PRIVATE BANKING CAN ASSIST ORDERLY WEALTH TRANSFER & SUCCESSION

KUALA LUMPUR, Nov 6 (Bernama) -- The issue of passing on the wealth from one
generation to the next is becoming more urgent as more entrepreneurs who ushered
in Malaysia’s "era of prosperity" reach their twilight years, thus facing the
tough challenge of decision-making in transferring power and wealth to the next
generation.

Into this picture, steps in the private banker who specialises in dealing with
the wealthy -- preserving and enhancing their millions or billions, including
the use of a myriad of tools to help implement succession plans for an orderly
transfer of familiy wealth.

Private banking is a term for banking, investment and other financial services
provided by banks to private individuals investing sizeable assets. It is much
more than traditional banking services like deposits and loans. It is about
providing personalised one-to-one service that is preferred after one has
attained a certain level of wealth.

Head of CIMB Private Banking, Carolyn Leng, says that there are serious issues
that private businesses must resolve if the “era of prosperity” is to last and
that is the issue of succession.

In discussing about wealth management in Malaysia, she says that that most
private businesses in the country are ”founder-centric” and with passage of time
handing over the reins to the next generation can be fraught with difficulty.

Leng attributes this to the fact that the founders have been running the
business single-handedly and the successors are not privy to many of the earlier
business decisions as they had been run in patriarchal fashion.

Founders are also reticent to talk about succession and when the time comes for
them to bow out, they try to be fair to their children by giving them equal
share of the business. This poses several problems. The business now being
fragmented, with different entities in different hands, is not likely to enjoy
the synergistic benefits that it once did.

While many businesses have taken the necessary precautions of avoiding wealth
erosion by listing their entities, there are many private businesses that will
have to deal with the issue of enhancing wealth.

The Chinese have a saying ”fu bu guo san dai” -- wealth never survives three
generations -- and therefore private banking may the solution for many in
dealing with the endemic problems threatening the survival of private
businesses.

Leng says that private bankers can act as prudent outside arbitrators to trigger
sensitive discussions on succession and this can be followed by the choice of
suitable siblings to run the business.

While it is natural for families to choose the eldest son to take the business
into the next generation, talents and interest might dictate otherwise.
Increasingly families are getting more sophisticated in thinking as to how
family members can get involved in the business in different ways.

Leng says private banking would be a boon for private businesses as the
"one-stop financial house" approach provides a spectrum of wealth management
services that deals with problem of wealth creation, enhancement, protection and
distribution.

For the survival of family business, she believes that creating a family holding
structure with a succession plan is the key.

"When family run-business continues to grow and there are many family members
who are shareholders of the business, there just will be too many hands that can
spoil the broth.

"They are bound to be different expectations of the family members,
relatives who are silent partners and will only be concerned with their own
interests, and certain relatives who might not share the same sentiment of the
business and wish to cash out," she adds.

As such, using trust as a family holding structure ensures that business and
wealth is intact and is passed own to the next generation in an orderly manner
aside from protecting against family members that may lack the acumen to succeed
the founder, Leng says.

"It is imperative that successful succession planning can take years to form and
founders need to set in place plan and parameters that they have chosen to groom
the successor and also monitor the performance of the successor.

"When a suitable leader is chosen, openness and communication between the
founder, the successor and family members is important and this includes
understanding their needs and weighing the family needs against that of the
business that they represent."

Asians are still reticent about allowing professionals to run their
business unlike their European counterparts but it can be a solution to keep the
family members away from day to day operations as their participation can lead to
disputes.

There are numerous examples of how businesses using trust as family holding
structure as survived well beyond three generations. The Rockefeller family is a
well known example of the survival of family wealth going beyond three
generations. The complicated chain of business if not for the visions and plans
that are put in place by the founders would have dissipated as the family grows
into multiple branches of the founding fathers.

The structure has preserved the family wealth over the last 140 years or six
generations, governed by powerful trust committee of decision makers who
oversees the wealth of the Rockefeller family.

"Asian businesses can emulate the likes of the Rockefeller family, putting in
place professionals to run the business as offered in private banking. This in
turn can dispel the myth that wealth will only last three generations,” says
Leng.
-- BERNAMA