Lessons in wealth management and suitable directions for Vietnam

Wealth management as a financial service has become more common in developed countries, but still has great growth potential in Vietnam.

Vietnam’s economic development over the past 20 years or so has been marked by significant success. According to the General Statistics Office’s report on the socioeconomic situation in 2023, the GDP per capita was estimated to reach $4,285 per person, an increase of nearly $160 compared to 2022. This positive trend not only signals strength in the overall economy but also bodes well for the financial markets.

Dr. Devmali Perera (left) and Dr. Le Hong Hanh from RMIT University Vietnam

The increase in disposable income, coupled with positive economic growth, presents opportunities for the expansion of Vietnam’s financial markets. One notable outcome is the growth of the fund management and wealth management market.

As projected by McKinsey & Company, more than half of the Vietnamese population is anticipated to join the global middle class by 2035. As income and accumulated assets increase, the need to preserve and increase assets will become an essential need for people. Instead of doing it themselves, many individuals may choose to use asset management services at professional organisations in order to better manage their assets.

McKinsey & Company’s report also indicated that by 2027, Vietnam is projected to be a roughly $600 billion private financial assets market, growing at a rate of 11 per cent per annum between year-end 2022 and 2027.

Potential for breakthroughs

There is considerable growth potential in Vietnam’s wealth management market. The performances of other economies such as Thailand, Malaysia, Taiwan, and South Korea can serve as valuable benchmarks. For example, as of 2022, the scale of the fund management market in Vietnam accounts for approximately 5 per cent of GDP, still modest compared to some regional counterparts like Thailand (38 per cent) and Malaysia (50 per cent) and hinting at immense room for growth.

Since the establishment of the first fund management company in 2003 in Vietnam, the number of investment funds has surged to 70 by 2022. By the end of 2023, this number has risen to 107 licensed and active securities investment funds, with a total net asset value of nearly $2.83 billion.

The legal framework governing the operations of such management companies and investment funds has seen improvements, accompanied by the introduction of new types, including open-ended, exchange-traded, and real estate funds.

The presence of multiple products in the stock market provides fund managers with a broad spectrum of investment opportunities, allowing for effective portfolio diversification. A richer array of financial products also facilitates the expansion of wealth management services, enabling investors to tailor their portfolios to meet specific financial goals. Diversity facilitates a more varied and sophisticated investment landscape, attracting a broader range of investors.

This marks a crucial step towards opening the door to alternative investments, as Vietnamese investors become more acquainted with stocks and bonds, enhancing their understanding of the market.

In the evolving landscape of global finance, Vietnam’s wealth management sector stands at a pivotal occasion. At present, the Vietnamese market still lags behind appropriate wealth management frameworks similar to what they have in developed countries like Singapore and Hong Kong. Many wealth management services in Vietnam are currently limited to stock market investments and have not expanded to cover all investment channels like in other countries (including real estate, deposits, and foreign currencies).

To determine what conditions are needed for the wealth management sector in Vietnam to develop further, it is advisable to examine the wealth management sectors in Singapore and Hong Kong and draw some lessons from there.

According to German online platform Statista, the assets under management in the wealth sector of Singapore are expected to reach to $203.1 billion in 2024 and to $210.9 billion by 2028. The growth of the wealth management industry in Singapore is attributed to several key factors.

Singapore has undergone significant changes in the wealth management landscape after the introduction of the “big bang” strategy of Lee Kuan Yew in 1994. This strategy liberalised the financial markets, allowed foreign investments, and promoted a free-market economy, leading Singapore to become one of the world’s developed financial hubs in the world. The country also offers a stable political and economic environment supported by an efficient legal system.

Hence, Singapore draws high and ultra-high net worth investors from both nearby Asian countries and regions beyond Asia, as these investors place significant confidence in the country’s financial stability and expertise. The robust development of Singapore’s wealth management sector can also be attributed to its well-developed financial infrastructure, populated by skilled professionals and strengthened by a strong economic growth rate.

Deriving new lessons

Hong Kong, on the other hand, was consistently ranked among the top three wealth management centres globally. According to the Deloitte International Wealth Management Centre Ranking 2021, Hong Kong is recognised as a highly developed financial market and a key Asian wealth management hub.

According to Statista, assets under management in the wealth management sector in Hong Kong is expected to be $220.3 billion in 2024 and reach to $228.5 billion by 2028. This growth over the past decade has been largely driven by its strategic location, attracting major Chinese investors and facilitating renminbi transactions.

Hong Kong’s wealth management sector stands out with a favourable business, low-tax setting, and dynamic market with various specialised service providers. The growth of the family office segment in Hong Kong along with supportive government regulations also fuelled the accumulation of wealth there.

Vietnam can learn a few valuable lessons from the success stories of Hong Kong and Singapore. These financial hubs have cultivated robust wealth management ecosystems through strategic initiatives and regulatory frameworks.

Firstly, Vietnam should focus on creating a strong, transparent and investor friendly regulatory investment. Unlocking the full potential of the fund management and wealth management market hinges on the establishment of robust legal and tax frameworks. A well-defined and supportive legal framework is imperative to instilling investor confidence and provide a stable operating environment for fund management companies.

Secondly, in frontier markets such as Vietnam, where increased volatility is common, sophisticated strategies and risk management practices are required for the effective management of risks.

Next, for the smooth operation of the fund management and wealth management market, it is now imperative to have adequate market infrastructure, encompassing smooth trading platforms, settlement systems, and custody services.

Wealth management institutions should also aim to offer tailor-made wealth management products accessible through both physical and via digital channels. It is important that the wealth management industry embrace fintech and adopt digital tools for portfolio management, customer service and risk assessment, and at the same time provide a diverse set of investment products.

Furthermore, Vietnam can also strengthen its connections with key financial markets and ASEAN countries to allure foreign investment by establishing bilateral agreements with major financial centres.

Finally, it is important to allow residents in Vietnam to make offshore financial investments and achieve portfolio diversification at global level and introduce tax incentives or tax exemptions related to this industry.

For Vietnam, adopting these strategies means not just replicating the models of Singapore and Hong Kong, but adapting them to its unique economic context and growth trajectory is vital. By doing so, Vietnam can pave the way for a dynamic and resilient asset and wealth management industry and achieve its projected $600 billion assets by 2027.

Wealth in Vietnam is forecast to soar over the next decade Vietnam is forecast to see a 125 per cent increase in wealth over the next 10 years, according to a report released by global wealth intelligence firm New World Wealth and investment migration advisors Henley & Partners on January 30.