Vietnam boasts a well-earned reputation for high growth and resilience over the decades in the face of global economic and geopolitical crises. Supported by a strong economy and robust market, the rate of Vietnam’s personal financial assets (PFA) growth has outpaced that of other Asian countries in the past ten years (Exhibit 1). PFA has multiplied significantly and, along with it, a high demand for wealth management focused on needs-based financial advisory catering to retail customers has arisen.
Vietnam’s financial markets: On an exponential growth trajectory
Vietnam’s financial markets have developed significantly in recent years with the support of more liberal financial market regulations and rising customer demand for wealth management. In the past decade, Vietnamese regulators have recognized the growing demand for investment opportunities and have taken significant steps to provide customers with easy access to investment solutions (Exhibit 2). This trend is expected to accelerate as the Vietnamese government implements financial development plans through 2030. Its focus will likely be on financial market regulation, such as ensuring that outstanding debt in Vietnam’s bond market accounts for approximately 65 percent of the GDP.
Since 1990, Vietnam has been on an innovation spree with a series of initiatives and policies to boost the development of the capital markets. These innovations, which included the introduction of government bonds in 1990, the opening of Ho Chi Minh Stock Exchange in 2000, and the establishment of Vietnam’s first securities company in the same year, facilitated the country’s transition into a regional force with increasing international influence.
By 2027, Vietnam is projected to be a roughly $600 billion PFA market, growing at a rate of 11 percent per annum from a baseline PFA of about $360 billion as of year-end 2022 (Exhibit 3).
The share of managed wealth assets as part of overall PFA is expected to increase, but with a varying starting base across the customer segments—affluent segments around five-and-a-half times by 2027 and HNWI about twice in the same period. This will translate into an estimated additional $65 billion to $75 billion of managed wealth assets in the industry for institutions to capture. The associated revenue pools for managed assets are projected to have equal contribution across affluent and HNWI segments. Firms, therefore, stand to benefit from the untapped wealth opportunity by focusing on capturing the growing affluence and money in motion from cash and deposits to wealth solutions (investment and insurance).
Increasing competition in the wealth management arena
Recognizing the white space in the market and the tremendous opportunity that could come from around $600 billion of wealth pools by 2027, various institutions—financial and non-financial entities—are ramping up capabilities to augment existing business and launch new wealth management propositions. These will be focused on the customer segments across the wealth continuum (mass, affluent, and HNWI customers).
Firms can be categorized into four broad archetypes—local commercial banks, global or regional banks with a local presence, independent portfolio management companies, and insurers (Exhibit 4). In addition, wealth fintechs are fast emerging but are still in nascent stages. These are current state archetypes and will potentially change with the further acceleration of wealth management growth in the industry. In this article, however, we focus solely on banks and insurers, drawing on information obtained from our extensive work and research within the banking and insurance industries.
Banks have been quick to move into this space by leveraging their large captive customer base and distribution network to offer solutions across the wealth continuum. They have been building in-house investment capabilities while leveraging access to investment subsidiaries, like securities and fund management companies, within the same group. Some banks are also exploring international partnerships with foreign banks, thereby gaining global expertise to enhance their wealth management capabilities across the product dimensions and global standards of risk management capabilities.
As the current competitive landscape stands today in Vietnam, local commercial banks are emerging as winners. However, their solutions offerings are in nascent stages as they are still experimenting with operating models. Global banks with a presence in Vietnam are fast catching up to capture the country’s wealth-management opportunity, while building on their robust technology capabilities to offer digital wealth solutions enabled by multi-channel engagement model and cross-corridor connect across the region.
There is huge potential for insurers to foray into the wealth management space. They are beginning to realize the opportunity by defining their right of play and right to win in this arena. They have been expanding their financial advisory offers, however, are restricted to insurance products—their big opportunity here, therefore, is to offer integrated insurance and investment solutions to customers as part of holistic wealth solutions.
Although the competitive intensity is increasing in Vietnam, the wealth management space is still underpenetrated and untapped (compared to other peer countries in the region). The current focus is more on red-carpet services and product-led approaches versus needs-based solutions to provide holistic financial advisory. But customers in Vietnam are nuanced, and institutions need to recognize that.
As part of multichannel engagement and an exclusive portfolio of value-added services, customers have specific requirements for real estate advisory within the broader solutions suite, such as exclusive and dedicated physical spaces (for example, exclusive private banking lounges for HNWI customers). As institutions begin to define their propositions, it’s critical to consider local nuances as part of overall financial advisory offering across the wealth continuum.
In this article, we cover the most disruptive trends in the industry in Vietnam for banks and insurers, including the “voice of customer” and the “voice of financial institutions.” We then offer key steps to build a market-leading wealth management business. Although the article captures the nuances primarily from a local Vietnam market perspective, the building blocks are potentially applicable to other peer markets.
Why is Vietnam’s wealth management sector trailing?
Despite the great potential in this sector, it remains disproportionately undeveloped and barely keeps up with demand. Challenges stemming from within the financial services industry, as well as beyond, keep the wealth management sector stunted. To comprehend this better, we carried out considerable research across the wealth continuum in Vietnam, particularly within the affluent and HNWI customer segments. The research identified challenges that confront customers and financial institutions that might account for the Vietnamese wealth management sector’s slow growth.
Untapped customer potential
We undertook extensive interviews with affluent and HNWI customers, spanning specific customer personas: high-income professionals, entrepreneurs, business owners, self-employed, and retirees. These interviews uncovered four pain points.
A lack of trust in financial institutions: Customers mistrust financial institutions. They doubt that large financial institutions have their interests at heart, believing, for example, that banks’ relationship managers (RMs) push products that are beneficial to the RMs or the institution and not to customers. Hidden charges can also give rise to a sense that financial institutions are not transparent with their pricing. Customers with these views continue to park a large portion of their wealth in traditional banking products with high liquidity such as savings and term deposit accounts.
What customers need: trusted guidance to provide impartial, quality need-based financial advice and services aligned to their life-cycle goals.
Wealth management products lack depth and breadth: Products and solutions that financial institutions offer are perceived as being undifferentiated or limited. For instance, high-earning professionals and business owners feel that bond offerings are similar across banks, with none offering a significantly differentiated and tailored offering. Business owners are also interested in real estate advisory, but financial institutions either offer only a very limited service—or none at all—across the end-to-end journey of buying, maintaining, and selling.
What customers need: simple, easy-to-understand, tailored solutions aligned to their individual requirements and goals versus a one-size-fits-all approach.
Customers’ needs not being met by relationship managers: Customers feel that RMs lack the skills and market knowledge to manage their financial requirements—RMs are viewed as not making enough of an effort to understand customers’ specific needs and as being in a hurry (which might be because they are juggling too many clients). As a result, customers often only want to deal with senior staff at a financial institution’s branch, with specific requests to be served by the branch managers.
What customers need: impartial recommendations by RMs or branch staff to choose the right solution across banking, investments and insurance based on customers’ needs and financial situations.
Limited multichannel engagement: Institutions currently focus heavily on physical engagement with customers. This is at odds with many customers, who are comfortable with digital, hybrid engagement models with a few initial in-person sessions for financial planning and then frequent remote or digital engagement. This trend significantly varies across affluent and HNWI customers: the affluent orient more toward multichannel engagement, while HNWIs still prefer exclusive accessibility to physical spaces. Across the board, however, customers mentioned the need for a single, integrated digital platform to track the real-time status of their accounts, giving them control of their financial well-being and remote access to their RMs.
What customers need: multichannel access to the RMs and institutions with a digital and hybrid engagement operating model.
Existing challenges in financial institutions
We also spoke to financial institutions and observed four structural unlocks.
Dilutive onshore regulations
In the current market context, banks cannot directly distribute investment solutions and typically need to partner with securities companies or asset management companies to do so. Having an in-house subsidiary that manufactures financial products is hugely beneficial—this enables players to capture value within their group ecosystem rather than spread margins over multiple external parties.
Restrictive offshore regulations
According to prevailing government regulations, individuals are restricted from making financial investments offshore. This potentially limits wealth management offerings, possibly ruling out access to global markets for portfolio diversification. Nonetheless, the underserved and underpenetrated onshore market itself is a big opportunity for firms interested in wealth management.
While financial institutions have large pools of RMs deployed across their branches, they indicate that there is a need for relentless focus on upskilling RMs, who fall short in customer acquisition, customer onboarding, financial need assessment, and customer engagement. Existing training programs for RMs focus on standard onboarding and don’t necessarily address these specific skills. Structured capability building programs are required to upskill existing RMs; in parallel, institutions need to devise strategies for new talent acquisition.
However, talent is lacking across the whole value chain, not just the frontline. While developing frontline talent is pressing, financial institutions need to cultivate specialized talent for product development, partnerships, technology, and digital capabilities.
Underdeveloped digital infrastructure
Vietnam’s unprecedented growth in digital adoption and high smartphone penetration hasn’t yet translated into digital wealth management capabilities. Financial institutions are often encumbered with legacy systems that take a large toll on RMs as these systems lack the digital tools and capabilities they require. For instance, banks may have four to six different types of internal platforms, leaving RMs struggling to have one integrated view of the end-to-end customer portfolio.
While these structural shortcomings are challenging, solving them can allow financial institutions—banks, insurers, securities firms, and wealth-related fintechs—to prioritize wealth management and benefit from the huge market opportunity that exists in this sector.
Go for gold: How to capture value
To seize the promising opportunity across the wealth continuum, financial service providers need to choose specific operating models to serve the affluent and HNWI customers. The sequencing of business build will depend on the starting base and existing capabilities—but it is critical to look through an overall wealth-continuum lens to engage with customers across the life-cycle stages and events within one integrated platform.
The segments across the wealth continuum are closely related but fundamentally very different in terms of needs and behavior, an important distinction of which institutions need to be aware. Through our extensive work across the financial services space, we see that from a financial institution’s perspective, there is a clear differentiation in developing capabilities for these two segments in terms of the operating model and the associated cost to serve the customers (acquisition and engagement) (Exhibit 5).
Making a focused play for HNWI customers
Through our research on the wealth management business build across the globe, including the Vietnamese market, we have identified eight key building blocks that could help banks build, scale up, and differentiate their private banking businesses (Exhibit 6).
1. Data-driven customer segmentation
Having an in-house data and analytics-driven capability to understand the existing customer base is a key cornerstone. For institutions to develop more meaningful insights into their customer base, they can gain an understanding of customer subsegments through product holding, transaction behavior, and transaction volume markers—leading them to be able to make targeted propositions. Investable assets-based segmentation is more prevalent in Vietnam and institutions are now making a shift to incorporate behavioral segmentation as part of ethnographic research. They are also trying to understand the multiple business relationships with different financial institutions for customers, which helps to determine the hidden and untapped affluence in the existing customer base.
2. Tailored products and solutions
Through our research, we have observed that customers in Vietnam demand bespoke solutions, as they believe the breadth and depth of the existing offerings are restricted. As part of overall financial planning, they want integrated real estate solutions (beyond mortgage), financial advisory, legacy planning, structured products, and private equity funds. Additionally, solutions for entrepreneurs and business owners need to include international business expansion support and integrated credit and wealth offerings. This is because business owners in Vietnam still look at wealth management as part of their business portfolio. Cash management tools and building a business-owner community as a value-added offering—in addition to core wealth and credit solutions—can go a long way to improving customer engagement and relationship building.
These solutions could be a combination of in-house products via asset management and securities subsidiaries, and external partnerships with third-party product manufacturers. Closed versus guided architecture is an important operating model design question for institutions as they consider the right mix of proprietary products and solutions versus third-party manufacturer offerings as part of the holistic portfolio for the customers.
3. Institutionalized customer acquisition machinery
It is critical for institutions to define customer acquisition channels, given the sophisticated business model for scaling up the private banking business. Three customer sourcing avenues need to be defined with the right performance management metrics:
- self-sourced from RMs through client referrals and new client introductions in line with the defined performance-management KPIs
- internal referrals through other business units including corporate and investment banking, SME, and business banking
- upward migration from the affluent customer base as a regular source of customer referrals
For this to be successful, and to avoid conflicts that can easily arise in referral scenarios, banks need a clearly defined referral process and a proper framework for different business units to collaborate and incentivize referrals, for example, shadow revenue.
4. A seamless service model
Banks in Vietnam currently have an underdeveloped service model with RMs as core relationship owners and, in frequent cases, with branch managers managing the HNWI relationships. This operating model needs a sea change. The RM role could evolve to develop customer relationships while bringing the bank together to the customer under a “one bank” philosophy. Vietnamese HNWI customers want VIP treatment—banks could consider designing a modular coverage model with heavy in-person engagement, where RMs are supported by a strong team of product experts (such as equity, bond, and structured solutions) and investment specialists (focused on financial planning).
The way to design the service model is to look at the business economics to understand the cost of serving customers—that is, whether RMs can be supported by a centralized pool of investment specialists for lower-threshold HNWI customers (between $2 million and $10 million in assets) versus dedicated investment specialists as a tag team with the RMs for a higher threshold (more than $10 million). With this model, an RM can be expected to manage 30 to 40 HNWI clients at any given point and generate a revenue of approximately ten to 12 times the RM’s cost to the institution (direct and indirect).
5. Holistic advisory
Firms need to establish a rigorous and institutionalized advisory framework. Ideally, this would be an asset allocation driven by a chief investment office (CIO), ensuring that the team adheres to the house view for any recommendation and advisory. The model would require a strong team spirit and collaboration between the three main actors (RMs, investment specialists, and product experts), with KPI and performance-management synchronization. A well-codified advisory process across both discretionary and non-discretionary mandates could encompass an end-to-end model that covers all steps, from needs analysis to financial planning, execution, portfolio monitoring, and rebalancing (Exhibit 7).
To build a truly customer-centric financial advisory business, RMs could embed an advisory approach versus a product-push approach. This could be achieved through three building blocks:
- establishing checks and balances to create a house view, driven by model portfolio driven financial advisory and allocation versus RM-driven portfolio decisions
- frequent alignment with the investment team to review client portfolios for re-balancing and alignment to the house view (driven by the CIO)
- potential changes in performance management and compensation with a focus on customer retention and AUM build-up against churn in the portfolio caused by commission-driven product push. The right balance between fixed and variable metrics across the various phases of business growth needs to be established
6. Best-in-class advisory support tools
Based on our research, we have noticed that banks in Vietnam are broadly behind the curve in terms of digital support infrastructure for RMs to advise customers. A fully loaded digital workbench, with the integrated insurance and investment customer journey(s), is essential for a scalable and sustainable franchise. These features broadly could cover:
- Institutionalized acquisition: The first step for an efficient and productive RM-customer engagement is to enable the frontline with lead management tools for customer funneling and mapping, risk profiling, goal assessment, portfolio recommendation, and seamless account opening. Banks could also look at building capabilities for data consolidation and aggregation to define customer profiles—thus providing RMs with ready access to information to engage with customers.
- Wealth advisory: Data-driven recommendations, based on customer profile, could be used to improve customer conversations (for example, topics to talk about, tasks to do, and portfolio opportunities). Robust planning tools (for instance, goal-based wealth projections, stress scenarios, or risk analysis) could help create customized, fact-based proposals in line with customer needs, enhanced by investment specialists and data.
- Call to action: Fully digitized customer onboarding and straight-through processing could significantly save time for RMs. This, however, could be a long development journey, given the prevalent legacy platforms in banks. On average across the Asian market, RMs spend 60 to 70 percent of their time on non-advisory activities due to the lack of unified platforms and high degree of manual data processing.]
- Proactive monitoring and upgrading: Banks could consider performance management tracking for RMs to bring in full visibility and transparency on KPIs. Capability and self-training building modules could be created for RMs, with access to investment research content, macro themes, and soft-skills training (such as communication).
With all of these support tools, firms will need to perform proper due diligence to understand what could be built within an organization while leveraging existing platforms and systems, and what could be outsourced to a vendor in a build, operate, and transfer approach.
7. Capability building
One of the big challenges in Vietnam’s wealth management market is the limited talent pool for building a private banking business—this arises again and again in our conversations with industry players. Banks need to be very focused with their talent strategies to find the correct talent, while constantly addressing upskilling and retention of incumbent staff. Banks can be bold in sourcing talent and go beyond the traditional pool of wealth management industry resources (for example, look at high-end retailers and luxury cars sales agents who have a knack for customer service and relationship management). A partnership with prestigious institutions to codevelop certification programs could enhance credibility and create a differentiated value proposition for attracting talent.
When upskilling their teams, banks could build a “wealth academy” that brings in long-term benefits with a two-track approach: defining a clear career progression path for employees and establishing an institutionalized training capability to attract and retain talent.
8. An ecosystem of partnerships
Banks also need to be pragmatic on what can be done within the existing ecosystem and what needs to be extended beyond to third-party partnerships for a quick scale up. A targeted set of partnerships across three core themes could work well.
Onshore product partnerships: Many top banks in Vietnam currently leverage their in-house asset management and securities companies for products. However, they could look beyond them to partner with other asset managers, especially for more sophisticated investment solutions, such as private equity funds, real estate investments trusts (REITs), and discretionary portfolio management.
Value-added services: HNWI customers in Vietnam call out red-carpet services for exclusive engagement beyond the financial advisory muscle as the core differentiator. Therefore, value-added services, like exclusive access to private banking lounges, 24/7 concierges, real estate and tax advisories, and citizenship planning are critical to support private banking businesses. HNWI customers prefer travel privileges, invitation-only roundtable events with prominent industry speakers, lifestyle events (such as soirees and dining experiences), and healthcare access.
Global partnerships: Banks and other financial service providers could look to codevelop HNWI propositions with global experts that focus on bespoke financial solutions and best-in-class risk management practices. Some banks in Vietnam have already taken this route, collaborating with leading global wealth managers for very specific requirements, primarily based on product innovation and access to global solutions.
HNWI business for banks, therefore, requires a bespoke approach with heavy customer engagement building on a broad suite of exclusive and differentiated solutions, institutionalized advisory, and a team-based approach. Given the sophistication of these solutions, banks need to be aware of the cost to serve when building some of these capabilities (such as considering whether they go in-house or outsource).
Capturing the affluent customer market
Through our customer research, we have seen that affluent customers’ preferences and expectations vary significantly from those in the HNWI segment. While the building blocks to develop a successful play focused on affluent customers is similar to HNWI in some ways, there are specific nuances. Institutions wishing to build wealth continuums to capture this rare and timely opportunity could be aware of the following:
Products and solutions
Affluent customers in Vietnam are prestige and status driven, resulting in many of them spending beyond their means. They want simple and commoditized banking and credit and wealth solutions versus the more bespoke solutions for HNWI customers. Business owners, for instance, use their credit limit for business purchases, resulting in a demand for high-value credit cards. Banking products for them could include high-value credit cards, preferential pricing on select deposit and lending products, international remittances, and business banking needs such as payment processing or equipment leasing.
In addition, wealth planning and investment solutions for this customer segment could cover easy-to-understand, goals-based solutions that lead to planning for life milestones. These are, for example, car ownership, home improvement, children’s college education, and retirement, as well as customized insurance solutions covering life, disability, and long-term care (including care for parents).
Banks here could retain a constant focus on affluent customer education to build the safety net across accumulation, decumulation, and protection solutions.
Customer acquisition should be built on a well-run machinery of data and analytics. Internal data mining to unearth hidden affluency, complemented by RM-driven acquisition and exclusive strategic alliances with partners (such as lifestyle service providers, hotels, and airlines) could play an important role. Data-driven, personalization-at-scale capabilities could enable institutions to drive customer acquisition and engagement, uplift cross-sell, and supply critical data to advance marketing excellence.
The cost to serve with regard to a heavy, in-person RM-customer engagement likely is not feasible for banks and, in addition, customers are getting comfortable with modular service models. To gain advantage here, institutions could build a digital-hybrid service model (a combination of remote RM-led and digital, self-serve channels). This service model could help with tiered and economic customer-RM mapping, with remote-only RMs managing 500 to 600 customers versus face-to-face dedicated RMs looking after 250 to 350 customers (with support from service RMs for handling operational requests and a centralized pool of product specialists driving portfolio recommendations).
Compared to the more personalized advisory model for HNWI customers, a model portfolio-driven financial advisory approach could be conducive for affluent customers. For this, the CIO would have to develop a set of reference portfolios matching the parameters of customers’ financial goals and risk appetites. Based on these, model portfolios could define an investment portfolio mix for the customer, which RMs can effectively leverage when advising their customers on investment decisions. This would also support capability building and enable RMs to hold investment-led conversations with their customers.
Winning in the affluent wealth space: Insurers have an equal opportunity
Drawing on our research within the investment sector, we have identified three potential differentiated plays for insurers to succeed:
Strengthen the core
Insurers could double down on strengthening existing product capabilities across unit-linked and universal life insurance product lines that are more anchored on affluent and HNWI customer needs. Insurance solutions, while embedding investments, could be a key disruptor for insurers as the first step to tap into the wealth management space. Organizations also need to consider simplifying these solutions for the salesforce to take them to the customer base. A heavy focus on capability building is a must in the current context where an agency salesforce is generally more product oriented than driving a financial advisory conversation. In our experience, converting the agency force into advisors will be significantly challenging—there might be potential to start with 5 to 10 percent of the agency force, with agents who are inclined toward investment beyond only insurance.
Develop a financial advisory channel
A dedicated financial advisory (FA) channel could offer customers a unique, integrated proposition of insurance and investments as part of a holistic FA. This model has shown success across the region with both bank-led and independent insurers, as seen in markets like China and Singapore. For example, one bank’s insurance subsidiary has successfully deployed this model to accelerate insurance and investment penetration by having access to the bank’s captive customer base as a primary lead generation engine. There are three critical unlocks here:
- Closed versus open architecture platform: consider the extent of open versus closed architecture for insurance solutions. This would need an open platform for investment solutions, requiring close partnerships with investment manufacturing companies to provide asset management solutions.
- Scale up of the FA team: rapidly scale up the FA team with the primary focus on inorganic recruitment—”team lift-offs” from smaller insurance financial advisors and agents turning to financial advisors, while also expanding the talent pool to adjacent industries, for example, luxury retail.
- Compensation structure for the FA team: have a diversified compensation structure with a small share of fixed compensation (for building stability) and a high share of variable compensation (formula-based with no upper cap for revenue).
Insurers could consider the FA channel as a wealth-specific extension of the existing agency channel, which is more focused on pure play insurance products expansion (versus the cannibalization of agency channel).
Partnership with investment solutions manufacturers
Insurers can also consider partnering with institutions that already have investment solutions (for example, securities companies). Here the insurance company would be able to leverage its own sales force to provide joint advisory to customers with a team of financial advisors from the securities company—this team could focus on joint field work with the partner firm’s frontline, leading a holistic financial offering (focused on investment and insurance). The insurance company could leverage the agency sales force to get customer leads and direct them to the securities company for investment advisory and vice versa. In return for these referrals, the insurance company could be entitled to a fixed referral fee or a share of the management fees on a recurring basis for assets under management. For this model to be successful, the rules of engagement would need to be clearly defined.
Vietnam has the enviable opportunity to amplify the impact of its wealth management sector in light of the country’s resilient economic growth and expanding consumer base. A very effective way of developing the wealth continuum is to know customers deeply and accurately—thereby devising and applying precise and efficacious operating models. Understanding customers’ nuances is paramount, including seeing the subtle but important differences between the affluent and HNWI segments. Financial institutions need to develop an obsession with customer requirements to build a highly customer-centric business across Vietnam’s wealth continuum.