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Cash and passports key for Vietnamese HNWIs

Cash and passports key for Vietnamese HNWIs

The regulatory environment in Vietnam, still nominally a Communist country, has hardly been conducive to the operation of foreign private banks. Banking licences, securities licences and distribution licences are hard to obtain. However, international players are gradually entering the market through partnerships, looking to tap into the country’s growing cohort of high net worth individuals.

According to the 2017 Wealth Report by Knight Frank, there are 15,000 millionaires in Vietnam. The number of UHNWIs is set to grow by 170% over the next 10 years, Knight Frank said.

UOB recently acquired an in-principle approval for a banking licence and ANZ sold its wealth management business to DBS. One of the biggest foreign wealth managers is Vietnam International Bank, which is in a joint venture with the Commonwealth Bank of Australia.

But as the market gradually opens up, high net worth investors in the market are developing their investment tastes, no longer restricting themselves to traditional domestic property investments and gold.

‘Property makes up a large proportion of a portfolio and they are not bothered by short term rises and falls in value or rental yield,’ Paul McLardie, partner and financial planner at Total Wealth Management told Citywire Asia.

‘The second area for HNW investment is gaining passport freedom through having a second passport from another country. This is seen as an investment in their and their families’ long term future, not just looking for short term returns.’

Holding a Vietnamese passport comes with a lot of visa regulations globally, and many wealthy families prefer to adopt a second passport. The US passport has been the most popular choice as many Vietnamese families settled there after the war.

However, the US investor program has restrictive clauses for property investments and uncertainty over the success of the Green Card or permanent residence application has diminished its attraction in recent months, noted Sven Roering, managing partner at Ho Chi Minh-based Tenzing Pacific Investment Management. ‘After the presidential election, we see that changing towards Portugal, for example. It has a very accessible program, called the Visa Program. It’s easy to get citizenship there,’ he said. Cyprus is also gaining prominence.

When it comes to more liquid investments, direct securities have been the way to go for Vietnam’s millionaires. High net worth investors have relationships with retail brokerages, investing mainly in equities. Direct securities are primarily traded through the Ho Chi Minh exchange. 

‘They commit to direct equity investments quite a lot because they are accustomed to managing their own money and buying equities through their own brokers,’ said Roering.

Added McLardie: ‘The size and the regulation of the market though still leads to the bond market here being over-balanced in the favour of government bonds released by the Vietnamese government.’

The fund penetration rate in Vietnam is very low and offshore funds are hard to sell because Vietnamese investors like to be in charge of their own portfolios and don’t trust foreign players easily. However, one way to win clients is to play the liquidity card, said Roering, especially when the client sees negative-to-low interest rates abroad.

‘When they see it’s less than 1%, they see the benefit of [discretionary fund management] service or offshore managers. But they have to be certain that they can crystallise and receive cash in their bank accounts on short notice,’ said Roering. The space is dominated by fund management companies and unit-linked insurers rather than private banks.

There is a tendency to give up control more easily for segregated mandates. ‘They don’t like the concept of their money being pooled with others,’ he said.

Cash as a store of value continues to be important for the Vietnamese investor, who also tends to hold a considerable amount of US dollars as the Vietnamese dong is a non-convertible currency.

Wealth planning gap

The budding stage of the wealth market could go some way in explaining why comprehensive wealth management services are still hard to come by.

‘If you spoke to a relationship manager in Vietnam, wealth management would mean credit products, fixed term deposits, or bancassurance. Those would be the three big retail lines in the private banking space,’ said Roering.

The concept of succession planning is still at an introductory phase in the market.

‘They [Vietnamese HNWIs] will have the same products in essence as your Singaporean client except for succession products – wills, trusts or owning assets through a company. That’s very much a completely new concept,’ said Roering.

‘A lot of private banks say it’s a bit early to operate in Vietnam. The wealth in Vietnam will double in the next 5-10 years but trying to articulate your value-add is very difficult,’ he added.

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