Banks take on wealth management

At the forefront

Two years ago, the Vietnam branch of Standard Chartered launched its wealth management operations. Harmander Mahal, the bank’s head of retail banking, is now looking forward to further catering to the growth potential of the country’s wealth management industry.

Mahal observed a “significant potential” for the business to thrive in Vietnam, on the back of the industry’s evolving environment.

“I think the growth potential of the wealth management business in Vietnam is very high over the next five to maybe even 10 years,” Mahal told VIR.

He noted that the number of wealthy individuals in Vietnam is on the rise, thanks to recent years’ steady economic growth. The surge in entrepreneurship has also generated wealth for the nation as a whole, and businesspeople in particular.

“The expansion of the wealth management business is in line with our overall strategy, and the expansion of the business in Vietnam is our priority,” he said. “We’re continuing to expand our team to manage the segment and we receive highly positive feedback from our clients. As the market opens up, the opportunity will become more apparent and we’ll be able to deploy more of our global products and services into the local market.”

The UK-based lender, as a result, seems to be ahead of its local rivals in delivering a compact range of products and services to meet the financial needs of local clients.

Part of its priority banking arm, Standard Chartered’s wealth management unit offers clients (those with $50,000 or more in liquid cash) integrated services to grow their assets and wealth. Each eligible client is comprehensively analysed for his or her financial needs, which helps the bank recommend suitable products and services – for instance, wealth management, retail banking, or transactions – to fulfill these needs.

“We always strive to address the needs of clients and our wealth management segment has the right capacity, products, and skill sets to manage wealthy clients. Whether it’s just looking at the deposits they have with us, FX transactions, moving their money into Vietnam or remitting it to their home countries, or buying protection and legacy products such as insurance to protect the interests of their families,” said Mahal.

Meanwhile, since 2010 HSBC Vietnam has offered premier proposition providing personal support to help grow clients’ personal economy. The bank’s premier clients currently receive dedicated support from a relationship manager who puts together a picture of the clients’ entire financial life and delivers specialist advice and financial planning to help the former fulfil their life goals. Under the bancassurance partnership with AIA, various insurance solutions are catered to diversifying clients’ needs for protection.

According to Sabbir Ahmed, head of retail banking and wealth management at HSBC Vietnam, the unique proposition is what differentiates its wealth management business in Vietnam and around the world.

Are we rich yet?

The middle-income class and the rich are on the rise thanks to the growth of the local economy, but how rich are the Vietnamese at present, according to international norms, and is there a need for the wealth management business here?

The Global Wealth Report 2017, published by Credit Suisse Research Institute, defines ‘frontier wealth’ as “[ranging] from $5,000 to 25,000 per adult, covering the largest area of the world and most of the heavily-populated countries including India, Russia, Brazil, Indonesia, the Philippines, and Turkey.” Vietnam, along with Malaysia, Pakistan, and Thailand, are regarded as promising Asian members of the group, according to the report.

Moreover, Vietnam has made it to the top of the market capitalisation growth list, above countries like Austria, Greece, and Argentina. The country reached a 60.9 per cent change in market capitalisation in 12 months, ending June 30 of last year.

Wealth per adult in Vietnam was recorded at $1,638 in 2000 and has since climbed to $5,391 in 2017, on the back of a GDP-per-adult figure of $3,197 in 2017. The total wealth for the nation sat at $342 billion in 2016, and increased to $358 billion the following year.

US dollar millionaires in Vietnam, as per Credit Suisse’s research, reached the number of 9,000 in 2016 and stayed put in 2017. By 2022, however, the figure is expected to soar to 13,000.

Following the definition of ‘frontier wealth’ set out in Credit Suisse’s research, the affluent cohort in Vietnam is rather new, or even “primitive,” as in the opinion of economist Nguyen Tri Hieu.

Hieu noted that compared to developed markets like the US, the number of rich individuals in Vietnam is still meager at present, and they have risen to be well off mostly through the business of real estate trading. “Their assets are thus not diversified and they often employ their very own experts to manage their assets, without the need of going to banks or asset management companies for wealth management services,” Hieu said.

“A number of firms have offered the asset and wealth management business, yet such services have yet to be as widely popular here as in developed markets, where wealth management services are more sophisticated and diversified to manage various forms of assets, such as gold, FX, properties, and securities investment,” he added.

More wealth, more business

The number of US dollar millionaires in Vietnam may be small for now, but it has been building over the years, alongside the incredible growth of the local economy. HSBC and Standard Chartered could be among the first foreign lenders to see the potential for this market segment, having ventured into the wealth management business here some time ago. As with their local counterparts, the banks must also be ready for more of the rich population to show up on the horizon.

“The needs continue to be evolving in parallel with robust economic growth and the rise of the middle class population,” said HSBC’s Ahmed. “So it’s vital for us to continue to update and expand the product shelf to satisfy customers with further innovative solutions, such as for retirement and wealth growth and management.”

Meanwhile, local bank BIDV, according to its chief economist Can Van Luc, is currently at an early planning stage to roll out its own wealth management service in the near future. A few other local banks, as Luc noted, have actually incorporated this type of business into their operations for a number of years.

“The wealth management service has emerged as a business that goes in line with the retail banking development strategy of many banks. This is a strong trend caused by the rapid rise of the number of wealthy individuals in Vietnam,” Luc commented.

Up and go

The rich in Vietnam can be divided into several categories, including the emerging affluent that earn between $75,000 and $250,000, and the ‘high earners, not rich yet’ (HENRY) – referring to a segment of families earning between $250,000 and $500,000, but having little left after taxes, schooling, housing, and living expenses.

According to Robert Tran, CEO of global business firm Robenny Corporation (RBNC), should banks know how to take these groups seriously as potential clients for their wealth management business, it could be a good market size for them. “Banks may not need to create any new [wealth] products, rather only carry what international markets currently have into the local one.

“If local and international banks do well with this segment, the benefits for Vietnam will arrive in two forms: the money will stay and grow here within the country, and further down the road it can attract foreign clients into the market,” Tran said.

“The most important challenge in developing this business comes down to human resources,” he added.

Tran pointed out the fact that although local banks have provided priority or premier banking services for customers with funds in their bank accounts of $50,000 or more, they have not developed a team of wealth advisors capable of giving investment advice to their clients.

“Many emerging affluents or HENRYs are well educated themselves and pretty sensible with their money and assets, so to serve these customers, the wealth advisors ought to be on par with their standards,” said he.

For banks to get involved more in the wealth management business, Ahmed of HSBC noted that the effort must be subject to a sound system of internal controls to protect the bank from business, regulatory, and reputational risks.

“I consider the development of a wealth management business as mainly dependent on external factors. The market should be developed to a sizable scale that is attractive enough for providers,” stressed Ahmed. “We also need a regulatory framework that is supportive for financial institutions, especially foreign banks with best practices in wealth management tested in various markets to bring in their expertise to benefit local customers.”

BIDV’s Luc noted, “Large-scale banks with strengths in terms of technologies, human resources, and risk appetite should be the ones to quickly deploy their wealth management business in the near future, to take advantage of the market trend. This will also create a source of medium- to long-term capital for the market.”

VIR