Thailand has seen the number of its high net worth individuals (HNWIs) more than double since 2011. According to the Credit Suisse Global Wealth Databook 2018 report, Thailand had 39,814 HNWIs in 2018, up from 14,561 in 2011. Such remarkable growth in the total number of HNWIs seems to have naturally triggered the growth of the Thailand wealth management industry.
Speaking more on this, Trawut Luangsomboon, CEO at Jitta, a Bangkok-based wealth management fintech startup, told International Finance that the Thailand wealth management industry had been growing along with economic growth and increasing household wealth, which in turn had attracted both domestic and international financial companies to expand here. Indicating this had led to the growth in the number of managed funds, he said, there were 9.9 million funds, across mutual, provident and private funds, at the end of 2018, up 140 percent from the 4.1 million funds that were present in 2008.
Yuttachai Teyarachakul, head of personal financial services at United Overseas Bank (Thailand), a regional subsidiary of Singapore’s United Overseas Bank, too asserted the growth in Thailand wealth management industry. Citing the central bank – Bank of Thailand – he told International Finance that the total wealth assets in Thailand were estimated at $400 billion in 2018. He further added that deposits and funds grew collectively at a compound annual growth rate (CAGR) of 5.2 percent between 2016 and 2018. While deposits alone grew at 3.7 percent CAGR, funds rose at 7.6 percent CAGR. This growth, he attributed to the country’s economic growth, buoyant capital markets, and rising household wealth.
Meanwhile Luangsomboon said that apart from the above factors, the government too was responsible for Thailand witnessing such growth in this industry. He cited the example of ‘Wealth Advisor for All’, an initiative launched by Thailand’s Securities and Exchange Commission (SEC) in 2018. He explained that the SEC had under this initiative, asked 26 banks and wealth management firms to come together in an effort to standardise the then existing wealth management tools and to provide them to a larger audience so that there could be increased investments from the Thai people.
Such regulatory progressiveness, he said had “allowed more products and services to enter the market, catering to a more diverse range of clientele from mass-affluent and affluent to high-net-worth and ultra-high-net-worth individuals.”
Foreign wealth management firms enter Thailand
A spokesperson at LGT, the Liechtenstein-headquartered private banking and asset management group, that recently opened a wealth management office in Thailand, too lauded the Thai government. The spokesperson explained to International Finance that while the government had taken several steps to boost this industry, some of the notable ones included the loosening of foreign exchange rules to allow more money to be invested abroad and permitting HNWIs to buy offshore funds directly rather than going through master feeder schemes.
Meanwhile, Jitta’s Luangsomboon cited his own company as an example to indicate the growth seen in this industry. “Two years ago we started from zero. Now we are managing around 2,500 million baht from thousands of people trusting our investing principle and technology,” he said.
With regard to UOB (Thai), Teyarachakul said its wealth business grew strongly from 2016 to 2018 with revenue and AUM increasing at a CAGR of 33 percent and 13 percent respectively and its total number of affluent customers increasing at a CAGR of 15 percent.
Funds – the most popular wealth management product
When queried about the most popular wealth management product sought by Thailand HNIs, Luangsomboon said funds continue to be one of the first things HNIs gravitate towards. He explained that several HNIs who are entrepreneurs, business owners, and high-level executives saw opportunities existing beyond Thailand and were keen to investing in foreign equities. But investing abroad was not as easy as it sounds and required one to know quite a bit about the foreign market of interest. However, since many of these HNIs did not have the time to do the same, they were still considering investing in funds, especially like Jitta Wealth which is AI-powered, low-cost and hands-free, making it a cost-effective solution for satisfactory performance in the long run.
Meanwhile, Teyarachakul said that at UOB (Thai), its affluent customers had higher asset allocation to deposits – around 70 percent, with the remaining primarily towards funds. “In Thailand, customers typically prefer low-risk products such as current or savings accounts or time deposits, money market funds, and fixed-term funds. As mutual funds typically offer varied investments, they are increasingly popular, with market growth of 7.6 percent CAGR compared with a 3.7 percent CAGR for deposits,” he said.
The LGT spokesperson said, in his view, strict exchange fund flow regulations since long had made local Thailand banks the dominant players in wealth management, with a heavy domestic investment focus. However, now, the spokesperson said things were changing and HNWIs were increasingly looking to offshore investments so that they could seek higher returns and greater portfolio diversification.
Combining technology with Warren Buffett’s value investment principle
With regard to work approach, wealth management fintech Jitta combines technology with Warren Buffett’s value investment principle. Luangsomboon explained that they have developed an AI and Big Data technology that looks at ten years of financial statements to identify Buffett’s ‘wonderful company at a fair price’ stance to analyse and identify 50,000 stocks around the world. “This is our core AI technology, and it’s deeply rooted in value investing. This alone should distinguish Jitta from our competitors,” he added.
LGT (Thailand) has a holistic view and relies more on the skills and experience that it has developed as the family office of the Princely Family of Liechtenstein for over 80 years. This, the spokesperson said, differentiates it from other wealth management firms in Thailand.
UOB (Thai), meanwhile has a three-principle approach to wealth management. According to Teyarachakul, they first, understand their customers’ needs and aspirations, then ensure they appreciate the risk associated with their investments and finally the company helps them prioritise their financial goals.
Low returns and family succession key challenges
While the industry is set to be in an upswing, it has its own set of challenges or obstacles for growth. Speaking on the same, Jitta’s Luangsomboon said, that while the need to invest is growing, the willingness to dive into the market head-on is not. This, he attributed to low returns investors were witnessing from several wealth funds. This obstacle, he said can be overcome if wealth management firms start focusing more on delivering this value to customers. This he said would be the key and could be achieved by leveraging technology, being more transparent and educating customers.
Speaking on the first, he said, technology could help wealth management firms reduce their operational costs and increase profits for its clients. Citing Jitta Wealth, the private fund belonging to his own company, Luangsomboon, said “Jitta Wealth is powered by algorithms and software that help us reduce the paperwork, cut out redundant processes and keep our operational costs low so we can focus our resources on the thing that matters the most: keeping our customers happy.”
With regards to overcoming the issue of transparency, he said this too could be achieved by using technology. He said, considering JItta was completely software-based, their investment methodology would be the same, whether it is ten or 100 years from now. This way, he said, his clients would never be left in the dark about where their money is getting invested into.
Finally, in terms of educating customers, he said, Jitta had placed a heavy focus on this as it was essential for customers to understand the logic behind successful stock investing and are able to assess independently what they have to do to profit from the stock market.
Another obstacle, according to Luangsomboon was regulations. He explained that while the Thai government was open to new solutions and business models, it was not working at the same pace as Jitta was. He explained that while it has been not been an easy experience working with Thai regulators to adjust local laws to account for the nature of fintech operations they were confident that this would bring a huge difference to the industry and their fight for change would be fruitful.
Meanwhile, UOB’s Teyarachakul said that one of the challenges for this industry was related to succession, wherein wealth is passed on from one generation to the next. He explained that the country’s wealth is predominantly held by family-run businesses who also happen to be among Thailand’s biggest employers. And as these businesses mature, they will need to overcome certain challenges, for instance succession planning, in order to preserve their wealth for the next generation. This, he said, will in turn have implications for the growth of this industry over the long term.
In this regard, Jitta’s Luangsomboon, however, had a different perspective. The new generation he said were self-reliant and liked full control of the decision-making process and relied on their own self-directed research and advice and trusted technology more than any human counterpart. He further added that it was projected that in 2020 half of the total assets under management of $100 trillion will belong to this new generation, making it imperative for wealth management businesses to plan accordingly to ensure it is ready for this future scenario.
Younger tech-savvy generation seek digital convenience
With regard to the use of technology to disrupt wealth management in Thailand, Luangsomboon was of the view that the wealth banking industry was lagging behind when compared to other financial services, like banking, stock brokerage, investment funds, and financial advisory. He said while these segments had been quick to incorporate new technologies, wealth management is still very much personal and based on human-to-human relationships.
He however was quick to add that while human relationships may be the preference of the older generations, the growing, younger tech-savvy generation seeked digital convenience and this was something they saw not as a threat but as an opportunity. He added that as a startup, they were advocating on behalf of investors for better return on capital, more transparency and a fairer fee structure so their clients can earn more bang for the buck. Their technology, he added would not only help their clients achieve all this but would also help them regain control of their own financial future allowing them to lead their lives much more peacefully.
The LGT spokesperson too said technology was key and it was an important part of its development strategy, particularly in Thailand, where the rate of adoption is particularly faster compared with other developing markets.
“Eventually, most if not all our operational and client-facing processes will be digitalised, which will not only enable us to work internally end-to-end even more efficiently and keep on top of regulatory demands, but will also give our clients unrivalled functionality and user experience,” the spokesperson said.
Government easing regulations will have a positive effect
With regard to the government’s role in boosting this industry, UOB’s Teyarachakul said the government could ease regulations, such as the income tax deductible benefit. This, he said would encourage investors in their wealth creation and diversifying their portfolios.
Meanwhile Luangsomboon suggested that the government should keep pace with companies such as Jitta with regards to having an open mind to new solutions and business models to help boost the growth of this industry. “Understandably, the world is changing quite rapidly and it’s already challenging for even a small, lean organisation like ours to keep up, let alone a large national institution with many working pieces. But I think we can work together to transform this industry. New technology can fuel tremendous growth of this industry, we just need to do it together to make that happen,” he explained.
The LGT spokesperson however said the government could play a key role in developing the local talent which, in turn, would help boost this industry. “One of the main areas where the government can help the industry is to boost schemes that attract local and experienced professionals to return from overseas and up-skill local talent to deepen the talent pool,” the spokesperson explained.
Low interest rates and an ageing society will drive future growth
However, despite such challenges and government shortcomings, Luangsomboon said the future outlook for this sector looked positive. He said Thailand is likely to see this industry grow as the country moves toward an ageing society, low interest rates, and heightened awareness about investment necessities. He also reasoned he also reasoned that the government would help the industry grow.
“We see the government and related agencies pushing harder for new innovations by working with fintech firms, carving out new regulations in response to changing technologies.”
UOB’s Teyarachakul too was confident that this industry will continue to grow even amid a few challenges. “Despite the potential impact from global trade tensions and financial market volatility, we expect the number of Thailand’s affluent individuals and their wealth to continue to increase,” he said.