all, we hope to see more players and industry partners entering the market so that it creates more service offerings, traction, and learning for the families

Are most family offices attached to operating companies that throw off cash and is that situation likely to remain the same for a while? (If so, this will affect governance and asset allocation strategy, among other features)
The cases of family offices being attached to operating businesses are similar to what we earlier mentioned about the “informal” family office setup. These often arise out of the need to ensure their NextGen are somewhat involved in the family/business legacy without much focus on setting the family office up properly, hence sometimes not having the right structure, management, and talent to ensure that it is sustainable in the long run.

The governance for the business and family assets needs to be separate and independent but must also come with regular alignment to ensure coordination and synergy wherever possible including for asset allocation, risk exposure, diversification, etc. 

In Asia, how precisely is the term “family office” used – there can be lots of different business models which people call “family office” but this can make comparison and benchmarking hard or even impossible. Thoughts on this?
Indeed, the term “family office” has been loosely defined and has made benchmarking difficult. Family offices exist mostly in two forms – the single-family office or the multi-family office.
For single-family offices, it will be difficult to make a benchmark out of them simply because the nature of these institutions is very private. MFOs also range in level of profile and breadth of services but both can co-exist and can complement each other’s strengths. We have also observed that SFOs, especially the smaller ones (informal family office), are starting to realise the inefficiencies of doing everything alone, the lack of scale and access to deals, and hence have started considering migrating or expanding into the multi-family office model.

With succession planning and next-gen issues, how much variety is there in the issues that arise in Asia? In some countries, such as mainland China, the recent one-child policy causes a succession headache. In others, older family members can be reluctant to hand over business/wealth control. Can we discuss this?
There are some similarities in issues surrounding succession planning e.g., discrepancies in mindset and lifestyle between the first gen and their successors, lack of communication, etc. 

As you’ve rightly pointed out, there are policies that make the Eastern hemisphere different from the Western one in succession planning i.e., the one-child policy, but there’s no clear advantage or disadvantage here in terms of succession planning. For succession planning, there’s a general assumption that more children is better to “hedge” the risk and to delegate different roles to different ones, but there’s also the strong possibility of the same generation may not see eye-to-eye especially when it comes to decision-making. 

But the core difference lies in the cultural nuances. Asian parents tend not to want to communicate openly to their children in terms of wealth for the fear of them being entitled, and you rarely here the term “trust fund kids” in this part of the wealth. But this can be attributed to 80% of wealth in Asia is first generation. 

There is also a lack of education about how best to manage wealth transfer to ensure that it endures for generations. In many European countries such practices go back centuries, meaning there is greater understanding. Not so in Asia, in part because great wealth is not something that many UHNW families were born into, again, as majority of wealth is first generation.

We have also seen issues including: 
-- Bad decisions and influence, entitlement, dependency, lack of planning, disclosure, transparency, inability to communicate clearly (because of taboo) – which resulted in not only wealth loss but reputational loss and legacy loss;  
-- We have seen families where the NextGen caught up with what’s trending like digital assets and lost half of the wealth; 
-- Asian Families have a lot of desire to pass on wealth to their NextGen but lesser desire to prepare the Nextgen or set a vision for their family – which needs to change to ensure a legacy that lasts for generations
-- We have also seen loss of assets because of inability to keep up with times and the economic changes; 
-- First Gen or Patriarchs/Matriarchs would like to and have the ability to teach business skills but will not be as so for wealth skills; and  
-- Too many informal family offices that’s poorly managed and created with lack of purpose and sustainability 

Are family offices becoming more professional, in terms of hiring, HR, outsourcing, work with banks, other providers, issues such as cyber-crime, etc?
Definitely so, but in Asian context, most are not professionally run. Perhaps it would be more accurate to say that family offices have increasingly identified the need to professionalise and to do so with economies of scale.

Traditionally, family offices are borne out of the desire to become more professional – to consolidate the assets held in the banks, hire qualified professionals for roles that family members are otherwise not able to fill, and to ultimately sustain the family legacy through the creation of a family office. These family offices typically started as single-family offices.

What has changed is the fact that single-family offices started realising the cost inefficiencies in doing everything alone, especially the smaller ones .
In order to hire professionals, outsource certain functions (e.g. legal, tax advisory) and develop infrastructure to counter cyber-crime, address compliance considerations, etc. – all these drive up the cost of maintaining the family office. Therefore, the trend has been the streamlining of resources by being attached to a multi-family office setup.

What does the Family Office landscape in Singapore look like today and what will the trends be in the next few years? (e.g., the recent acquisition of IAM Thirdrock by Schroders). What has changed since the concept of IAM/EAM started in Singapore around a decade ago.
There will be a few things:

-- We will start to see more consolidation in the next 5-10 years and emergence of large ones that will be market leader in this space. This can happen with SFOs migrating to an MFO setup (there are a lot of informal family office and small size boutique IAMs) or more M&As. And this will not be limited to just family offices – we’ve seen private bank consolidations as well in the past few years and there will likely be more in the future as operational costs increase;  

-- More attention will be given to alternatives as well as sustainable and ESG investing – as wealth gets passed on to younger generation, and as understanding for these assets improve;  

-- Entrepreneurial families are starting to involve their NextGen in the business a lot earlier, which is an encouraging sign; and 

-- Philanthropy within the family as one of the avenues to deepen family ties – focusses the family on doing good, bonds the family and creates positivity. This also allows the families to look at life from a different perspective; and skip-gen succession planning e.g., grandparents passing over the running of the businesses to the grandchildren instead of their children, as the children have shown no interest in running the family business, but prefer to run their own business or remain as a professional. 

How do you start conversations with our clients?
So many HNW individuals do not realise that the status quo is often not optimal for their family and businesses, and that there are solutions for the frustrations that they do not openly share. 

We understand that each client is in a unique position. It also takes time to nurture trust. Clients may not be comfortable to share details of their family situation and wealth immediately, especially in the Asian context. 

We approach each client with the commitment to simplify their affairs, to make the complex uncomplicated. We begin conversations by gaining an overview of the client’s objectives and goals for things that they hold close to heart: family and business.

For clients who are unfamiliar with the family office concept, conversations then lead into an overview of the industry and the services that family offices can provide. 

Do clients understand fully what succession planning means and what errors and misconceptions arise?
A majority of clients have a generic view of how they want their succession plan to look like. The missing link is how to go about it and to define clear objectives/goals and steps to reach the objectives. This could be due to an array of reasons: lack of quality time, procrastination, finding it daunting.

The financial capital of succession planning involves structuring the business and family wealth. The human capital part of it is often skipped (links to our response in point #5 about the lack of communication) – dialogues with the NextGen to discuss their life goals and to see if these are aligned with the patriarch or matriarch’s own vision for the family. Therefore, apart from constant communication between the generations, it is extremely important to consult with a third party who can provide an independent analysis of the gaps to fill and present solutions. Family offices should guide the family in the entire journey so that there is discipline and reassurance in knowing that they are not alone.

Are there examples of succession plans and solutions that you would like to cite as good examples?
Succession plans include getting the next generation involved in the business or in managing the family’s bankable assets. We have witnessed the success of introducing the NextGen into tailored mentoring or training programmes through our very own NextGen Programme, where a member of the NextGen built a strong foundation of finance and business management skills as part of the succession planning process.

Overall, we want to focus on a few things: 
-- How to help them to be better steward and money managers for the family; 
-- How to be even more relevant and dynamic for the family business;  
-- How to create both traditional and social networking of right people to have the right access and support each other; and 
-- How to be a leader in the family to initiate activities (via philanthropy or giving or others) that can bring the family closer together. 

Are there other points you want to make about the White Paper?
More importantly, the publication is an avenue for us to address the lack of updated literature on family offices. Built on real examples and experiences from our wealth management and investment advisory team, we hope that this will provide a clearer understanding of what to expect of a family office and the merits of consolidating wealth under one.