How family businesses can preserve wealth, create legacies

The wealth management landscape in the GCC region continues to evolve, especially with the growing influx of UHNWI and HNWI wealth from around the world.

With the projected increase of 150 per cent in the number of centimillionaires by 2040, cities in the GCC, including Dubai, Abu Dhabi and Riyadh, are leading the way with their favourable positioning between the East and the West, regulatory advances, infrastructure spending, favourable tax environment, supportive government initiatives, as well as safety and security measures.

As these factors aid the influx of millionaires into the GCC, we also see a growing trend of family offices looking to establish a presence in the region. UAE, for example, is growing as a leading financial hub with the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM) and its vibrant investment ecosystem, spurred by financial technology and startups.

Rise of wealth transfer

Nearly $1 tn is projected to be transferred across generations in the GCC by 2030, according to McKinsey, leading to an increased awareness among families on the need for intergenerational wealth planning.

However, our Family Barometer 2024 edition revealed that intergenerational wealth transfer and succession planning were top priorities across every region, with Middle Eastern respondents ranking them the highest.

Julius Baer has gone through an entire cycle of transitioning from a family business to a listed entity. Many of our clients rely on our expertise to help their next generation plan for financial security and establish the appropriate governance framework.

As we work closely with families across the world, we need to understand the needs of our existing clients while staying relevant to the next generation. Our Barometer report revealed the growing responsibility of the next generation, who are aiming to leave their personal footprint and legacy in their family businesses.

Trends shaping wealth transfer

As many family businesses in the GCC are beginning to transition into second and third generations, ensuring a smooth leadership change has become crucial for business continuity.

Therefore, the pressure of establishing a succession plan has become a growing concern, with many HNWIs not having an inheritance plan in place. Through expert advice and as a trusted advisor by many global families over generations, we uncover findings in the 2024 edition of Family Barometer, including the topics that are most discussed: –

Rise of intergenerational wealth transfer and succession planning – This universal focus indicates that families globally are deeply concerned with ensuring a smooth transition of leadership and wealth to the rising generation. As family businesses often play a significant role in regional economies, the emphasis on succession planning reflects a proactive approach to safeguarding the future of these enterprises. At the same time, the increasing amount of wealth to be transferred to more than one generation and the international nature of today’s affluent families – with family members and business interests often spread around the globe – calls for a coherent plan to tackle the challenges across jurisdictions.

Political stability – Political change and instability can lead to economic volatility, which in turn can impact asset values and investment returns. Therefore, one of the key priorities for wealthy families is to develop strategies that include diversifying investments, and we see a clear desire to establish a presence in politically and economically stable countries with robust legal frameworks to protect their assets.

Taxes and regulations – This is a common topic with families, especially those based in multiple jurisdictions. Ongoing political instability and pressure on public-sector finances mean that changes to tax and regulation are likely to continue. Yet these adjustments require an understanding of fine details in each country, making local specialist expertise essential.

Family governance – This is a perennial topic that has become more important as wealthy families have expanded to span several generations. The GCC is unique, as the rules of inheritance are governed by Sharia law, and, as a result, the process of inheritance can become complicated, as large families have many entitled heirs. Therefore, many families are failing to or delaying the process of putting in place a structured plan due to both the confusion and time taken to allocate assets across families. This often causes issues relating to ownership and an increased risk of internal conflict.

 Individual and family growth opportunities – This highlights a strongly increasing interest in fostering personal and professional development within families, as well as exploring new opportunities for growth and expansion. 2024 findings of the Family Barometer indicate that wealth education programmes for the rising generation are a significant priority for wealthy families.

The approach reflects a broader understanding that external expertise and structured education can significantly contribute to individual and family growth opportunities. By involving advisors, families can gain valuable insights and strategies that foster both personal development and financial acumen, ensuring that the next generation is well-prepared to sustain and grow the family wealth.

Julius Baer’s programmes in the region, including a two-week financial boot camp as well as client communities such as ‘Young Partners’, significantly contribute towards these development opportunities.

Bridging the gap between current & future generations

In the GCC, family businesses form the foundation of the private sector, many of which developed during the 1950s and 60s and currently are in the second or third generation.

We often see that as the businesses pass down through generations, one challenge that many businesses encounter is the struggle between striking a balance of preserving legacy, whilst embracing innovation. As wealth managers, very often we see our role as mediators between the two generations, helping them to together define the purpose of their wealth.

It is important that the next generation doesn’t view this process just as a wealth transfer but understand the bigger picture, which could lie in a shared set of values or purpose, while defining ways of preserving it.

Future of wealth transfer

In our conversations with clients, we continue to expect to see the family office market in the GCC flourish in the coming years. While political stability remains a key concern, we see an increased interest from clients in looking at the GCC locations, especially the UAE, as their base. In terms of investments, we see a growing appetite for alternative investments and demand for holistic wealth management services, which will act as long-term drivers fuelled by the rising wealth in the region.

The differentiator for us is Julius Baer’s roots as a family-run business that has undergone a business transformation into a listed entity over the last 134 years.

Given the evolving market dynamics and exogenous factors such as geopolitics, global families, once again, face a less predictable world for preserving legacies, as well as the family’s wealth and purpose. We also see trends such as the rise of tokenisation and technology impacting the inheritance process.

That makes careful long-term planning and structuring more important than ever. Achieving this is not just a one-off exercise but an ongoing journey involving the whole family. If properly addressed, this journey can be the one that provides many opportunities and even acts as a driver for cohesion within a family. So, while there can be much to lose, there is a lot that can be won, too.

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The author is the head of Middle East & Africa at Julius Baer.