On one of my recent trips to Dubai I contributed to two separate expert panels at two separate events for very different audiences. The first was an exclusive event for ultra-high net worth families. The second was an industry event entitled ‘Designing The Building Blocks For Effective Family Business Governance Structure’, which was aimed at wealth managers and advisors in the region. Interestingly, we covered very similar ground at the two events: succession planning was very much top of mind for both the families and the advisors they rely upon and this was the topic I was called on to contribute to.
Ultimately, a lot of the family wealth in the GCC remains unstructured – a much higher percentage than in many other wealthy regions of the globe. As a result, the wealth is vulnerable in several ways, and most notably so at the point of familial succession. Indeed, our panel moderator quoted the figure of USD 16 trillion of wealth held by UHNW individuals which will be passed on to the next generation within the next three decades, and called on the panelists to provide practical responses to that challenge.
The Basics of Wealth Structuring
The first step is basic segregation of personal and business assets. This ensures that in the event of a business failing – and family business, like wealth, are most vulnerable during changes of leadership – the owning family’s personal assets remain secure, at least. This basic step is yet to be taken by many GCC families, yet it is only the start of a process. Ideally, both personal and business assets should be further segregated based on geography, asset type, and risk profile. By way of an example, let’s consider a family with onshore and offshore business assets as well as personal assets in various territories including various properties and a private jet. I would separate the onshore business from the offshore business, separate the business assets from the personal assets, and then further segregate the aircraft ownership as this is a higher risk asset than residential property.
Succession Planning and Governance
These are the basic first steps and they allow better control, management, reporting, and legal protections. Inevitably, however, families must consider issues such as structured succession or exposure to inheritance, wealth, and withholding taxes. I was asked several times over the course of the week about possible IHT (inheritance tax) solutions for families in the region, I believe in the hope that I would unveil a range of IHT products to choose from. The reality, and therefore the answer I gave the enquirers, is perhaps less immediately satisfying than a product range but should ultimately give more confidence: as a multi-family office advisor, I can tell you that there is no standard product suite – only bespoke solutions. I work with several UHNW families and I can confidently say that once you have seen one family office solution, you have seen just one family office solution! Every single family needs its own solution from an independent advisor – ultimately this is why we exist as an independent multi-family office!
This complexity is borne from the variety of assets held, but it becomes even more complex and more in need of a professional steer when the family’s own needs in respect of those assets comes into play. There are various ways to hand over to the next generation – some families may keep the wealth together; some may wish to see it separated amongst inheritors. Some may wish for it be held in trust under different dispensation and beneficiary rules; some may wish to see full command and control inherited with the wealth. Some may wish only to hand over personal assets, others to confer their businesses. In all these cases, governance structures and plans must be in place – and best practice is to get them in place before the family head reaches old age, which is why many GCC families are leaving planning later than they should.
‘Next Generation’ Education
Another consistent theme from the event questions and feedback, which chimes with my own experiences advising families, was concern over the eligibility of the next generation to handle wealth properly. The term “remittance addicted” was brought up on one of the panels when discussing “next-gens”. Again, there are no quick answers to this sort of issue, only long term solutions borne of hard work. Part of it goes back to the family governance structures I have already mentioned, and part of it comes down to building a long-term relationship with committed, experienced, and independent (there’s that word again) advisors who can not only advise the current wealth-holders, but help to mentor and educate the wealth holders of the future.
Proper Wealth Preservation
I came out of the events energised and have since had a significant number of important discussions with families and individuals who are keen to embrace a more intentional approach to wealth preservation, as have my colleagues who accompanied me to the events. I think a significant change is coming in how families in the GCC handle their wealth, and I think the individual changes made by individual families will end up having an important macro-economic impact for the region. Around eighty per cent of non-oil GDP in the Middle East is contributed by family businesses, according to Deloitte, so securing that wealth and ensuring orderly transitions will ultimately ensure stability for the region’s economies in the long run.
If any of the above sparks an idea or a question in your mind, please do feel free to get in touch with me directly – I would be very interested to start a discussion. Alternatively, you may also be interested in downloading our comprehensive Guide to Structuring Middle Eastern Family Wealth.