Jersey Finance’s Family Office Feature: In Conversation With Alfred Liu
Private Client Senior Associate, Alfred Liu, spoke to Jersey Finance’s UK Director, Robert Moore, to share his insights into next-generation considerations for families' succession planning as part of their latest ‘Family Office Feature: In Conversation with…’ series.
In the interview, Alfred discusses growing trends in Asia, the impact of technology on his clients, and the importance of family governance frameworks to achieve successful intergenerational business and wealth transfers.
This article was first published in Jersey Finance and can be accessed here.
You do a great deal of work in Asia. Given this jurisdictional exposure, are there any trends or conversations becoming more prominent in the region?
“Next-generation client issues are a rising consideration for families in Asia who are preparing for significant multigenerational wealth transfers in the coming years. One common issue is the need to modernise existing dynastic wealth-holding structures to cater for millennial and Generation Z attitudes and lifestyles".
“A good example is the social norm among loving and committed couples in those generations choosing to remain unmarried. Their children born outside of marriage won’t benefit from family trusts created 30 (or even 20) years ago, because they’d fall within the traditional definition of “illegitimate” children who are usually not included within the class of discretionary beneficiaries. Such trusts need updating to permit children regarded by the family as legitimate heirs to benefit while developing appropriate mechanisms to maintain safeguards against the risks of wealth dissipating outside the family”.
Technology is playing an ever-increasing role in business, how important is technology to your next-generation clients?
“Technology is hugely important to my next-generation clients. They’re digital natives so they have an innate knowledge and capability of utilising technology, not only in business but in their daily personal lives too".
"The Covid-19 pandemic has put technology into sharp focus in many ways. We’ve seen next-generation clients helping their families to develop digital strategies to avoid serious disruption and stasis to the family’s international enterprises and governance structures caused by travel restrictions – such as implementing video conferencing facilities so those essential decisions can still be made at company board meetings or family councils. Next-generation clients also expect their advisors and service providers to have adequate IT infrastructures to sustain the ongoing provision of professional services digitally and remotely. So it’s been crucial for those of us advising them to have proper and robust IT resources to meet their digital expectations and demands. No doubt this will be a continuing necessity in a post-coronavirus world”.
Achieve a shared vision through robust family governance frameworks
Looking at business transition, what in your experience is the most common issue raised by both generations (the transferor and the transferee) and is there a quick fix or solution?
“Lack of intergenerational communication is still a prevalent issue for both generations (founders and successors). Older generations struggle to discuss business succession arrangements so end up keeping their children in the dark or adopting a ‘need-to-know’ approach. In turn, younger generations feel frustrated, inadequate and disconnected – more so if they’re eager to take on a leading role in the family business or if the reality of its transition doesn’t meet their expectations and perceptions of fairness. Consequently, family feuds erupt, which seriously paralyse and devalue the businesses at the heart of their wealth. High-profile family disputes in Hong Kong show how much this is a real risk!"
“It’s a deeply complex issue, so there are no quick fixes, but various family governance frameworks and disciplines designed and nurtured over time are powerful tools in facilitating and improving communication and achieving a shared vision and harmony within the family. Examples include family constitutions, family councils and a programme of periodic family assemblies – all of which enable founders to share key information about intra-family business transfers and provide forums for the next generation to be consulted with and heard on such matters, fostering within them a positive sense of belonging to the family and self-worth”.
What friendly advice would you give to the next generation who are preparing to inherit family wealth or the family business?
“A next-generation client should see themself like a relay runner, with the family wealth or business being the baton. To me it perfectly encapsulates the vital role they play in not only being inheritors but also stewards of the family’s wealth legacy for their own children and future generations".
“I think it encourages the next generation to be proactive and get involved in the family’s succession planning. I’d say the best starting point for them is to speak with the family’s trusted advisors whether that be a family office, lawyers or private bankers. They shouldn’t be afraid of having their own advisors independent from their parents’ either. Some Asian clients are initially concerned about how this goes against the generally more collectivist nature of families in the region, but independent advisors for next-generation clients can often offer advantages and help preserve unity – especially for larger Asian families with multiple, cross-border branches containing ‘third culture kids’ (or TCKs – children that grow up outside of their parents’ culture and country of origin). We often find that TCKs require their own advisors capable of being mediators to help bridge the cultural differences between them and their parents on top of the generational ones”.
Does Jersey often feature in succession planning for your Asian clients and how important is the choice of jurisdiction in this planning?
“Jersey certainly does feature when it comes to succession planning for my Asian clients. Jurisdictional diversification is becoming a critical component in estate and succession planning for clients in Asia due to a variety of reasons; from planning for internationally mobile family members to a desire to ward off the risks of political and socio-economic instability on their private capital balance sheets".
“So, it is almost par for the course for Jersey to feature in our discussions with our clients. They are drawn to the Island’s sophisticated legal system and its reputation as a respected international finance centre and leader in the global fiduciary industry. Jersey’s flexibility and wide variety of tried and tested structuring options such as trusts, private trust companies and foundations are a boon, particularly for Muslim clients in Malaysia and Indonesia who face Shariah law and forced heirship issues. Suffice to say, the significance for Asian clients to choose jurisdictions like Jersey to accomplish their planning objectives cannot be understated”.
Alfred Liu is a Senior Associate in the Private Client team.