Asset and Wealth Management Services in Vietnam: Opportunities and Challenges
Vietnam is rising as a key asset and wealth management (AWM) market in Southeast Asia, with its economic growth trajectory staying strong amid global uncertainty. Armed with growing demand from high-net-worth individuals (HNWI) and facilitative regulatory changes, the AWM industry in Vietnam is poised for rapid growth. Here’s what foreign investors need to know.
In recent years, Vietnam has absorbed a large share of manufacturing from China and benefited significantly from supply chain relocations. This has seen increases in both exports and foreign direct investment (FDI). With the economy witnessing robust growth and the HNWI population doubling over five years, the volume of personal financial assets (PFA) of Vietnamese consumers has accelerated at a rapid pace.
As a result, the demand for wealth management services has substantially soared in recent years, with affluent private customers and HNWIs seeking more diverse, sophisticated, and personalized financial solutions. The burgeoning wealth of these segments, together with the digitization in wealth management and key developments in client advisory, are propelling substantial growth in the industry. These emerging trends will serve as facilitators for financial institutions to disrupt and transform the AWM sector in Vietnam.
In light of this, the industry has ample room for wealth managers and AWM firms to develop seamless client advisory service models and provide personalized solutions to investors. But, at the same time, it is also important for AWM service providers to understand existing challenges in the market and the pain points their clients may face.
Vietnam’s AWM industry in numbers
Vietnam’s HNWI population, those who have amassed investable assets of US$1 million, has surged at the remarkable rate of 70 percent from 2017 to 2022, reaching approximately 70,000 people in 2022, according to global real estate consultancy firm Knight Frank. This five-year period has also seen a proliferation of ultra-high-net-worth individuals (UHNWI), with nearly 1,060 people having a net worth of at least US$30 million.
In addition, the financial market in Vietnam is on a fast-growth trajectory, with assets under management (AuM) rising rapidly and changes in regulations promoting the wealth services market.
Specifically, the Vietnam wealth services market is forecast to reach over US$600 billion by 2027 and AuM is estimated to stand at nearly US$70 billion by the same year. These numbers present unprecedented opportunities for financial advisory service providers in Vietnam.
Emerging trends and growth opportunities in the AWM industry
Taking into account Vietnam’s currently resilient economic growth and conducive investment climate, the AWM industry is poised to grow as a result of a number of trends and opportunities appearing in the market.
Interest rates down, equity up
In June 2023, the State Bank of Vietnam decided to reduce regulatory interest rates for the fourth time since the beginning of the year. This has sparked a rise in investment activity in several investment products, including equities, bonds, and mutual funds. The declining rates have opened up unprecedented opportunities for wealth management firms to attract new clients and provide exclusive options for investors to diversify their portfolios.
Furthermore, Vietnam’s equity market remains on an upward trajectory. Despite turbulence in the world’s financial markets, Vietnam’s exchange rate held steady during the first half of 2023 due to a large volume of foreign exchange reserves, a positive trade balance, greater disbursed FDI, and a weakening of the US dollar. It is also worthy of note that the FTSE Vietnam 30 Index witnessed a positive return of 12 percent, outperforming its frontier and emerging market equities in the Asian region.
Vietnam also had a 10-year cumulative total return of 107.8 percent. This reflects the relatively low impact, compared to other markets, in times of global economic crises. Therefore, the capital market in Vietnam has become a compelling alternative investment for portfolio diversification, helping AWM firms to tailor their offerings and attract prospective customers.
Rising demand for ESG integration
Investors are increasingly putting the environmental, social, and governance (ESG) performance of AWM firms on a level playing field with their financial return in terms of assessing the value of the investment. Clients are now demanding that AWM firms incorporate ESG into their investment strategies and portfolio management. According to a PwC report, ESG-aligned funds surpassed their traditional counterparts by 9 percent from 2010 to 2019.
Digital and AI-enabled tools reinventing wealth management
The global COVID-19 pandemic has significantly altered the behavior of wealth services clients, particularly in their adoption of digital technologies. It has intensified the push toward multichannel communication, self-service, and technology-enabled portfolio management.
Post-pandemic, customers demand higher digitally enabled interactions and hybrid-mode advisory services to have more control over their investments. There is a growing demand for the role of an augmented Relationship Manager, that is AI-driven technology enabling the Client Relationship Manager to assist investors by providing analytics-driven investment recommendations, analyzing financial data, and aiding in the rebalancing of client portfolios. This use of technology will eliminate repetitive administrative tasks, saving investors valuable time.
With this in mind, AWM firms can leverage huge opportunities in the wealth market by developing AI-powered tools and tailoring their advisory services to meet an individual’s specific needs and expectations.
Key challenges faced by financial institutions
Addressing the unmet needs of high-net-worth individuals
As mentioned above, from 2017 to 2022, Vietnam’s HNWI and UHNWI populations grew at an exponential rate of 71 and 81 percent, respectively. These high-end client segments are forecast to continue increasing to 2027.
However, despite the significant opportunities in Vietnam’s AWM industry, financial institutions and wealth managers have yet to deliver portfolio offerings and services tailored to these customers’ needs.
According to a Hubbis survey, 50 percent of the participants in the wealth management community said that there was a shortage of talent available in the market. Additionally, about 40 percent of those surveyed believe that the digital value proposition of Vietnam’s AWM industry has remained stagnant for the past few years. Wealth managers and financial institutions, therefore, should invest in new technologies to meet these technology-driven private clients’ needs.
It is suggested that wealth managers and firms adopt more comprehensive and interactive offerings in their financial solutions to serve the diverse and complex needs of private clients. This requires firms to go beyond the traditional physical engagement with customers and take further steps in innovating their on-demand advisory services and multi-channel engagement. The successful digitalization of AWM firms is characterized by two factors: client-centricity and technology-enriched hybrid advisory services. With these in mind, wealth management firms should bring digital-integrated platforms to their clients and provide a seamless digital experience where they can.
Restrictive regulatory framework
Another challenge faced by wealth management firms in Vietnam is the legal framework. The Vietnamese government has issued several decrees and ordinances to regulate the use of foreign exchange, offshore investment, and foreign currency accounts.
For example, Ordinance No. 06/2013/UBTVQH13, dated March 2013, amends and supplements a number of articles of Ordinance No. 28/2008/PL-UBTVQH11 on foreign exchange control. This ordinance sets out certain provisions on the limited use of foreign exchange in all transactions, payments, listings, and agreements in Vietnam. It also requires residents permitted to conduct offshore direct investment to create a foreign currency account at an authorized credit institution.
Specific requirements and instructions on the use of foreign currency accounts are also mentioned in Circular 16/2014/TT-NHNN, dated August 2014. The circular regulates the use of payment accounts in foreign currencies and payment accounts in Vietnamese Dong at authorized banks. This requires investors to register remittances of foreign currency abroad for investment through the account, in line with State Bank of Vietnam regulations.
Consequently, residents in Vietnam are restricted from making offshore financial investments and diversifying their portfolios in the global market. This may further hinder financial institutions from unleashing a stream of new services and products across the AWM value chain and prevent them from delivering highly segmented and personalized solutions to their clients.
Limited talent pool
As the industry is moving toward a digital and technology-enriched operating model, it requires firms to adopt a holistic approach to transforming and redesigning their organizational structure, talent base, and incentives to better serve their customers.
However, human capabilities remain critical and should not be underemphasized in the asset and wealth management industry. Wealth advisors deliver physical assistance beyond optimizing investment portfolios, financial planning, and behavioral finance to provide a comprehensive evaluation of the client’s current financial status.
In Vietnam, there is an urgent need to upskill existing Relationship Managers (RMs) and attract new talent to the industry. Firms should focus on providing specific training modules for RMs in customer acquisition, relationship building, behavioral finance, and regulatory knowledge. Simultaneously, it is imperative for institutions to develop clear talent acquisition strategies to address the shortage of talent in the market.
Armed with resilient economic growth and growing customer demands for personal financial services, Vietnam’s wealth industry is poised to see substantial expansion with a number of trends and opportunities shaping the market. Forward-looking financial institutions should provide client-centric services and technology-enriched hybrid advisory to meet the expectations of high-net-worth individuals. The robust growth in the market will also serve as a facilitator for banks and wealth managers to innovate on their financial solutions, develop new value propositions, and multiply their revenue streams.
Nevertheless, firms must remain cognizant of the challenges they may encounter in the wealth management market. Dealing with restrictive legal frameworks, a shortage of human resources, and the complexities of meeting client needs can pose significant difficulties for firms. Therefore, foreign firms considering investment in this promising market should seek advice from experienced local professionals.
For more information on entering Vietnam’s asset and wealth management market, contact the business advisory experts at Dezan Shira and Associates.
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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at firstname.lastname@example.org or visit us at www.dezshira.com
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