How to Avoid Crashing into the Wealth Transfer Iceberg

The Information Asymmetry

According to the Owner.One study, families with a net worth ranging from $3 million to $100 million are most vulnerable during the transfer from one generation to the next. They account for up to 75% of all losses. The study is based on responses from 13,500 high-net-worth capital founders across 18 countries.

Only 2% are aware that data gaps cause families to lose up to 31% of their wealth on average during transfers.

One phrase sums up the reasons behind this: ‘information asymmetry’. But what does it really mean?

The Threat Under the Surface

Imagine family wealth as an iceberg. Family members see only what’s above the surface. It represents 1/10th of its total mass.

90% is hidden. This mirrors the issue of information asymmetry. Only the capital founders know the ins and outs of family wealth's real structure: asset classes, jurisdictions, locations, business contacts, agreements, and other attributes. All of this keeps the business going. Without any of it, the transfer can be complicated or blocked.

As the study says, up to 22 attributes per asset are required to complete the task. But why is crucial wealth information inaccessible to the family?

Misconduct by Third Parties

81.6% of capital founders do not act to resolve information asymmetry.

Intermediaries' misconduct complicates matters. 31.7% of attorneys fail to fully execute initial wealth transfer instructions, either partially or not at all.

As a result, 89.1% of survey participants expressed doubts about whether trusted individuals would perform tasks optimally when necessary.

Consequently, adoption rates for family trusts and family offices are only 0.4% and 0.7%, respectively.

Founders Willing to Overpay Due to Lack of Reliable Services

Imagine the scenario worsening. A family member takes the helm, aware of an iceberg ahead but lacking details on its location, speed, or size. How likely is a safe arrival?

This isn't an overstatement. The Owner.One report shows that capital founders lose up to one-sixth of their asset data annually, often irretrievably. Furthermore, 97.3% choose insecure methods for storing and updating asset data.

Report findings suggest that founders clearly assess risks from the gaps and are willing to pay to cover them. 36% are ready to accept potential losses of $100,000-$500,000 per $1 million of family wealth in exchange for a guarantee that the remainder will be safely passed on to their family.

Mapping The Safe Route

The answer to wealth transfer challenges lies in creating digital solutions. These aim to cut out third-parties and human-related risks. The idea matches Capgemini's 2023 wealth management trends report, which forecasts a future ruled by digital services in a Wealth-as-a-Service model.

Owner.One has just introduced its suite for assets and capital data, based on blockchain technology. It acts like a 'judgment day envelope.' If something happens to the capital founder, it ensures vital information bypasses intermediaries and directly reaches intended recipients.

It guarantees that "Information Asymmetry" and the "Iceberg Threat" will be resolved. The new captain will receive detailed guidance from the founder at the right moment.