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July 24, 2023

Navigating the future of wealth planning in post-pandemic Asia

The COVID-19 pandemic has left a lasting impact on the global economy and the lives of many. As countries in Asia strive to recover from the crisis, we will explore various trends and shifts in wealth planning strategies across Asia as individuals and families navigate the post-pandemic era.

Increased focus on risk management during the pandemic and “Great Wealth Transfer” in next decade

In an era marked by advancements in medical, technology and scientific breakthroughs, humanity found itself grappling with a newfound sense of vulnerability and the sudden contemplation of mortality. This prompted a wave of introspection among individuals and families, compelling them to re-evaluate their financial circumstances and their wealth planning needs.

During this period, the pandemic served as a wake-up call for many regarding the importance of succession planning and there was a notable surge in the recognition of securing adequate protection. As time progressed without a clear solution to the ongoing pandemic, individuals and families increasingly recognised the significance of taking proactive steps to structure assets, and to develop strategies for the seamless transfer of wealth to future generations.

In a report by Capgemini, the transfer from Asia’s High Net Worth (HNW) / Ultra High Net Worth (UHNW) to the next generation by 2030 is estimated to be USD4.4 trillion of wealth. The great wealth transfer poses both opportunities in economic growth, entrepreneurship, philanthropy and also concerns around wealth inequality and managing wealth responsibly. The access to such a magnitude of wealth can easily lead to dangerous excesses such as lifestyle, lack of financial discipline, sense of entitlement and a lack of purpose. Hence, family governance frameworks need to be developed to facilitate effective wealth transfer, foster communication, and ensure the preservation of family values across generations.

Market volatility leads to a growing demand for diversification and insurance as an asset class

The COVID-19 pandemic has had a profound impact on investment portfolios across sectors and asset classes, challenging investors worldwide. Measures implemented by governments and central banks to mitigate the economic impact of the pandemic led to new uncertainties. In the past 15 months, we saw global interest rates rise at an unprecedented speed since 1950 in an attempt to contain rising inflation and just over a span of five days in March this year, we witnessed banking failures of three small to mid-size U.S. banks.

These uncertain times have prompted a surge in demand for diversified portfolios and investors in Asia are seeking to reduce concentration risk by exploring opportunities beyond traditional asset classes. Clients are progressively viewing life insurance solutions as an alternative asset class in portfolio diversification with whole of life and savings plans favoured as they provide clients a combination of high underlying guarantees and insurance coverage, offering a level of stability that is appealing amidst market volatility.

In recent years, there has been a notable rise in the interest among clients in Asia towards Indexed Universal Life plans. These plans offer investment returns that are linked to the performance of an index such as the S&P 500, a widely recognised benchmark for the U.S. stock market. This unique feature has captured the attention of investors seeking to combine both insurance protection with potential returns tied to the performance of the stock market.

One of the key appeals of Indexed Universal Life plans is the ability to participate in the potential upside of the index while also having a built-in "downside protection" feature. Broadly, this means that even if the stock market experiences a decline, the client's investment in the plan is shielded from the full impact of the market downturn. This downside protection element provides a level of security unlike any insurance or investment solution, making Indexed Universal Life plans an attractive proposition and adding an alternative dimension to overall portfolio diversification and wealth planning.

Prioritising organisations with a focus on sustainability and ESG

Environmental, Social, and Governance (ESG) considerations have gained prominence in the wake of the pandemic. Clients are becoming more conscious of the impact their purchasing decisions can have on the environment and society. There is an increased inclination to support companies that align with their own values and able to demonstrate a commitment to sustainability, social responsibility, and ethical practices.

Rising demand for philanthropy

Post-pandemic, we have observed a heightened social awareness and desire to give back to society. As a result, there is a growing interest in philanthropy and impact investing among Asia's affluent individuals and families. Clients are keen to align their values with their wealth by incorporating philanthropic goals into their overall wealth planning strategies.

What role can insurers play

Insurers can play a crucial role in the wealth planning journey by staying abreast with changing trends, actively listening to clients and business partners and understanding their concerns. Only by putting the client at the centre of what we do, are we able to co-create innovative insurance solutions together.

Contributed by:

Michael Wei

Chief Partnership & Marketing Officer

Sun Life Singapore

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