By Ed Charles
THE question has been exercising the minds of the wealthy forever — how to ensure the kids don’t blow the family fortune.
Private banks report that independent advice on investment strategies for the intergenerational transfer of wealth is one of the fastest growing areas of demand. This is especially so in the case of business owners considering retirement.
Goldman Sachs JBWere private wealth management managing director Paul Heath says private banking clients are usually successful people who are used to, and like to have, control over their affairs.
“They are people who have built a family business or a family portfolio of investments.
“They are interested in ensuring that control of those assets passes in an efficient and an effective way. They want to minimise the impact of tax on the transfer of their wealth and to have control over the process.”
Bank West corporate and private banking head Bob Beard says there are two sides to the intergenerational wealth story. “There is the generation that is exiting and there is the generation coming. The opportunity for them is twofold,” he says.
“First and foremost for the person who is looking to exit in some fashion they may be looking to diversify their wealth and need some financial planning. They are going to need advice from somebody.”
Then the bank may be dealing with the next generation, the children.
Beard says issues to be considered include whether to sell a business through a trade sale, a management buyout or some mechanism kept in the family.
Like most of the big private banks, Deutsche runs special programs to educate families across generations on the issues.
“In fact, we spend quite a bit of time with several families helping to educate the next generation from an investment perspective,” Deutsche Bank private wealth management head Michael Parsons says.
“This is to ensure they are better equipped to take on board the responsibilities of managing the families’ wealth.
“We present to them, sometimes on an informal basis, sometimes in a more formal presentation. We have a series of modules that we have put together to assist in this regard, and clients attach quite a bit of value to that approach.”
In November 2006, Credit Suisse introduced the Credit Suisse Family Legacy Program Sharing Perspectives into Asia. The program was jointly developed by Credit Suisse, the University of St Gallen’s executive MBA team and Professor Randel Carlock, founding director of the Wendel International Centre for Family Enterprise at INSEAD.
Credit Suisse Australian private banking head Cedric Davies says the program brings together family generations to discuss and explore issues facing families and family businesses in intergenerational transfer. Credit Suisse also runs what it calls the Next Generation Program which, since it has been introduced to the Asian region, has had some 150 family members go through it. Most of the global banks, including Credit Suisse and Merrill Lynch, have been working with families over several generations.
Merrill Lynch Global Private Clients investments first vice-president Peter Opie confirms this.
“When you have clients that have been with us for 25 years, you are actually into the third generation of the original client,” he says. “You are looking after the grandchildren of the original investors.
“You have big issues with the portfolio transformation, the way they move on between generations.”
Caption:Â Links:Peter Opie is dealing with grandchildren of original clientsPicture: Bob Finlayson
Illus:Â Photo
Column:Â Wealth
Section:Â FINANCE
Type:Â Feature