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Preparing for the great Middle East wealth transfer
Wealthy families and business owners need to act now to safeguard their legacy, reveals a compelling new report from Lombard Odier.
At Lombard Odier, we have been providing bespoke wealth planning solutions to prominent Middle Eastern families for 50 years. Our new report on succession, the second part of an exclusive four-part survey, reveals that the need to plan for an efficient transfer of wealth and business ownership has never been more urgent.
After decades of considerable wealth accumulation, many families today face the challenge of implementing a structured and transparent succession plan that future-proofs their wealth and business. But how prepared are they for ‘the great wealth transfer’?
To find out, we surveyed 300 established senior and younger high-net-worth individuals to discover their views on a range of wealth planning issues.
“By sharing our findings, we hope promote best practice in a region where efficient intergenerational succession planning is vital to the continued success of the broader economy,” said Arnaud Leclercq, Partner and Head of New Markets.
Our survey found that HNW individuals are well aware that effective succession planning is of paramount importance in a region where most businesses are family-owned, often with many heirs.
What is less certain is that wealthy families have actually implemented the succession plans that they need to meet the varied needs of their complex family structures.
What’s driving the investment decisions of high-net-worth investors in the Middle East today?
Preparation is key
Respondents understand that strong family governance establishes a framework for participation and communication, promoting transparency, stability and family unity.
Almost nine-in-ten (87%) of respondents think that their family business is structured to allow for efficient intergeneration wealth transfer, with little disparity between younger and older respondents.
However, the number of respondents that have actually planned for a smooth transition of the family estate and business are far fewer than expected. Only 24% say that they already have an estate plan in place for all their private assets, although 30% have an estate plan for some of their assets.
The difference between younger and older business owners is significant. Over half of older respondents (55%) say they have an estate plan in place, compared to just 9% of younger respondents. Conversely, more than one third of younger respondents (36%) do not have an estate plan in place but are interested in it, while a further 26% are simply not interested in it.
Given the outsized economic contribution of family-run businesses in the Middle East, strong family governance is critical for the continued economic success of the region. At Lombard Odier, we will continue to encourage younger wealthy individuals to start preparing for their family’s future as soon as possible by delivering tailored wealth planning solutions structured around their specific objectives.
Strong cultural values
In a region where family is the dominant social institution, the wealth of HNW individuals is often intertwined with their family business, its governance and the Islamic values by which it is governed.
Indeed, almost two thirds (62%) of HNW individuals describe the shared cultural and social values of their family as traditional Middle Eastern values. A smaller group (24%) describe their family’s shared cultural and social values as traditional Middle Eastern - but updated for today when it makes sense to take account of changing times.
It is therefore unsurprising that the majority (55%) of respondents have a formal and inflexible system of family governance in place, although almost half of younger respondents are amenable to a more flexible form of governance.
In addition, having a succession plan that complies with Sharia principles is important for two thirds (67%) of respondents, with a tilt towards older respondents (74% vs. 62% younger respondents). This also increases with wealth: 79% of those with more than USD 10mn in assets say that Sharia principles are important to them versus 61% of those with assets between USD 1mn – USD 3mn.
A regional focus
Lastly, the overwhelming majority (90%) intend to keep their wealth in the region for the foreseeable future. Wealthy individuals understand that the region is not immune to the effects of globalisation. Families are increasingly investing abroad and sending their children to schools overseas.
Yet, despite this apparent regional loyalty, a quarter of respondents (24%) are rethinking the geographical set-up of their family. This trend is slightly higher for older business owners (27% vs. 23% younger respondents).
For a few HNW individuals (5%), holding assets in more than one country has risen in importance over the last year. Reasons for this range from a desire to exploit growth opportunities to benefitting from political and regulatory developments:
Better opportunities and also significant improvement in regulatory conditions especially for foreign investors
UAE, Business Owner (USD 10mn - USD 20mn)
A solution tailored to your specific needs
As an independent family business, managed by several generations of entrepreneurial bankers, helping other families to organise, preserve and transmit their wealth is part of our DNA. We have served Middle East families for 50 years and offer a range of fully customisable banking and wealth planning solutions that can reflect Sharia principles as required.
We would be delighted to tell you more about how we will work with you to create a long-term solution that meets your needs and those of your family, generation after generation.
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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