Vietnam remains a frontier economy. But Vietnam has recently registered its first home-grown billionaire and the government hopes the country will soon become an emerging market. Is Vietnam’s onshore wealth management market keeping pace with the nation’s evolving wealth? A group of experts deliberated this and other matters germane to the market’s evolution in the first panel of the Hubbis Vietnam Wealth Management Forum 2018.
The panel comprised three eminent local financial market professionals and one regional private banker. The first perspective shed light on the retail segment, with a banker explaining that individual investors who traditionally placed money on mostly deposit with the banks have been branching out into investments. “Ironically,” he reported, “they began with equity investment, which is a natural step although of course riskier, so we are educating the market in terms of other capital market opportunities. There is more on offer nowadays in the space between deposits and equity investments.”
Another expert noted that while there has been a certain migration away from deposits to equities, the evolution has somewhat stalled of late. “We have seen a degree of stagnation in terms of being able to generate additional investors in the market, additional liquidity. We see a bigger pull for broader investment market opportunities rather than just the existing retail investor products that we see in the securities market.”
A collective effort to spur growth and expertise
This expert commented that to improve the market will require the combined efforts of the various financial sector players. “We need a consistent effort from the retail banks, from the fund management companies as well as from foreign institutions to bring knowledge, risk appetite, market considerations and product specialities into this market, so that we can reach out to the mass market.”
Another guest highlighted the opportunities to introduce insurance solutions and to deliver those with technology enabling their distribution. “We can add value to the bank commercial banks and also other financial institutions with our product innovation and customised solutions and technology,” he reported. “We see they are moving into bancassurance recently, which has grown very sharply in the past five years to about 10% of the overall distribution, but there is far more growth out there, as evidenced by the dramatic growth in countries such as Malaysia, where bancassurance represents more than 40%. Collaboration is required between wealth management, financial institutions and insurance companies.”
Pooling the (still limited) resources
Another panellist highlighted the opportunity opening up for banks working with financial industry partners to build a ‘pooled ecosystem’ and also leveraging fintech innovation as well. “We also need the shift the concept from simple product sales to financial planning,” he added.
The same expert reported strong growth in the mass affluent segment of the market, as well as in the high-net-worth (HNW) sector. “Customers are more readily taking more new investments across the equities that we offer traditionally, as well as moving more towards fund management options. They are more receptive to ideas for higher returns and for future financial planning, as well as considering other structures. We remain product-driven but we keep aiming to drive the business towards financial advisory.”
Another banker noted how the evolution of wealth management in Vietnam will likely follow the patterns seen elsewhere in the region over the past several decades. “Across Asia experts see that HNW wealth numbers will grow faster than in the US or Europe and that it grew almost 20% last year alone, twice the rate of the US, for example. In short, we are sitting in a region of massive growth potential. In Singapore, insurance, investments, financial derivatives are almost like our daily bread, not just for the HNWI banking, but also broadly for the mass affluent and for retail banking. Vietnam will no doubt follow this path.”
Earnings and wealth rise fast
Another expert noted that average earnings at his firm have risen from about USD250 a month to some USD1500 in the past decade and with a range in the region of USD500 to USD15000 per month. "As you can see personal wealth is, therefore, expanding rapidly. And the number of active accounts we have has grown fast, too. We estimate about 20,000 active accounts, people trading on a weekly or monthly basis and then maybe 5,000 of those accounts might be trading daily and then there are perhaps 500 accounts of USD500,000 or more solely for equity investment and trading.”
He also explained that the firm had initiated a business concept called ‘managed’ accounts. “We do not have a fund management licence, so we manage discretionary accounts; this is a relatively new concept for Vietnam in the past year or two and focuses on those able to invest USD1 million or more, and then in the range of up to USD10 million. We manage those accounts without any management fees as we do not have a licence, but we can manage discretionary accounts and generate a return for the clients and earn a performance fee. We were profitable in 2017 from that business.”
A guest turned to the subject of regulation, noting that in order to improve the range of options for customers, this must also develop in a positive way. Technology, he said, is another enabling factor to improve distribution and access and to provide customers with a better overall view of their financial status. “With our deep customer base, we are working with fund management companies to widen the information and analysis flows, the client understanding and broaden the investment options at the same time as helping with risk management and good decision-making.”
Insurance solutions – a world of growth
Another guest highlighted the opportunities for life insurance, where penetration rates are now just over 1% of, having grown more than 300% over the last year, driven by bancassurance, which he said is the key growth channel for life insurance. “Collaboration between the major commercial banks and life insurers enhances revenues and opens up more value and opportunities for the customers, including of course the HNWIs.”
“We need to encourage customers to look at insurance options far earlier in their lives,” added another guest, “and not simply wait until they are older, when very often the costs are higher, and the coverage is less due to age and health. We need to encourage proper planning for retirement and other life changes far earlier.”
Another expert noted that bancassurance in the region has been expanding at double-digit rates for the past several decades in Asia. “But,” they said, “in order for Vietnam’s risk management industry for insurance to be successful commissions must be transparent so that the client will have a clear understanding where their premium goes. Secondly, the quality of the agents needs to be upgraded. I believe if following global best standards the agents must be qualified and obtain ongoing annual certification. We would like to create a financial planning association of Vietnam to link to industry groups and best practices overseas.”
Another panellist noted that as wealth becomes more widespread, insurance as a risk management tool will grow apace in volume and sophistication. “In other Asian markets we see a widespread practice of leveraging the premiums, so that, for example, the client puts in 30% and borrows 70%, with the borrowed portion then used to reinvest in assets that will produce ongoing returns. We do not see that in Vietnam yet, but it will come eventually. We can also put the policies in family trusts for future distribution on death.”
Returning to the market’s growth pattern, an expert noted that the wealth generation is coming mostly from entrepreneurs, from business people. “We are beginning to see that money becoming more organised via family offices and in general the younger generations are more focused on planning for their and their family’s future.”
Expertise must improve
But to achieve broadly based growth in the financial planning and wealth management sector the skills base must improve significantly. "The banks are central to this," noted one expert. "Very few salespeople really know how to start a conversation with customer focusing on personal financial planning. We need to build their sales and advisory expertise and change the way they approach this business to see a longer-term perspective, rather than just quick returns. They should be looking at their career in the bigger picture, at the same time as building value for the customer.”
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