Gulf’s succession planning isn’t just about personnel
Culturally and economically, family-owned businesses form the backbone of the GCC’s private sector. According to research from the Gulf Family Business Council (GFBC) and McKinsey, 60-70 per cent of companies are owned by families. Collectively, they generate annual revenues of around $100 billion.
Among those businesses, three-quarters are run by the first- or second-generation of the family, more than 50 per cent have five or fewer shareholders, and 60 per cent have six or more family members working in the business. With such numbers, we can’t overstate the importance of these businesses — as well as defining the cultural structure in the GCC, they form the basis of trade in the region.
The current position of family-owned businesses is strong and this will continue with the smooth and orderly transfer of businesses from one generation to the next. There will be an estimated $1 trillion in assets expected to be transitioned between generations over the coming decade. Therefore, the successful inter-generational wealth transfer will ensure a strong position for the GCC economy.
This also presents considerable opportunities for wealth management professionals and financial planners seeking to support families in the region.
Client needs
To highlight key trends and highlight client needs in the GCC, Jersey Finance recently commissioned research on the subject in conjunction with Hubbis. The results confirmed that succession planning was the key challenge. More than half of the respondents — all of whom were professionals working with GCC family businesses — claimed that succession planning was the ‘greatest demand’ for families in the region.
A lack of awareness about the solutions available was another concern, with 34 per cent of professionals working with these businesses citing this as a problem.
The majority of these misconceptions specifically revolved around wealth structuring in family businesses, with more than half believing it will lead to a loss of control, and 23 per cent concerned by the lack of transparency of structures.
This was further reinforced by the wider research, which suggested that the biggest problems facing high net worth individuals in the region are family disputes (50 per cent) and incorrect advice (30 per cent). The findings reaffirmed the cultural approach to business in the region, as well as the immaturity of some of the products and services available, compared to those overseas.
Tangible cultural disconnect
When it comes to succession planning, as well as what research suggests to be a tangible cultural disconnect, it seems that the bulk of products available in the region are relatively untested. If this trend continues, this can only further reinforce a lack of trust and confidence among potential investors.
Yet all of this is occurring at a time when demand for these services seems to be growing considerably.
The concept, and practices, of inheritance planning are still nascent here compared to more established Western markets. Strengthening the planning approach currently used in the GCC can have a direct, positive impact on the sustainable growth of the region’s economies.
Given these issues, it is not surprising that one in five family businesses do not know where to start a discussion on succession planning. It is, therefore, a highly pressing concern for the long-term growth of the region’s economies — and an area that both these enterprises, as well as the professionals that advise them, should consider further.
In particular, there needs to be a drive towards the greater use of International Finance Centres (IFCs). Through the support they offer, HNW individuals can ensure their assets, and businesses can be better protected during transitions of wealth.
With this in mind — and as the GCC wealth management sector continues to establish itself — wealth managers have the option to look elsewhere to service their clients most effectively.
Increasingly, HNW families are turning to offshore solutions for wealth structuring.
Leading IFCs offer the expertise, experience, stability and support to steer GCC HNW investors through this inter-generational wealth transition, helping them manage their assets most effectively — to the benefit of all the region’s economies.