Oct 16, 2018 03:00 PM

Euromoney and CreditEase Wealth Management to Jointly Launch the First Report on Family Succession in the Chinese Market

In China, wealth succession is a theme that is becoming increasingly urgent and important, yet there has been little mature experience to draw on. Recently, Euromoney, an authoritative monthly magazine covering the world’s financial and economic sectors with 100 years of experience in family succession, has worked together with CreditEase Wealth Management, China’s leading wealth management institution, to explore the future development of wealth succession, and provide more inspirational and useful perspectives and practices for high-net-worth clients in China.

A strong combination of two top international institutions

By combining Western experience with Eastern local practices, Euromoney will work with CreditEase Wealth Management to publish Landscape Across Centuries: Family Succession Guideline — International Experience and Chinese Practices of Wealth Planning (hereinafter called “the report”), the first book on wealth management and family succession in the Chinese market. Placing equal stress on theories and cases, the report is designed to explore the most suitable wealth succession plans for high-net-worth individuals in China and provide comprehensive solutions for their inheritance needs.

Established in May 1969, Euromoney has enjoyed a high reputation in international capital markets for over four decades. Known for its in-depth reports and rigorous independent research, it is a must-read for analysts of international investment banks and has 150,000 readers in 120 countries. Its annual awards for excellence and best bank awards for global finance are among the most authoritative finance awards in the world. In the early 1980s, Euromoney took the lead in entering China and witnessed the rise of China’s wealthy generation after the reform and opening-up.

Euromoney has 100 years of experience in family succession. Euromoney Institutional Investor PLC — its parent company — was founded in 1969 by Daily Mail & General Trust PLC, a family trust established by the Daily Mail family. The trust has been in operation for 96 years since its inception in 1922. It operates in more than 40 countries around the world through numerous subsidiaries and is currently operated by Jonathan Harmsworth, patriarch of the family’s fourth generation. The history of the Daily Mail family dates back 122 years, when the Daily Mail was created in 1896. The family was founded by Alfred Harmsworth, also known as Lord Northcliffe. The honor of the family has been maintained to the present day, and the family members are still British nobility.

Through in-depth research and multidimensional analysis, the report places equal stress on both theories and practical cases

For more than nine months, the report conducted field interviews of Western families and Eastern high-net-worth individuals across Europe, the United States, Africa and Asia. Through in-depth research on a number of factors, such as the cultural environments, institutional environments, legal/tax systems and macro environments, the report explores the similarities and differences between the concepts and ways of inheritance of high-net-worth individuals in China and the West. By comparing domestic and foreign family trusts and studying the legal basis of Chinese family trusts, it points out that domestic family trusts have established an ideal foundation for development. In addition, the report also demonstrates a number of cases of domestic and cross-border family trusts designed for different needs, and further explains the functions of family trusts.

Looking at the development of global private wealth, the report finds that both the number of high-net-worth people in the world and their total wealth are growing. It is expected that by 2022, the high-net-worth population will rise to 44 million. By 2025, the total value of global wealth is expected to exceed $100 trillion. The growth of China’s high-net-worth population and its total wealth is among the highest in the world; the high-net-worth population in China has reached 2 million; and its total wealth has reached $9.8 trillion. By 2022, the number of such individuals is expected to grow by 41% to 2.7 million.

Through comparative analysis of the geographical distribution, occupational distribution and family backgrounds of high-net-worth individuals around the world, the report points out that business owners are still the main components of high-net-worth individuals. Whether it is in China, the United States or Europe, about 50% or more of entrepreneurs and business operators are high-net-worth individuals. Among the high-net-worth individuals in China, 51% are business operators. China is currently at the stage at which the first generation of wealth creators are passing on their wealth to the next generation. The issue of wealth inheritance is particularly important and urgent. In the United States and Europe, however, most of the high-net-worth individuals have experienced the three stages of wealth creation, wealth protection and wealth inheritance. In these markets, professional wealth management and inheritance institutions have played an important role. A good plan on family wealth inheritance can enable future generations to enjoy more opportunities to succeed.

In the West, from Italy’s century-old Fiat family to the U.S.’ Hearst family of American media giant Hearst Communications, and to the ordinary middle class, there are inheritance arrangements based on the development needs of the families. They are more willing to choose professional institutions to plan and realize the inheritance of family wealth. Family trusts and family foundations are widely adopted forms of inheritance. The report believes that it is necessary for wealthy Chinese families to learn from the successful experience of the West, and plans for wealth inheritance should be made sooner rather than later.

The experience of mature markets tells us that family inheritance is a long-term plan, and the wealth under family trusts should be managed in a steady manner. Harvard Business School scholar Randy Cohen and CreditEase Wealth Management invented the three golden principles of asset allocation: cross-regional and cross-country allocation; cross-asset and cross-category allocation; and overallocation of alternative assets through a fund of funds (FoF) and the maintenance of long-term investments. Dr. Randy Cohen’s research shows us that an excellent FoF has three significant advantages over a single fund — “rational allocation, risk diversification and professional management.” These are the key factors that may help investors achieve controllable risks and long-term returns. As one of the most-suitable investment methods for the asset allocation of family trusts, FoF has gradually become a mainstream choice for high-net-worth families.

Helping China’s high net worth population embrace the “new normal of wealth"

With the increase of China’s openness and the broad enhancement of foreign trade and foreign investment, the members and assets of high-net-worth and ultra-high-net-worth families have gradually become “international.” The country’s regulation policy has increasingly tightened in terms of identity, foreign exchange, taxation, personal assets and income. The wealth of China’s high-net-worth population has seen the “new normal,” and they urgently need wealth protection. This requires the help of professionals.

Globalization opportunity

In recent years, with the “go-global” strategy of Chinese companies and the demands for global allocation of family assets, people need to manage assets outside the Chinese mainland. As such, establishing family trusts to manage offshore assets becomes a common and convenient option. Cross-regional wealth management and inheritance is a difficult task for ordinary high-net-worth clients. Therefore, one-stop and comprehensive global inheritance services have become a trend. As a reference for high-net-worth individuals, the report analyzes the trust legislation, characteristics and comparative advantages of the countries and regions that Chinese high-net-worth people often choose, such as Hong Kong, the United States, the Cayman Islands and the Bailiwick of Jersey.. The offshore family trust helps Chinese high-net-worth individuals enjoy the opportunities of wealth appreciation and risk prevention in different countries at different stages of economic development.

More sophisticated financial tools

The family trust industry has gone through the stage of preliminary theoretical study and concept promotion in China, and has entered the stage of large-scale development. More and more Chinese high-net-worth clients have realized the importance and necessity of comprehensive and systematic wealth management and inheritance planning. They realize that a family trust is an ideal tool for wealth preservation, wealth management and intergenerational wealth transfer. With the rapid growth of family wealth management and inheritance demand, trust services (i.e. trust companies) and consulting services (i.e. private banks, third-party wealth management companies, etc.) for domestic families have prospered.

At present, the CreditEase Wealth Management Family Office is able to provide customers with multiple choices of domestic, offshore and American family trust services. This is a unique advantage of CreditEase, as other institutions in the market can hardly offer such services. It can also provide long-term assets for investments by family trust customers that can best match their needs.

In 2015, CreditEase officially established the CreditEase Wealth Management Family Office and launched the “CreditEase Inheritage” family trust series, which so far has designed and carried out family trusts for many high-net-worth families. With many years of wealth transfer experiences, the CreditEase Wealth Management Family Office has established the business structure and system for domestic and foreign-family trust service, and it provides one-stop customized service for domestic, offshore and American family trusts. In 2018, the CreditEase Wealth Management Family Office received the “Top Ten Family Trust Management Innovation Award” by Banker magazine, which is directly controlled by the Chinese central bank. It was the only wealth management company to receive the award.

Inheriting and creating wealth at the same time, which brings both challenges and opportunities

The biggest difference between China’s high-net-worth population and those in developed countries (e.g. Europe, the United States) is that the corporate transformation demand brought about by technological changes forces China’s ultra-high-net-worth population to create wealth and pass on wealth at the same time. At present, China is still in the stage of continuous wealth creation. The high-net-worth individuals who get rich first are facing the challenge of creating wealth and passing the wealth to their next generations. They also have continuous wealth creation opportunities brought by new technologies.

The above situation brings both opportunities and challenges to the young industry of wealth management. There is an old saying in China, “Wealth cannot be passed onto more than three generations,” that suggests that passing on wealth is a more-daunting task than creating wealth. It is important to take into account China’s national conditions when learning from the experience of mature markets, and make great innovations in wealth inheritance models and methods suitable for China’s high-net-worth population. This is an important mission for China’s wealth management industry.

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