An Evolving Stage Era of Wealth Management
As the global landscape of wealth management continues to evolve, family offices and financial professionals have steadily focused on engaging the next generation of investors. Family dynamics play a crucial role in ensuring that wealth is successfully transferred and preserved across generations. With an estimated USD 5.8 trillion set to be passed down to younger generations across the Asia-Pacific (APAC) region between 2023 and 2030,1 understanding their distinct investment preferences and priorities is essential for family offices and high-net-worth families alike.
A Historic Wealth Transfer Set to Reshape the APAC Region
In the APAC region, the intergenerational wealth transfer is expected to be a significant and transformative event. According to estimates, APAC will experience a transfer of approximately USD 5.8 trillion between 2023 and 2030, primarily driven by ultra-high-net-worth (UHNW) and high-net-worth (HNW) families. Notably, UHNW families will account for around 60% of this total wealth transfer, emphasising the scale and concentration of wealth within the region.1
The APAC region also holds around 42% of global wealth, making it a critical area for wealth management and family offices. The transfer of wealth in this region is considered one of the largest in history, as Baby Boomers pass on their assets to Gen X, Millennials, and Gen Z heirs.2,3
This demographic shift is prompting a re-evaluation of investment strategies, governance frameworks, and advisory services to cater to the needs and expectations of younger generations, who often have different priorities compared to their parents.
Shifting Investment Preferences: A Generational Divide
A significant trend that has emerged in recent years is the shifting investment preferences between generations. Traditionally, older generations have gravitated towards more conservative, liquid asset classes such as bonds and cash. However, younger generations—comprising Millennials and Gen Z—are demonstrating an appetite for higher-risk, higher-return asset classes such as private equity and venture capital. This preference shift is underpinned by a desire for long-term growth and a greater tolerance for risk.
For example, a recent UBS report revealed that 77% of younger investors are more likely to prioritise alternative investments compared to just 38% of their parents' generation.4 Similarly, the rise of family offices in Asia has mirrored this trend, with more families allocating wealth to equities and private markets, driven by strong regional economic growth and burgeoning tech sectors.
The Role of Family Dynamics in Wealth Preservation
Family dynamics are a key determinant of how wealth is managed, transferred, and preserved. A well-structured family office must go beyond investment management to offer a comprehensive approach that addresses both financial and non-financial factors. This includes estate planning, philanthropy, governance frameworks, and the drawing out of family values. Building an environment of transparency and open communication is critical, as it helps align the values and expectations of both the older and younger generations.
As highlighted in Aura Group’s Family Office Strategy, a holistic approach can ensure a family’s wealth serves not just as a financial asset but as a tool for nurturing future generations. This strategy involves the use of robust governance structures, education programs, and clearly defined roles for family members, thereby fostering a shared vision for the family’s legacy.
Educating and Empowering the Next Generation
One of the primary responsibilities of a family office is to prepare the next generation to become prudent stewards of their family’s wealth. This requires a multifaceted approach encompassing education, mentorship, and opportunities for practical involvement in investment decisions. Many family offices are now incorporating training programs to build financial literacy and instil a strong investment philosophy among younger family members.
Programs such as philanthropy-based initiatives or junior investment committees allow younger members to gain hands-on experience, developing their skills in asset management, risk assessment, and the evaluation of new opportunities. This engagement fosters not only a deeper understanding of investment strategies but also a sense of responsibility and commitment to the family’s long-term goals.
The Influence of ESG and Impact Investing
A notable characteristic of younger investors is their inclination towards sustainable and impact-driven investments. The Millennial generation, in particular, has shown a preference for Environmental, Social, and Governance (ESG) criteria when making investment decisions. A recent study by Morgan Stanley found that 95% of Millennials are interested in sustainable investing, and they are twice as likely as older generations to exit investments that do not align with their values.5
This shift is prompting family offices to rethink their strategies, as they aim to balance traditional wealth preservation goals with the growing demand for purpose-driven investments. Integrating ESG criteria into the family office’s portfolio and even possibly philanthropy choices not only meet the values of the next generation but also positions the family for long-term, sustainable growth.
Strategies for Effective Intergenerational Engagement
To successfully navigate these evolving dynamics, family offices must adopt strategies that prioritise the engagement of the next generation. Some key approaches include:
- Establishing a Clear Governance Framework: Implementing governance structures that outline decision-making processes, roles, and responsibilities helps prevent conflict and fosters unity.
- Creating a Family Charter: A family charter that outlines the family’s mission, values, and goals can serve as a guiding document for future generations.
- Utilising Education and Mentorship: Offering educational workshops and mentorship programs can equip younger members with the skills needed to manage the family’s wealth effectively.
- Encouraging Participation: Involving the next generation in family council meetings, philanthropic activities, and investment decisions encourages a sense of ownership and commitment.
Conclusion: Embracing Change for Long-Term Success
Engaging the next generation is not just about wealth preservation—it’s about legacy building. As the investment landscape changes and younger generations take on more active roles, family offices must adapt to new preferences and values. By recognising the importance of family dynamics, implementing robust governance structures, and fostering a culture of shared learning and responsibility, families can ensure that their wealth is not only preserved but also grown and enriched for generations to come.
Sources:
- Asia–Pacific’s family office boom: Opportunity knocks, McKinsey & Company, 9 September 2024
- APAC’s great intergenerational wealth transfer, SS&C Advent
- The great wealth transfer in Asia Pacific, Deutsch Bank, 23 September 2022
- UBS Global Family Office Report, UBS, 2022
- Morgan Stanley Sustainable Signals Report, Morgan Stanley, Fourth Edition
