Opinion: “Passing on wealth isn’t merely a numbers game; it’s a battle against human nature”

In cultures where filial piety and family harmony are paramount—thanks to Confucian values in East Asia or joint family systems in South Asia—heirs often face immense pressure to preserve legacies without the entrepreneurial grit of their forebears. Stories abound of second or third generation families squandering fortunes through lavish lifestyles, poor investments or internal disputes.

A study by the Family Business Association highlights that only 30 per cent of family businesses survive the transition to the second generation, and a mere 12 per cent to the third. In Asia, where family offices are proliferating but often lack robust governance, this statistic feels even more ominous.

This is where the psychology of investing becomes indispensable. Discussions about inheritance among family members can be emotionally intense. Passing on wealth isn’t merely a numbers game; it’s a battle against human nature. Behavioural finance, a field pioneered by psychologists like Daniel Kahneman and Amos Tversky, reveals how cognitive biases sabotage even the savviest investors and best-intentioned succession plans.

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For Asian heirs, these biases are amplified by cultural and generational nuances. Consider overconfidence bias: Many first-generation Asian wealth creators succeeded through bold risks in volatile markets, from China’s property boom to Indonesia’s commodity trades. Their heirs, inheriting this narrative, might overestimate their acumen, leading to impulsive bets on speculative assets like cryptocurrency or unproven start-ups. I’ve seen clients in my practice chase “hot tips” from social circles, only to suffer losses when markets correct.

Then, there’s loss aversion: the tendency to fear losses more than we value gains. In Asia’s high-stakes environment, where face-saving is cultural currency, heirs might cling to underperforming family assets out of sentiment, missing diversification opportunities. For instance, a Hong Kong family tied to declining retail properties might resist selling, even as e-commerce surges.

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Herd mentality is another pitfall. With Asia’s social media influencers and WeChat groups amplifying trends, young heirs could flock to overhyped investments, inflating bubbles like those seen in recent crypto or meme stock frenzies.

And let’s not overlook recency bias, where recent events overshadow long-term trends. Post-pandemic, many have fixated on tech rallies, ignoring cyclical risks in geopolitically tense regions. To counter these, a mindset shift is essential.

Education must be prioritised. High-net-worth individuals and families in Asia should invest in financial literacy programmes tailored for heirs, such as those offered by institutions like Insead or the Asia Family Office Foundation that emphasise scenario planning and emotional intelligence in investing.

Heirs should also seek objective counsel from professionals, free from familial biases. Janus Henderson Investor’s Specialist Consulting Group (SCG), which provides tailored investment solutions to our high-net-worth clients, found that 90 per cent of inheritors are planning to switch out of their parents’ financial advisors upon wealth transfer completion. 

Specialised teams like the SCG use tools such as risk tolerance assessments to align investments with an heir’s personality and goals. So more conservative stewards might favour a less volatile approach balanced between a specially curated portfolio of stocks and bonds, while those with more appetite for risk could explore thematic funds in the technology or biotechnology space.

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The great wealth transfer isn’t a sprint; it’s a marathon across generations. Asian families excel at this through structures like trusts or foundations, but psychology demands reframing wealth as stewardship rather than ownership. Encourage heirs to adopt Warren Buffett’s value investing ethos, which is patience and research-driven but adapted to Asia’s dynamism. For example, instead of chasing quick wins in volatile single-named stocks or even crypto, focus on compounding through steady allocations to mutual funds that capture regional growth without excessive risk.

Not least, intergenerational dialogue is crucial. Many Asian families avoid open money talks due to cultural taboos, leading to mismatched expectations. Facilitated discussions can bridge this, helping heirs understand the “why” behind investments, perhaps a founder’s emphasis on community impact over pure profit. This psychological alignment can help avert conflict, which may prove devastating down the road.

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The great wealth transfer is Asia’s defining moment and a chance for heirs to elevate family legacies into enduring dynasties. But without mastering investing psychology, this windfall risks becoming a whirlwind of dissipation. As stewards of Asia’s affluent, we must champion a holistic approach: blending financial acumen with mental fortitude.

In my decades working in Asian asset management, I’ve witnessed firsthand how a sudden influx of wealth can either enhance generational prosperity or erode it through missteps. For Asia’s high-net-worth individuals and families, the key to navigating this lies not just in financial instruments, but in mastering the psychology of investing—a discipline that ensures wealth is not merely inherited, but intelligently retained and amplified for future generations.

For affluent families, the message is clear: equip your heirs not just with assets, but with the wisdom to manage them. In doing so, you’ll secure prosperity that transcends generations. After all, true wealth isn’t measured in the trillions transferred, but in the legacies that thrive.

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